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ENFORCEMENT OF THE IRAN–LIBYA

SANCTIONS ACT AND INCREASING SECURITY

THREATS FROM IRAN

HEARING

BEFORE THE

SUBCOMMITTEE ON THE MIDDLE EAST 

AND CENTRAL ASIA

OF THE

COMMITTEE ON 

INTERNATIONAL RELATIONS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 25, 2003

Serial No. 108–59

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations 
(II)

COMMITTEE ON INTERNATIONAL RELATIONS 

HENRY J. HYDE, Illinois, Chairman 

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

CASS BALLENGER, North Carolina 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

AMO HOUGHTON, New York 

JOHN M. MCHUGH, New York 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

NICK SMITH, Michigan 

JOSEPH R. PITTS, Pennsylvania 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

WILLIAM J. JANKLOW, South Dakota 

KATHERINE HARRIS, Florida 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

JOSEPH M. HOEFFEL, Pennsylvania 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

CHRIS BELL, Texas 

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

ROBERT R. KING, Democratic Staff Director 

SUBCOMMITTEE ON THE MIDDLE EAST AND CENTRAL ASIA

ILEANA ROS-LEHTINEN, Florida, Chairwoman 

STEVE CHABOT, Ohio 

JOHN M. MCHUGH, New York 

NICK SMITH, Michigan 

JO ANN DAVIS, Virginia 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

WILLIAM J. JANKLOW, South Dakota 

JOSEPH R. PITTS, Pennsylvania 

KATHERINE HARRIS, Florida 

GARY L. ACKERMAN, New York 

HOWARD L. BERMAN, California 

ELIOT L. ENGEL, New York 

JOSEPH CROWLEY, New York 

JOSEPH M. HOEFFEL, Pennsylvania 

SHELLEY BERKLEY, Nevada 

ADAM B. SCHIFF, California 

CHRIS BELL, Texas 

YLEEM POBLETE, Subcommittee Staff Director & Counsel 

GREGG RICKMAN, Professional Staff Member 

DAVID ADAMS, Democratic Professional Staff Member 

MATT ZWEIG, Staff Associate 
(III)

C O N T E N T S 

Page

WITNESSES 

Anna Borg, Deputy Assistant Secretary, Bureau of Economic and Business 

Affairs, U.S. Department of State ...................................................................... 8

Philo Dibble, Deputy Assistant Secretary, Bureau of Near Eastern Affairs, 

U.S. Department of State .................................................................................... 11

Charles English, Acting Deputy Assistant Secretary for European and Eurasian Affairs, U.S. Department of State, testifying for Charles Ries, Acting 

Assistant Secretary, Bureau of European and Eurasian Affairs ..................... 14

Patrick Clawson, Ph.D., Deputy Director, The Washington Institute for Near 

East Policy ............................................................................................................ 23

Roger W. Robinson, CEO and President, Conflict Securities Advisory Group, 

Inc. ......................................................................................................................... 28

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Ileana Ros-Lehtinen, a Representative in Congress from the 

State of Florida, and Chairwoman, Subcommittee on the Middle East and 

Central Asia: Prepared statement ...................................................................... 5

Anna Borg: Prepared statement ............................................................................. 9

Philo Dibble: Prepared statement .......................................................................... 13

Charles Ries: Prepared statement .......................................................................... 16

Patrick Clawson: Prepared statement ................................................................... 24

Roger W. Robinson: Prepared statement ............................................................... 30

APPENDIX 

The Honorable Nick Smith, a Representative in Congress from the State 

of Michigan: Prepared statement ........................................................................ 39

The Honorable Joseph R. Pitts, a Representative in Congress from the State 

of Pennsylvania: Prepared statement ................................................................. 40

Questions submitted for the record to Anna Borg, Deputy Assistant Secretary, 

Bureau of Economic and Business Affairs, U.S. Department of State, Philo 

Dibble, Deputy Assistant Secretary, Bureau of Near Eastern Affairs, U.S. 

Department of State, and Charles Ries, Acting Assistant Secretary, Bureau 

of European and Eurasian Affairs, by the Members of the Subcommittee 

on the Middle East and Central Asia, along with the responses ..................... 41

Question submitted for the record to Roger W. Robinson by the Honorable 

Ileana Ros-Lehtinen and Mr. Robinson’s response ........................................... 50

(1)

ENFORCEMENT OF THE IRAN–LIBYA 

SANCTIONS ACT AND INCREASING 

SECURITY THREATS FROM IRAN 

WEDNESDAY, JUNE 25, 2003

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON THE MIDDLE EAST

AND CENTRAL ASIA, 

COMMITTEE ON INTERNATIONAL RELATIONS, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 2:40 p.m. in Room 

2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen 

[Chairwoman of the Subcommittee] presiding. 

Ms. ROS-LEHTINEN. The Subcommittee will come to order. I deeply, truly and sincerely apologize for being so late. I had to handle 

a bill on the Floor dealing with Israel and suicide bombings, and 

had it not been for the seriousness of the subject, I would have 

definitely allowed someone else to handle the bill for me. 

I thank the witnesses for your patience. I know that our time 

will be limited with you, but I will make some opening remarks 

and ask the other Members to also participate, and then we will 

hear from you and open it up for questions. 

I want to thank the Members of the Subcommittee for your patience and for attending this first in a series of hearings that we 

will be holding on the implementation of the Iran-Libya Sanctions 

Act, otherwise known as ILSA. Today’s session will focus on Iran. 

As many of you know, ILSA was first passed by Congress in August 1996, and it was reauthorized on October 3, 2001. The bill 

places a ceiling of $20 million in investments in the oil sectors of 

both Iran and Libya before United States sanctions become possible. The catalyst for the legislation was the mounting concern 

that investment in these countries’ oil fields would provide them 

with the funds necessary to expedite their development of weapons 

of mass destruction and expand their ability to fund, to train and 

to supply terrorist organizations around the world. 

Six years after the passage of ILSA, Iran, according to the State 

Department’s terrorism report, remained the most active statesponsor of terrorism. The report continues describing how,

‘‘Iran provided Lebanese, Hezbollah and Palestinian rejectionist groups, notably Hamas, the Palestine Islamic Jihad and the 

Popular Front for the Liberation of Palestine general command, with funding, safe haven, training and weapons. Tehran 

also encouraged Hezbollah and the Palestine rejectionist 
2

groups to coordinate their planning and to escalate their terrorist activities against Israel.’’

The report continues,

‘‘Iran also provided support to extremist groups in Central 

Asia, Afghanistan and Iraq with ties to al-Qaeda, though less 

than that provided to the groups opposed to Israel.’’

This description is certainly proof of why Iran is deserving of being 

included in President Bush’s ‘‘axis of evil.’’

Iran’s terrorism must be paid for, and that could not be done 

without the sale of oil and natural gas that is abundant in that 

country. As such, we are reminded of the statement of former 

Under Secretary of State Peter Tarnoff, who declared at an October 

11, 1995, hearing in the Senate Banking Committee regarding oil 

investment in Iran that,

‘‘A straight line links Iran’s oil income and its ability to sponsor terrorism and build weapons of mass destruction, and any 

private company that helps Iran to expand its oil sector must 

accept that it is indirectly contributing to this menace.’’

It is precisely because of this connection that we have called this 

hearing today. In the aftermath of the deplorable attacks on September 11, 2001, when we are focused on starving terrorists of 

funding, to quote President Bush,

‘‘We must not lose sight of the crucial need to vigorously pursue this same policy with respect to state-sponsors.’’

However, it appears that the use of ILSA as a vague and 

unfulfilled threat is seen by some as more important than the actual application of it. As a result, the deterrent effect has been lost. 

It is not taken seriously by those investing in Iran, as illustrated 

by the statement made last year by a Washington oil consultant 

who referred to ILSA as a ‘‘paper tiger.’’

How can investing companies accept ILSA as being of any real 

threat if it has never been used? While we are grateful for the help 

and support of some of our European allies in Operation Iraqi Freedom, they and the other nations whose companies are investing in 

Iran must comprehend the threat that that nation poses. The harm 

that is being done first by the investments and, second, by the refusal to sanction them is incalculable. It is difficult to understand 

how on the one hand our European allies can so fervently wish to 

be part of the Middle East road map, yet provide the resources 

through ongoing investment in Iran to Hamas and other forces 

seeking to obstruct and destroy that very same peace process. Europe cannot seek inclusion in the diplomatic process while funding 

its obstruction. 

The implementation of ILSA must be viewed in the full context 

of the war on terrorism, a battle we can and must win. Vital to this 

fight is a worldwide effort to deny terrorist groups the funds they 

need to pay for their terrorism. As such, we should remember that 

President Bush declared on September 24, 2001,

‘‘Money is the lifeblood of terrorist operations today.’’
3

We are asking the world to stop payment. With the Iran-Libya 

Sanctions Act, I would argue, we would accomplish just that—stopping the flow of money to the terrorists. 

Finding ways to restrict the increasing wave of foreign investment into Iran and Libya must be an integral part of the same effort to suppress terrorist financing. It is just as important to stop 

the flow of money into Iran and Libya as it is to terrorist organizations, their leaders, and corporate and charitable fronts. Terrorist 

funding schemes are difficult enough to stop. If we aim for their 

largest donors, the state-sponsors, we are making a bigger dent in 

the financial infrastructure of the global terrorist network. 

Beyond its ongoing support and active participation in terrorist 

activities, the Iranian regime is racing to obtain weapons of mass 

destruction. The regime’s weapons programs, especially its nuclear 

programs, are taking on added concern because Iran is speeding up 

its efforts to build long-range ballistic missiles to deliver these 

weapons. The discovery of the secret Natanz and Arak nuclear 

sites, combined with the ‘‘Jam Missile Project’’ and the successful 

test of the Shahab-4 missiles only further explained why investment by European oil companies must be stopped. 

I understand that the Administration is discussing this idea of 

seeking multilateral sanctions to the United Nations Security 

Council for the recently disclosed Iranian violations of the Nuclear 

Nonproliferation Treaty. If this is the case, it is a positive development, but not one that should preclude the use of ILSA as the most 

effective United States tool short of war to prevent a pariah state 

such as Iran from achieving nuclear status. We prefer the support 

of the global community in curbing these weapons of mass destruction; however, when our safety and security and that of our allies 

in the region is being threatened, we must take immediate action 

to address the problem and not sit idly by waiting for consensus 

to be achieved. Diplomacy does not mean surrender. 

Defense Secretary Donald Rumsfeld pointed out the threat posed 

by countries such as Iran securing nuclear weapons. While speaking in Germany in a NATO meeting on June 11, he said,

‘‘If our free nations do not come to grips with this problem, it 

is possible that not so many years from now when we gather 

for the 20th anniversary of this center, we could be living in 

a world with as many as twice the number of nuclear powers, 

and a number of those new nuclear powers being terrorist 

states.’’

With respect to Iran, Under Secretary of State for Arms Control 

and International Security, John Bolton, testified to the Full Committee on June 4 that the conclusion is inescapable that Iran is 

pursuing a nuclear energy program, not for peaceful or economic 

purposes, but as a front for developing the capabilities to produce 

nuclear materials for nuclear weapons. Moreover, the IAEA’s condemnation of Iran’s failure to declare its nuclear imports and activities gives added credence to its offensive threatening intentions. 

Iran’s efforts at building nuclear weapons cannot be achieved 

without great cost. An influx of hard currency in the form of foreign investments, credits and loans can certainly help, however. In 

this context, ILSA reveals itself as a critical tool in the arsenal of 
4

U.S. foreign policy instruments. If there is no foreign investment 

flowing into these terrorist states, their coffers are depleted. Their 

economies and their official budgets are reduced. This not only results in fewer funds being diverted to weapons of mass destruction 

programs, but it serves to remove the infusion of financial resources which props up the regime and enables it to carry out repression, persecution and intimidation against those inside the 

country who want freedom and democracy. 

The EU stubbornly continues to believe that only constructive 

engagement will work with Iran. EU External Affairs Commissioner Chris Patten has stated that he believes that only through 

investment in Iran can political reform be achieved. Years of investment by the EU has proven this assertion to be false. As this 

is a regime which stones people to death, flogs or hangs them in 

the public square in an effort to stifle dissent, the choice is clear. 

You are either with the oppressor or with those struggling to free 

themselves from a brutal theocracy. You cannot have it both ways. 

Unfortunately, failure to implement ILSA has fueled the assumption that one can. Lack of ILSA implementation has its origin in 

the State Department’s waiver of the 1998 Total deal that violated 

ILSA. At that time former Secretary of State Albright found that 

the French company did indeed violate ILSA, but she refused to 

impose sanctions, instead invoking the national interest waiver included in the law. 

Secretary Albright, however, went too far in granting this waiver. While statutorily permitted to grant the company a waiver, 

there was no provision in ILSA for extending the waiver to the entire continent, nor was there ever intended to be. Then Secretary 

Albright stated that if there was a continued cooperation from the 

European Union on these matters with respect to Iran, similar 

waivers would be granted. It is Congress’s view that this type of 

waiver is not allowable under the law. Simply put, because of this 

action, ILSA has been undermined. 

On April 17, 2003, Iran’s oil minister bragged that his country 

has signed oil investments contracts worth $20 billion in the last 

5 years; interestingly, 5 years from the time the waivers were 

issued. Moreover, he bragged that that investment has boosted 

Iran’s GDP to a great extent. 

European oil investment and credit provisions have unquestionably helped the Iranian economy. Iran is issuing bonds on the 

international market, receiving credit guarantees from Britain for 

oil and other investments deals, World Bank loans, and Japanese 

loan guarantees for its companies’ investments in Iran. In September 2000, only 2 years after the waivers, Moody’s, the United 

States credit rating agency, raised Iran’s foreign currency ceiling 

from stable to positive. In 2001, IMF analysts agreed and said 

Iran’s credit rating had greatly improved. Now, with Iran’s economic outlook rising even more, the investments by companies in 

Europe is only speeding the day when we will see a nuclear Iran. 

As frightening a thought as this may be, we must face the facts. 

Iran’s economic rise and its ability to advance its nuclear and 

chemical weapons programs are directly tied to our lack of enforcement. If the waivers had not been granted, the investment flow 

would not have gone forward as it has. While we are gratified by 
5

the recent statements from the EU countries on Iran’s nuclear objectives, mere rhetoric while negotiating further investments deals 

with Iran are not sufficient grounds, do not justify the lack of ILSA 

implementation. We are talking about an extremely dangerous regime, a regime whose leaders have repeatedly vowed to bring 

America to its knees, and who are committed to the destruction of 

our country and our allies in the region. 

We intend to review ILSA implementation very carefully. Now 

that we have seen the painful truth that the oceans that separate 

us no longer provide us the protection they once did, we all must 

be mindful of the actions we take in building up tyrants who may 

one day grow to hurt us. I look forward with great interest in hearing the testimony of our witnesses today, and I thank you again 

for your patience. 

[The prepared statement of Ms. Ros-Lehtinen follows:]

PREPARED STATEMENT OF THE HONORABLE ILEANA ROS-LEHTINEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA, AND CHAIRWOMAN, SUBCOMMITTEE ON THE MIDDLE EAST AND CENTRAL ASIA

I want to thank the members of the Subcommittee for attending this first in a 

series of hearings we will be holding on the implementation of the Iran-Libya Sanctions Act—otherwise known as ILSA. Today’s session will focus on Iran. 

As many of you know, ILSA was first passed by Congress in August 1996 and 

was reauthorized on August 3, 2001. The bill places a ceiling of $20 million in investment in the oil sectors of both Iran and Libya, before U.S. sanctions become possible. 

The catalyst for the legislation was the mounting concern that investments in 

these countries’ oil fields would provide them with the funds necessary to expedite 

their development of weapons of mass destruction and expand their ability to fund, 

train, and supply terrorist organizations around the world. 

Six years after the passage of ILSA, Iran, according to the State Department’s 

Terrorism report, ‘‘remained the most active state sponsor of terrorism...’’

The report continues describing how:

‘‘Iran provided Lebanese Hizballah and Palestinian rejectionist groups—notably HAMAS, the Palestine Islamic Jihad, and the Popular Front for the Liberation of Palestine-General Command—with funding, safehaven, training, and 

weapons. Tehran also encouraged Hizballah and the Palestinian rejectionist 

groups to coordinate their planning and to escalate their terrorist activities 

against Israel. Iran also provided support to extremist groups in Central Asia, 

Afghanistan, and Iraq with ties to al-Qaeda, though less than that provided to 

the groups opposed to Israel.’’

This description is certainly proof of why Iran is deserving of inclusion in President Bush’s ‘‘Axis of Evil.’’

Iran’s terrorism must be paid for and that could not be done without the sale of 

oil and natural gas that is abundant in that country. As such, we are reminded of 

the statement of former Under Secretary of State Peter Tarnoff, who declared at an 

October 11, 1995 hearing in the Senate Banking Committee regarding oil investment in Iran that,

‘‘a straight line links Iran’s oil income and its ability to sponsor terrorism and 

build weapons of mass destruction...and any private company that helps Iran 

to expand its oil [sector] must accept that it is indirectly contributing to this 

menace.’’

It is precisely because of this connection that we have called this hearing today. 

In the aftermath of the deplorable attacks of September 11, 2001, when we are 

focused on ‘‘starving terrorists of funding’’, to quote President Bush, we must not 

lose sight of the crucial need to vigorously pursue this same policy with respect to 

state-sponsors. 

However, it appears that the use of ILSA as a vague and unfulfilled threat is seen 

by some as more important, than the actual application of it. 
6

As a result, the deterrent effect has been lost. It is not taken seriously by those 

investing in Iran, as illustrated by the statement made last year by a Washington 

oil consultant, who refered to ILSA as ‘‘a paper-tiger.’’

How can investing companies accept ILSA as being of any real threat if it has 

never been used? 

While we are grateful for the help and support of some of our European allies in 

Operation Iraqi Freedom, they and the other nations whose companies are investing 

in Iran, must comprehend the threat that nation poses. The harm that is being done 

first, by the investments, and second by the refusal to sanction them, is incalculable. 

It is difficult to understand how, on the one hand, our European allies can so fervently wish to be part of the Middle East Roadmap, yet provide the resources, 

through ongoing investment in Iran, to Hamas and other forces seeking to obstruct 

and destroy the peace process. 

Europe cannot seek inclusion in the diplomatic process while funding its obstruction. 

The implementation of ILSA must be viewed in the full context of the War on Terrorism, a battle we can and must win. 

Vital to this fight is a world-wide effort to deny terrorist groups the funds they 

need to pay for their terrorism. As such, we should remember that President Bush 

declared on September 24, 2001: ‘‘Money is the lifeblood of terrorist operations 

today. We’re asking the world to stop payment.’’

With the Iran-Libya Sanctions Act, I would argue, we would accomplish just 

that—stopping the flow of money to the terrorists. 

Finding ways to restrict the increasing wave of foreign investment into Iran and 

Libya must be an integral part of the same effort to suppress terrorist financing. 

It is just as important to stop the flow of money into Iran and Libya, as it is to 

terrorist organizations, their leaders, and corporate and charitable fronts. Terrorist 

funding schemes are difficult enough to stop. If we aim for their largest donors—

the state sponsors—we are making a bigger dent in the financial infrastructure of 

the global terrorist network. 

Beyond its ongoing support and active participation in terrorist activities, the Iranian regime is racing to obtain weapons of mass destruction. The regime’s weapons 

programs, especially its nuclear programs, are taking on added concern because Iran 

is speeding up its efforts to build long-range ballistic missiles to deliver these weapons. The discovery of the secret Natanz and Arak nuclear sites, combined with the 

‘‘Jam Missile Project’’ and successful tests of Shahab-4 missiles, only further explain 

why investment by European oil companies must be stopped. 

I understand that the Administration is discussing the idea of seeking multilateral sanctions through the United Nations Security Council for the recently disclosed Iranian violations of the Nuclear Non-proliferation Treaty. 

If this is the case, it is a positive development, but not one that should preclude 

the use of ILSA as the most effective U.S. tool, short of war, to prevent a pariah 

state such as Iran from achieving nuclear status. 

We prefer the support of the global community in curbing the proliferation of 

weapons of mass destruction. However, when our safety and security, and that of 

our allies in the region, is being threatened, we must take immediate action to address the problem and not sit idly by waiting for consensus to be achieved. 

Diplomacy does not mean surrender. 

Defense Secretary Donald Rumsfeld pointed out the threat posed by countries, 

such as Iran, securing nuclear weapons. While speaking in Germany at a NATO 

meeting on June 11th,

‘‘If our free nations do not come to grips with the proliferation problem, it is 

possible that not so many years from now, when we gather for the 20th anniversary of this center, we could be living in a world with as many as twice the 

number of nuclear powers—and a number of those new nuclear powers being 

terrorist states.’’

With respect to Iran, Under Secretary of State for Arms Control and International 

Security, John Bolton, testified to the full Committee on June 4th, that the conclusion is inescapable that Iran is pursuing its nuclear energy program, not for peaceful and economic purposes, but as a front for developing the capability to produce 

nuclear materials for nuclear weapons. 

Moreover, the IAEA’s condemnation of Iran’s failure to declare its nuclear imports 

and activities, give added credence to its offensive, threatening intentions. Iran’s efforts at building nuclear weapons cannot be achieved without great cost. An influx 

of hard currency in the form of foreign investments, credits, and loans however, can 

certainly help. 
7

In this context, ILSA reveals itself as a critical tool in the arsenal of U.S. foreign 

policy instruments. If there is no foreign investment flowing into these terrorist 

states, their coffers are depleted, their economies and official budgets are reduced. 

This not only results in fewer funds being diverted to WMD programs, but it 

serves to remove the infusion of financial resources, which props up the regime. and 

enables it to carry out repression, persecution, and intimidation against those inside 

the country who want freedom and democracy. 

The EU stubbornly continues to believe that only ‘‘constructive engagement’’ will 

work with Iran. EU External Affairs Commissioner Chris Patten has stated that he 

believes that only through investment in Iran, can political reform can be achieved. 

Years of investment by the EU has proven this assertion to be false, as this is 

a regime which stones people to death; flogs or hangs them in the public square, 

in an effort to stifle dissent. 

The choice is clear, you are either with the opressor or with those struggling to 

free themselves from a brutal theocracy. You cannot have it both ways. 

Unfortunately, failure to implement ILSA has fueled the assumption that one can. 

Lack of ILSA implementation has its origin in the State Department’s waiver of 

the 1998 Total deal that violated ILSA. At that time, former Secretary of State 

Albright found that the French company Total did indeed violate ILSA, but she refused to impose sanctions, instead invoking the ‘‘National Interest waiver’’ included 

in the law . 

Secretary Albright, however, went too far in granting this waiver. While statutorily permitted to grant Total a waiver, there was no provision in ILSA for extending the waiver to the entire continent nor was there ever intended to be. 

Then Secretary Albright stated that, if there was continued cooperation from the 

European Union on non-proliferation matters with respect to Iran, similar waivers 

would be granted. 

It is Congress’ view that this type of waiver, however, is not allowable under the 

law. 

Simply put, because of this action, ILSA has been undermined. 

On April 17, 2003, Iran’s Oil Minister bragged that his country has signed oil investment contracts worth $20 billion in the last five years—interestingly five years 

from the time the waivers were issued. Moreover, he bragged that this investment 

has ‘‘boosted Iran’s GDP to a great extent.’’

European oil investment and credit provisions have unquestionably helped the 

Iranian economy. Iran is issuing bonds on the international market, receiving credit 

guarantees from Britain for oil and other investment deals, World Bank loans, and 

Japanese loan guarantees for the its companies’ investment in Iran. 

In September 2000, only two years after the waivers, Moody’s the U.S. Credit rating agency raised Iran’s foreign currency ceiling from ‘‘stable’’ to ‘‘positive.’’

In 2001, IMF analysts agreed and said Iran’s credit rating had greatly improved. 

Now, with Iran’s economic outlook rising even more, the investment by companies 

in Europe is only speeding the day when we will see a nuclear Iran. 

As frightening a thought as this might be, we must face the facts. Iran’s economic 

rise, and its ability to advance its nuclear and chemical weapons programs are directly tied to our lack of enforcement. 

If the waivers had not been granted, the investment flow would not have gone 

forward as it has. 

While we are gratified by recent statements from the EU countries on Iran’s nuclear objectives, mere rhetoric while negotiating further investments deals with 

Iran, are not sufficient grounds—do not justify—lack of ILSA implementation. 

We are talking about an extremely dangerous regime—a regime whose leaders 

have repeatedly vowed to ‘‘bring America to its knees’’ and who are committed to 

the destruction of our country and our allies in the region. 

We intend to review ILSA implementation very carefully. 

Now that we have seen the painful truth that the oceans that separate us no 

longer provide us the protection they once did, we all must be mindful of the actions 

we take in building up tyrants who may one day grow to hurt us. 

I look forward with great interest in hearing the testimony of our witnesses today.

Ms. ROS-LEHTINEN. I would like to yield to Mr. McCotter for his 

opening remarks. 

Mr. MCCOTTER. I have no opening remarks. 

Ms. ROS-LEHTINEN. Thank you. I know that the State Department witnesses must leave at 3:30 p.m., so if you would like to give 

your remarks, and we will open it up for questions. Thank you 
8

again for your patience and I would like to take this opportunity 

to introduce the panel. 

Ms. Anna Borg became the Deputy Assistant Secretary of State 

for Energy, Sanctions and Commodities in August 2000. She was 

also named the State Department Coordinator for Conflict Diamonds. From 1999 to 2000, she served as a Director of the Office 

of United Kingdom and Ireland Affairs. 

Mr. Philo Dibble is a career member of the Senior Foreign Service. He has been a Deputy Assistant Secretary of State in the Bureau of Near East Affairs since May 2003. He was Deputy Chief 

of Mission in Damascus, Syria, from 2001 until 2003. Other overseas assignments have included tours in Saudi Arabia, Lebanon, 

Tunisia, Italy and Pakistan. 

Mr. Charles Reis, Principal Deputy Assistant Secretary of State 

for European and Eurasian Affairs, will unfortunately be unable to 

attend this hearing due to illness. Mr. Charles English, Acting 

Deputy Assistant Secretary for European and Eurasian Affairs, 

will testify in his stead. Thank you so much. 

We will begin with you, Ms. Borg. 

STATEMENT OF ANNA BORG, DEPUTY ASSISTANT SECRETARY, 

BUREAU OF ECONOMIC AND BUSINESS AFFAIRS, U.S. DEPARTMENT OF STATE 

Ms. BORG. Madam Chairwoman, thank you very much, and 

Members of the Middle East Subcommittee. I appreciate very much 

the opportunity to testify today about implementation of the Iran 

and Libya Sanctions Act in the context of dealing with key threats 

to our national security. 

In enacting ILSA, Congress expressed deep concern about the 

pursuit of weapons of mass destruction by Iran and Libya; also 

about their support for international terrorism and, in the case of 

Libya, its failure to meet its obligations under the U.N. Security 

Council resolutions related to the bombing of Pan Am 103. Accordingly, we have sought to ensure that the process of ILSA implementation makes the greatest possible contribution to the goal of 

countering the WMD and terrorism threat posed by Iran and 

Libya. 

The effort to combat these threats is, of course, a very broad one 

within the U.S. Government. ILSA is only one of a number of ways 

in which we are pursuing these important objectives. In discussing 

the implementation of ILSA, it is useful to go back to the decision 

by the Secretary of State in the 1998 South Pars case, involved an 

agreement by a French-Russian-Malaysian consortium to develop 

part of a gas field in Iran. The Secretary decided in this case to 

exercise the authority granted by the statute, and delegated to the 

Secretary of State by the President, to waive the imposition of 

ILSA sanctions on the ground that doing so was important to the 

national interest. The Secretary’s statement noted that she found 

after careful examination of all the facts available, that the investment by the companies did constitute sanctionable activity under 

the statute, but that the imposition of sanctions would not stop the 

deal. 

The Secretary found further that we had achieved enhanced cooperation with the European Union and Russia in accomplishing 
9

ILSA’s primary objective of inhibiting Iran’s ability to develop 

WMD and support terrorism, and that the waiver would enhance 

our ability to work with all the countries involved on a host of bilateral and international concerns. This framework was endorsed 

again in 2001 at the first U.S.–EU summit of the present Administration. 

We have continually raised our ILSA and policy concerns at senior levels of government and with company management whenever 

petroleum sector agreements with Iran or Libya appeared to be 

likely. ILSA has thus served as an important platform for discussions that allows us to reiterate and to underscore the seriousness 

of our WMD and terrorism concerns about Iran and Libya, and to 

press for greater cooperation. ILSA’s very existence has testified to 

the depth of our concerns. United States policy toward Iran and 

close consultations with like-minded governments, including those 

in the G–8, have further enhanced the level of cooperation from 

other countries in contesting terrorism and WMD, particularly 

those posed by Iran. The importance of this focus was highlighted 

by President Bush, who, in his signing statement for the ILSA reauthorization legislation in 2001, called for, and I quote,

‘‘. . . strengthening our efforts with other countries whose cooperation is essential to pursuing the most effective approaches 

to solving the problems of proliferation and terrorism addressed by ILSA.’’

We have not succeeded in stopping all petroleum sector investment in these countries of concern, although some observers and 

analysts do credit ILSA for slowing oil and gas development in 

Iran. ILSA thus is one vehicle for emphasizing our concerns about 

the objectionable policies and actions of Iran and Libya. It is certainly not the only such instrument, but we are using the law continually as a basis for making representations to governments and 

companies that underline our views about these two very problematic countries. 

Under the terms of reauthorization legislation, we will be reporting to Congress between August of this year and next February on 

certain aspects of ILSA’s impact and effectiveness. We look forward 

to presenting that report and look forward to taking your questions 

today. 

Ms. ROS-LEHTINEN. Thank you very much. 

[The prepared statement of Ms. Borg follows:]

PREPARED STATEMENT OF ANNA BORG, DEPUTY ASSISTANT SECRETARY, BUREAU OF

ECONOMIC AND BUSINESS AFFAIRS, U.S. DEPARTMENT OF STATE

Madam Chairwoman and members of the Middle East Subcommittee, I appreciate 

the opportunity to testify today about implementation of the Iran and Libya Sanctions Act (ILSA), in the context of dealing with key threats to our national security. 

In enacting ILSA, Congress expressed its deep concern about the pursuit of weapons 

of mass destruction (WMD) by Iran and Libya, their support for international terrorism, and, in the case of Libya, its failure to meet its obligations under the UN 

Security Council Resolutions related to the bombing of Pan Am 103. 

Accordingly, we have sought to ensure that the process of ILSA implementation 

makes the greatest possible contribution to the goal of countering the WMD and terrorism threats posed by Iran and Libya. The effort to combat these threats is of 

course a very broad one within the US Government. ILSA is only one of a number 

of ways in which we are pursuing this objective. 
10

In discussing the implementation of ILSA, it is useful to go back for a moment 

to the decision by the Secretary of State in the 1998 South Pars case, which involved an agreement by a French/Russian/Malaysian consortium to develop part of 

a major gas field in Iran. The Secretary decided in this case to exercise the authority granted by the statute (and delegated to the Secretary of State by the President) 

to waive the imposition of ILSA sanctions, on the ground that doing so was important to the national interest. 

Let us look at the elements of that decision, as set forth in the Secretary’s public 

statement on the subject at the May 1998 US–EU Summit in London. The Secretary 

found, after careful examination of the facts, that the investment by the companies 

did constitute sanctionable activity under the statute, but that the imposition of 

sanctions would not stop the deal. The Secretary found further that we had achieved 

enhanced cooperation with the EU and Russia in ‘‘accomplishing ILSA’s primary objective’’ of inhibiting Iran’s ability to develop WMD and support terrorism, and that 

waiver would enhance our ability to work with all the countries involved on a host 

of bilateral and international concerns—of which several examples were specified. 

With respect to the EU, the enhanced cooperation achieved was reflected, inter 

alia, in the US–EU joint statements on cooperation in nonproliferation and 

counterterrorism issued at the London Summit. Finally, the Secretary drew a link 

between continued heightened cooperation by the EU in these crucial areas, and decisions in similar future cases involving EU firms. In testimony before the International Relations Committee shortly afterward, the Under Secretary for Economic 

Affairs further explained the background and rationale for our decision in the South 

Pars case and our overall approach, as outlined in the Secretary’s statement. 

This framework (together with other non-ILSA aspects of the May 1998 Summit) 

was endorsed at the first US–EU Summit of the present Administration at 

Goteborg, Sweden in 2001, where it was agreed by both sides that: ‘‘Conscious of 

their importance for our bilateral relationship, we confirm our commitment to honor 

and fully implement the various understandings and agreements reached at the 

May 1998 London Summit.’’ The debate on the re-authorization of ILSA in 2001 offered a further opportunity for an extensive review and discussion of Iran policy and 

ILSA issues with the International Relations Committee and other relevant House 

committees, as well as with appropriate Senate committees. In his statement upon 

signing the reauthorization legislation, President Bush noted that a ‘‘new provision 

in this bill mandates a report on the impact of certain actions taken pursuant to 

the Act. I approve of this statutorily mandated requirement to periodically assess 

the effectiveness of sanctions and to recommend whether the Congress should terminate or modify the Act. The Act also continues the President’s power to waive sanctions in the national interest.’’

Since the 1998 South Pars case, we have continually raised our ILSA and policy 

concerns, at senior levels of government and of company management, when petroleum-sector agreements with Iran or Libya appeared to be likely. ILSA has thus 

served as an important platform for discussions that allow us to reiterate and to 

underscore the seriousness of our WMD and terrorism concerns about Iran and 

Libya, and to press for greater cooperation. ILSA’s very existence has testified to 

the depth of our concerns. 

US policy toward Iran and close consultations with like-minded governments, including those in the G–8, have further enhanced the level of cooperation from other 

countries in countering WMD and terrorism threats, particularly those posed by 

Iran. The importance of this focus was highlighted by President Bush who, again 

in his signing statement for the ILSA re-authorization legislation in 2001, called for 

‘‘strengthening our efforts with other countries, whose cooperation is essential to 

pursuing the most effective approaches to solving the problems of proliferation and 

terrorism addressed by ILSA.’’ My colleagues will talk in more detail about that cooperation. 

We have not succeeded in stopping petroleum-sector investment, although some 

observers and analysts do credit ILSA for slowing oil and gas development in Iran, 

particularly in its earlier days. We note that Iran’s sustainable oil production capacity has not increased significantly since the early 90s, holding steady at about 3.7 

million barrels per day. Export volumes have generally declined due to increased 

domestic consumption. As a recent Department of Energy publication noted, ‘‘Iran 

produced 6 million bbl/d [barrels per day] in 1974, but has not surpassed 3.8 million 

bbl/d on an annual basis since the 1978/79 Iranian revolution.’’

As I indicated earlier, ILSA is one vehicle for emphasizing our concerns about the 

objectionable policies and actions of Iran and Libya. It is certainly not the only such 

instrument, but we are using the law continually as a basis for making representations to governments and companies that underline our views about these two very 

problematic countries. 
11

Under the terms of the re-authorization legislation, we will be reporting to Congress between August and next February on certain aspects of ILSA’s impact and 

effectiveness. We look forward to presenting that report, and I look forward to taking your questions this morning.

Ms. ROS-LEHTINEN. Thank you. Mr. Dibble. 

STATEMENT OF PHILO DIBBLE, DEPUTY ASSISTANT SECRETARY, BUREAU OF NEAR EASTERN AFFAIRS, U.S. DEPARTMENT OF STATE 

Mr. DIBBLE. Thank you, Madam Chairwoman. I, too, am thankful for the opportunity to appear before the Subcommittee today. 

The United States policy toward state-sponsors of terrorism, including Iran and Libya, has always been oriented toward maximum 

United States unilateral effort to end those countries’ destructive 

policies combined with maximum effort to garner international cooperation. While there is still much to be done, we see indications 

that both countries are feeling increasingly pressured. Both Iran 

and Libya represent great challenges, but we are making some 

progress in gaining international cooperation to pressure them to 

end their destructive policies. 

First with respect to Iran, President Bush has clearly stated that 

the United States supports the aspirations of the people of Iran for 

freedom and democracy, and he has called on the Iranian Government to fulfill those aspirations. United States policy toward Iran 

has not changed. As in the past, he works to advance long-standing 

goals. It focuses now on the issues of Iran granting safe haven to 

al-Qaeda operatives and interfering in the establishment of a representative government in Iraq, along with the continuing effort to 

end Iran’s support for terrorism and for violent opposition to the 

peace process and its pursuit of weapons of mass destruction, including nuclear weapons. In addition, it calls on Iran to stop abusing the human rights of the Iranian people. 

Unlike some countries, we do not accept the notion of differentiating between hard-liners and reformers in the Government of 

Iran. We believe that the government as a whole must be held responsible for its actions. President Bush has stated in no uncertain 

terms that the international community will not tolerate a nucleararmed Iran. Such a development would greatly destabilize an already volatile region and do grave harm to the Nuclear Nonproliferation Treaty and the international nonproliferation regime. 

We saw the international community come together last week at 

the IAEA Board of Governors to support a strong conclusion by the 

Chairwoman calling on Iran to address the concerns outlined in Director General ElBaradei’s interim report. This report is based on 

the results to date of the work of inspectors on the ground in Iran, 

and it outlines in thorough detail Iran’s failure to meet its safeguards obligations, its lack of cooperation with IAEA inspectors, 

and the areas of unresolved concern that the IAEA will continue 

to investigate. We expect to hear a further report from Dr. 

ElBaradei as soon as new information comes to light, including the 

results of environmental samples. If such sampling results and 

other information support it, we would expect an eventual IAEA 

Board resolution finding Iran in noncompliance with its safeguards 

obligations. 
12

As a result of our efforts to date, we have seen the EU and Russia adopt a firmer stance toward the growing threat of Iran’s covert 

nuclear weapons program. We continue to press them and all countries to do all they can to counter Iran’s nuclear, chemical, biological and missile programs. The strong G–8 statement on Iran’s nuclear program was a very positive development. 

Iran is currently the most active state supporter of terrorism. It 

is the primary political and financial backer of Hezbollah and the 

chief supplier of its military equipment and training. It maintains 

forces as advisors to Hezbollah in Lebanon. Iran also provides financial and logistical support to many Palestinian terrorist groups, 

and, as evidenced by the intercepted Karine-A shipment of January 

2002, has been involved in attempts to smuggle weapons to the 

Palestinian Authority. As we relaunch peace negotiations, we are 

watching closely to see if Iran will direct these groups to try to derail the quartet’s road map and are calling on the plan’s coauthors 

to make clear to Iran the unacceptability of its acting as a spoiler. 

In addition to our long-standing concerns about Iranian involvement in terror, the presence of senior al-Qaeda members in Iran 

is worrisome. We are certain that some members of the al-Qaeda 

Advisory Council are connected to the May 12 attacks in Riyadh. 

Some council members knew attacks in Saudi Arabia were imminent, and they had been coordinating terrorist plots with top members of the Saudi al-Qaeda network which carried out the attacks 

since last fall. While in the past we had seen instances where Iran 

turned over suspected al-Qaeda operatives to other countries, in 

these cases senior al-Qaeda extremists appear to be finding safe 

haven in Iran, likely with the support of some elements within the 

Iranian regime. Iran claims to have a number of al-Qaeda in detention, but to date has not turned them over to other countries. 

We have seen evidence that other countries have also strongly 

voiced to Iran the importance of taking unequivocal steps to shut 

down al-Qaeda. As National Security Advisor Dr. Rice said recently, we cannot tolerate al-Qaeda activists going in and of Iran. 

The overall human rights situation inside Iran has continued to 

deteriorate. Pro-reform publications are regularly shut down, and 

journalists, editors and publishers are routinely jailed. Fifteen political activists were recently given lengthy jail sentences. A dissident academic was sentenced to death last fall for questioning Islamic rule, sparking days of demonstrations and domestic and 

international outrage that eventually forced the regime to grant a 

re-trial. While the regime has supposedly suspended, though not 

outlawed, the practice of stoning, we have heard a recent report of 

a beheading. 

We are pleased to have received congressional authority to use 

Middle East Partnership Initiative funds as well as funds administered by the Bureau of Democracy, Rights and Labor to initiate 

pro-democracy and human rights for Iran. We are not studying how 

to initiate programs in the most effective way. 

President Bush and other senior U.S. officials have applauded 

the courage of the demonstrators who came out for over a week of 

protests this month calling for democracy and an end to clerical 

domination. The Iranian Government nonetheless has put down 

these protests. The population seems to have lost faith in the 
13

Khatami government’s ability to carry out meaningful reform in 

both the political and economic spheres. The Iranian people deserve 

a better future. Their greatest concern is the economy, with high 

levels of inflation and corruption, and a woeful lack of professional 

jobs causing constant deterioration of their standard of living. 

More recently, we have seen other disturbing indicators of negative Iranian behavior, such as Iran’s meddling with the political 

process inside Iraq. Iran is using money and armed proxies to try 

to promote those Shi’a groups that it sees as sympathetic to its interests. Coalition Provisional Authority Administrator Bremer has 

publicly warned Iran that there would be consequences for such behavior. 

And briefly, with respect to Libya, another state-sponsor of terrorism, has yet to fulfill its obligations under the relevant U.N. Security Council resolutions related to the bombing of Pan Am 103 

over Lockerbie, Scotland, in 1988. Those obligations include accepting responsibility for the actions of its officials and paying appropriate compensation. It is past time that Libya fulfill these obligations. 

Thank you, Madam Chairwoman. 

Ms. ROS-LEHTINEN. Thank you. 

[The prepared statement of Mr. Dibble follows:]

PREPARED STATEMENT OF PHILO DIBBLE, DEPUTY ASSISTANT SECRETARY, BUREAU OF

NEAR EASTERN AFFAIRS, U.S. DEPARTMENT OF STATE

U.S. policy towards state sponsors of terrorism, including Iran and Libya, has always been oriented towards maximum U.S. unilateral effort to end those countries’ 

destructive policies, combined with maximum effort to garner international cooperation. While there is still much to be done, we see indications that both countries 

are feeling increasingly pressured. Both Iran and Libya represent great challenges, 

but we are making some progress in gaining international cooperation to pressure 

them to end their destructive policies. 

IRAN: 

President Bush has clearly stated that the United States supports the aspirations 

of the people of Iran for freedom and democracy, and he has called on the Iranian 

government to fulfill these aspirations. U.S. policy towards Iran has not changed; 

as in the past, it works to advance longstanding goals. It focuses now on the issues 

of Iran granting safe-haven to al-Qaida operatives and interfering in the establishment of a representative government in Iraq, along with the continuing effort to end 

Iran’s support for terrorism and for violent opposition to the peace process, and its 

pursuit of WMD, including nuclear weapons. In addition, it calls on Iran to stop 

abusing the human rights of the Iranian people. Unlike some countries, we do not 

accept the notion of differentiating between hardliners and reformers elements of 

the government. We believe that the government as a whole must be held responsible for its actions. 

President Bush has stated in no uncertain terms that the international community will not tolerate a nuclear-armed Iran. Such a development would greatly destabilize an already volatile region and do grave harm to the Nuclear Non-Proliferation Treaty and the international nonproliferation regime. We saw the international 

community come together last week at the IAEA Board of Governors to support a 

strong conclusion by the Chairwoman calling on Iran to address the concerns outlined in Director General ElBaradei’s interim report. This report is based on the results to date of the work of inspectors on the ground in Iran, and it outlines in thorough detail Iran’s failures to meet its safeguards obligations, its lack of cooperation 

with IAEA inspectors, and the areas of unresolved concern that the IAEA will continue to investigate. We expect to hear a further report from Dr. ElBaradei as soon 

as new information comes to light, including the results of environmental samples. 

If such sampling results and other information support it, we would expect an eventual IAEA Board resolution finding Iran in noncompliance with its safeguards obligations. As a result of our efforts to date, we have seen the EU and Russia adopt 
14

a firmer stance towards the growing threat of Iran’s covert nuclear weapons program. We continue to press them and all countries to do all they can to counter 

Iran’s nuclear, chemical, biological, and missile programs. The strong G–8 statement 

on Iran’s nuclear program was a very positive development. 

Iran is currently the most active state supporter of terrorism. It is the primary 

political and financial backer of Hizballah, and the chief supplier of its military 

equipment and training. It maintains forces as advisors to Hizballah in Lebanon. 

Iran also provides financial and logistical support to many Palestinian terrorist 

groups, and as evidenced by the intercepted Karine-A shipment of January 2002, 

has been involved in attempts to smuggle weapons to the Palestinian Authority. As 

we re-launch peace negotiations, we are watching closely to see if Iran will direct 

these groups to try to derail the Quartet’s ’roadmap’ and are calling on the plan’s 

co-authors to make clear to Iran the unacceptability of its acting as a spoiler. 

In addition to our longstanding concerns about Iranian involvement in terror, the 

presence of senior al-Qaida members in Iran is worrisome. We are certain that some 

members of the al-Qaida advisory council are connected to the 12 May Riyadh attacks. Some council members knew attacks in Saudi Arabia were imminent and 

they had been coordinating terrorist plots with top members of the Saudi Al-Qaida 

network, which carried out the attacks, since last fall. While in the past we had 

seen instances where Iran turned over suspected al-Qaida operatives to other countries, in these cases, senior al-Qaida extremists appear to be finding safe-haven in 

Iran, likely with the support of some elements within the Iranian regime. Iran 

claims to have a number of al-Qaida in detention, but to date, has not turned them 

over to other countries. We have seen evidence that other countries have also 

strongly voiced to Iran the importance of taking unequivocal steps to shut down alQaida. As National Security Advisor Rice said recently, we cannot tolerate al-Qaida 

activists going in and out of Iran. 

The overall human rights situation inside Iran has continued to deteriorate. Proreform publications are regularly shut down, and journalists, editors and publishers 

are routinely jailed. Fifteen political activists were recently given lengthy jail sentences. A dissident academic was sentenced to death last fall for questioning Islamic 

rule, sparking days of demonstrations and domestic and international outrage that 

eventually forced the regime to grant a retrial. While the regime has supposedly 

suspended (though not outlawed) the practice of stoning, we have heard a recent 

report of a beheading. 

We are pleased to have received Congressional authority to use Middle East Partnership Initiative funds as well as funds administered by the bureau of Democracy 

Rights and Labor to initiate pro-democracy and human rights programs for Iran. We 

are now studying how to initiate programs in the most effective way. 

President Bush and other senior US officials have applauded the courage of the 

demonstrators who came out for over a week of protests this month calling for democracy and an end to clerical domination. The Iranian government nonetheless has 

put down these protests. The population seems to have lost faith in the Khatami 

government’s ability to carry out meaningful reform, in both the political and economic spheres. The Iranian people deserve a better future. Their greatest concern 

is the economy, with high levels of inflation and corruption and a woeful lack of professional jobs, causing constant deterioration of their standard of living. 

More recently, we have seen other disturbing indicators of negative Iranian behavior such as Iran’s meddling with the political process inside Iraq. Iran is using 

money and armed proxies to try to promote those Shia groups that it sees as sympathetic to its interests. Coalition Provisional Authority Administrator Bremer has 

publicly warned Iran that there would be consequences for such behavior. 

LIBYA: 

Libya, another state sponsor of terrorism, has yet to fulfill its obligations under 

the relevant UN security Council Resolutions related to the bombing of Pan Am 103 

over Lockerbie, Scotland in 1988. These obligations include accepting responsibility 

for the actions of its officials and paying appropriate compensation. It is past time 

that Libya fulfills these obligations.

STATEMENT OF CHARLES ENGLISH, ACTING DEPUTY ASSISTANT SECRETARY FOR EUROPEAN AND EURASIAN AFFAIRS, 

U.S. DEPARTMENT OF STATE 

Mr. ENGLISH. I thank you, Madam Chairwoman. I, too, appreciate the opportunity to appear before you and your Subcommittee 
15

this afternoon. I would like to discuss with you today our European 

Union policies with Iran and to talk about some recent developments in the cooperation between the United States and the EU on 

control of the spread of weapons of mass destruction. 

Iran’s pursuit of weapons of mass destruction and its support of 

terrorism were major concerns to the Congress when it passed the 

Iran and Libya Sanctions Act. I will try to outline how the U.S. and 

EU cooperate to address our shared concerns over Iranian policies 

and how we cooperate in the broader question of nonproliferation. 

The United States and the EU share a strong concern over Iran’s 

pursuit of WMD, over their support of terrorism, their promotion 

of violent opposition to the peace process, and their abysmal record 

on human rights. We do, however, come from different starting 

points on how to curb objectionable Iranian behavior. The EU follows a policy of engagement with Iran, with the political focus to 

a large degree centered on a structured so-called comprehensive 

dialogue. The dialogue focuses on major EU political concerns regarding Iran. The EU believes that engagement gives it influence 

with the Iranian regime, and that it also encourages reformers in 

the Iranian Government. 

We, as Mr. Dibble has testified, are very skeptical, and do not 

believe that engagement will achieve either objective. We have certainly not seen evidence that this engagement has to date produced 

any real change in Iranian behavior. This is a point that we continuously make clear to the European Union. But while United 

States and EU policy toward Iran come from different starting 

points, the gaps between the United States and the EU approach 

have narrowed, and the EU has increased its cooperation with us 

on practical levels since the passage of ILSA. The May 1998 U.S.–

EU joint declarations on nonproliferation and counterterrorism reflect our shared goals in these areas and a determination to work 

together to pursue these objectives. 

More recently, the EU has shown greater willingness to condition 

improvement in its economic relations with Iran on concrete, 

verifiable and sustained improvements in Iranian behavior. An example is the EU’s response to an Iranian request to improve economic relations through a trade and cooperation agreement. In 

June of last year, the European Union Council responded positively, but decided to keep the proposed agreement at a basic level; 

that is to say it contained—it would contain no preferential tariffs, 

nor would it contain any concessional assistance. With considerable 

United States urging, the European Union decided to link this 

trade and cooperation agreement with tangible improvements in 

Iranian policies in such areas as weapons of mass destruction, to 

alleviate their support for terrorism, to stop Iranian opposition to 

the peace process, and to improve their abysmal record on human 

rights. The EU is currently negotiating two political agreements 

with Iran focusing on those areas. In those agreements the EU has 

stressed that they must proceed in parallel with the trade and cooperation agreement and would have to be signed simultaneously 

with this TCA. Not surprisingly, there has been considerable resistance in the Government of Iran to this approach, and we understand that negotiations have moved very slowly. 
16

Our European allies are also proving to be staunch partners in 

the face of recent revelations that Iran’s declared nuclear program 

masks a hidden program to develop fissile material production in 

support of weapons programs. We understand that during a visit 

to Tehran on June 1st and 2nd, an EU delegation made clear to 

high levels of the Iranian Government that the European Union 

was very concerned about their nuclear program. And at the June 

1st Evian summit, G–8 leaders, which include the leaders of the 

four largest European Union member nations and include the European Union itself as an observer, declared their concern about 

Iran’s nuclear program. 

I would like to just quote briefly the G–8 statement on Iran.

‘‘We will not ignore the proliferation implications of Iran’s advanced nuclear program. We stress the importance of Iran’s 

full compliance with its obligations under the NPT. We urge 

Iran to sign and implement an IAEA additional protocol without delays or conditions. We offer our strongest support to a 

comprehensive IAEA examination of this country’s nuclear program.’’

I would like to note, Madam Chairwoman, that the European 

Union followed up with its own statement on this at its June 16 

Council and at its June 20 summit meeting at Thessaloniki. As 

well as today, in the U.S.–EU summit, the United States and the 

European Union agreed on a nonproliferation statement which contained very harsh language about Iran. 

I would like to submit the balance of my statement for the 

record. 

Ms. ROS-LEHTINEN. Thank you so much. 

Mr. ENGLISH. And if I may just with a few sentences’ summary. 

Ms. ROS-LEHTINEN. You teased us with that. 

Mr. ENGLISH. Well, two sentences. I promise. No more. 

Ms. ROS-LEHTINEN. Go ahead. 

Mr. ENGLISH. In sum, while we can still find ways to further 

strengthen and deepen our cooperation, the United States and the 

EU particularly over the past year have taken significant steps to 

achieve our common objectives in Iran and more broadly have had 

an impact on nonproliferation in the world as a whole. And that 

is it. 

Ms. ROS-LEHTINEN. Indeed a great finish. 

Mr. ENGLISH. Yes, ma’am. 

Ms. ROS-LEHTINEN. Thank you very much. Thank you. 

[The prepared statement of Mr. Ries follows:]

PREPARED STATEMENT OF CHARLES RIES, ACTING ASSISTANT SECRETARY, BUREAU OF

EUROPEAN AND EURASIAN AFFAIRS

Madame Chairwoman and Members of the Subcommittee on the Middle East. I 

appreciate the opportunity to discuss with you today European Union policies toward Iran and some recent developments in the cooperation between the U.S. and 

EU on the control of the spread of weapons of mass destruction. Iran’s pursuit of 

weapons of mass destruction and it’s support of terrorism were major concern to the 

Congress when it passed the Iran and Libya Sanctions Act (ILSA). I will try to outline how the U.S. and EU cooperate to address our shared concerns over Iranian 

policies and the broader question of nonproliferation. 

The U.S. and EU share strong concerns over Iran’s pursuit of weapons of mass 

destruction, support of terrorism, promotion of violent opposition to the peace process, and abysmal record on human rights. We come from different starting points 
17

on how to curb objectionable Iranian behavior. The EU follows a policy of engagement with Iran, with the political focus conducted to a large degree through a structured ‘‘comprehensive dialogue.’’ The dialogue focuses on the major EU political concerns regarding Iran. The EU believes that engagement gives it influence with the 

Iranian regime, and the also encourages reformers in the Iranian government. We 

are very skeptical that engagement will achieve either objective. We have not seen 

evidence that this engagement has to date produced any real change in Iranian behavior, a point we make clear to the EU. 

While U.S. and EU policy toward Iran comes from different starting points, the 

gaps between the U.S. and European approach have narrowed, and the EU has increased its cooperation on a practical level since the passage of ILSA. The May 1998 

U.S.–EU joint declarations on non-proliferation and counter-terrorism reflected 

shared goals in these areas and a determination to work together to pursue these 

objectives. More recently, the EU has shown greater willingness to condition improvement in its economic relations with Iran on concrete, verifiable, and sustained 

improvements in Iranian behavior. 

An example is the EU’s response to an Iranian request to improve economic relations through a Trade and Cooperation agreement. In June of last year, the EU 

Council responded positively, but decided to keep the agreement at a basic level (no 

preferential tariffs or concessional assistance). With considerable U.S. urging, the 

EU decided to link the TCA with tangible improvements in Iranian policies on 

weapons of mass destruction, support for terrorism, the peace process, and human 

rights. The EU is currently negotiating two political agreements with Iran, focusing 

on the areas above. EU has stressed these political agreements must proceed in parallel with the TCA and will have to be signed simultaneously with the TCA. Not 

surprisingly there has been considerable resistance in the government of Iran to this 

approach, and we understand that negotiations have moved very slowly. 

Our Europeans allies are also proving to be staunch partners in the face of recent 

revelations that Iran’s declared nuclear program masks a hidden program to develop 

fissile material production capability in support of a weapons program. We understand that during a visit to Tehran June 1–2, an EU delegation made clear to high 

levels of the Iranian government that the European Union was very concerned 

about the nuclear program. At the June 1 Evian Summit, G–S leaders, including 

the leaders of the four largest EU nations and the EU itself as an observer, declared 

their concern about Iran’s nuclear program. I think the language on Iran is worth 

repeating:

We will not ignore the proliferation implications of Iran’s advanced nuclear 

program. We stress the importance of Iran’s full compliance with its obligation 

under the NPT. We urge Iran to sign and implement an IAEA Additional Protocol without delay or conditions. We offer our strongest support to comprehensive IAEA examination of this country’s nuclear program.

The EU released a similar statement at a June 16 EU Council meeting in Luxembourg and reiterated the linkage between Iran’s weapons of mass destruction programs, terrorism, human rights and the peace process to the Trade and Cooperation 

agreement. It also noted the Council’s ‘‘significant concerns about the Iranian regime’s handling of recent demonstrations. Finally, the EU worked shoulder-to-shoulder with the United States in the IAEA Board meeting of June 16–20 to ensure an 

outcome that reaffirms the international community’s call on Iran to open up its 

program to effective IAEA supervision and to answer all of the IAEA’s unresolved 

questions and concerns about its program. 

The EU’s tougher approach to the revelations on the Iranian nuclear program reflects broader changes in the EU’s strategy to contain the spread of weapons of mass 

destruction. The EU Council of June 16 also approved a set of Basic Principles and 

an Action Plan to strengthen international controls of weapons of mass destruction, 

which included a mandate to develop new cooperative measures with the United 

States. 

At the U.S.–EU Summit this morning in Washington, both sides pledged cooperation on a joint work program to combat the proliferation of dangerous weapons. It 

is worth mentioning some of the measures both sides agreed to implement:

• making the IAEA Additional Protocol a standard for international nuclear cooperation and non-proliferation;

• supporting an increase in the IAEA safeguards budget;

— tightening the enforcement and implementation of national export controls on dangerous materials and technology. The U.S. and the EU have 

also agreed that these national controls should include criminal penalties for the illegal export, transport, or brokering of weapons of mass 
18

destruction, missile delivery systems, and related materials and technology to create effective national exports systems to prevent transfers 

of WMD. The U.S. and the EU may provide assistance to advance this 

effort.

— strengthening national controls over dangerous pathogens and fostering 

the elimination of chemical weapons.

— Cooperating to address regional proliferation challenges. U.S.-EU Leaders emphasized the international community’s concerns about North Korea’s, and Iran’s weapons programs.

In sum, while we still can find ways to further strengthen and deepen our cooperation, the U.S. and EU—particularly over the past year—have taken significant 

steps to achieve our common objectives in Iran and more broadly had an impact on 

non-proliferation in world as a whole.

Ms. ROS-LEHTINEN. And I wanted to point out that we have a series of international relations resolutions on the Floor today, and 

that is why you don’t see many of our Members here. 

Ms. Borg, if I could begin the questions with you, and then I will 

have Mr. Smith question the panelists as well. In your statement 

you say that the imposition of sanctions for the Total deal would 

not have prevented it from going through. Is this now the threshold 

for the imposition of sanctions under ILSA; that is, do we waive a 

sanction ability if it is deemed that the deal can’t be stopped? 

Ms. BORG. Thank you, Madam Chairwoman. 

In the statement I tried to bring out the factors that were involved in that decision of which only one factor, in fact, was the 

conclusion that sanctions would not prevent the deal from going 

forward. But also involved in the decision were—and I refer again 

to President Bush’s statement, because it underscores that in going 

forward with the national interest waiver, there was a decision 

that—again, that was based on the importance of strengthening efforts with other countries whose cooperation is essential to pursuing the most effective approaches to solving the problems of proliferation and terrorism. In the whole mix there was a decision, as 

you know, that what had occurred or what appeared—what we 

knew of the reports made it look as if this fit under the umbrella 

of ILSA. At the same time, it was determined at that point that 

it was very unlikely that any sanction would prevent that deal 

from going forward, and that there were the additional factors of 

needing to work these issues forward in cooperation with other 

partners. 

And so there was a great deal of activity at that time; as we have 

continued since then, a great deal of activity both with senior diplomats, senior company officials and others to describe our concerns, and at the same time at the London summit in 1998, there 

was also an agreement to work on those areas with the EU. So it 

was in that whole context of heightened cooperation that this decision was taken. 

Ms. ROS-LEHTINEN. Thank you. 

Mr. Dibble, in your testimony you state that unlike some countries, we do not accept the notion of differentiating between hardliners and the so-called reformers in the Iranian regime. Are you 

referring to the European countries, and do you believe that the 

differences in the approach between the U.S. and the EU is rooted 

in this fine-line differentiation by the EU in spite of the recent 

harsh words as it does with Hamas, for example? And how can we 
19

reconcile this difference to ensure greater cooperation from our EU 

partners toward an EU policy that demands concrete, verifiable results from the Iranian regime? 

Mr. DIBBLE. I think—thank you, Madam Chairwoman. 

I think that what we look at with respect to Iran are the actions 

of the regime. And while it is an interesting analytical exercise to 

try and figure out who is behind what action and how much each 

one—how much support each one has, what we need to see are the 

actions themselves, and what we need to do is to hold the government as a whole accountable for them. 

I think we are seeing our European allies come to the same realization. I think that is one of the meanings——

Ms. ROS-LEHTINEN. With actions? 

Mr. DIBBLE. Yes. 

Ms. ROS-LEHTINEN. Not just with the rhetoric. 

Mr. DIBBLE. That is one of the meanings of the IAEA Board of 

Governors statement. I think that is the meaning of the EU statement, that the Europeans saw that we had, in fact, Iranian actions 

as documented by the IAEA report which they had to deal with. 

And what we saw was a growing process of getting closer to our 

position on this question. 

Ms. ROS-LEHTINEN. Would you rephrase that? 

Mr. DIBBLE. Say it again? Sure. 

I think the important thing is Iranian actions and not the degree 

of support they may or may not have within Iran. I think the Europeans are coming to share that view, and the evidence for that are 

recent statements by the EU in the G–8 and in other fora in reaction to the reports on the Iranian nuclear industry. There was a 

fact, there was an action. The EU had to deal with it, and it really 

didn’t matter whether this was hard-liners or the reformists who 

were behind it. 

Ms. ROS-LEHTINEN. Thank you. 

Mr. English, on your written statement following up on that, the 

most recent report to Congress on Iran-related multilateral sanctions regime efforts. That report states that the United States,

‘‘. . . works with other countries and regional organizations 

such as the European Union that have relations with Iran to 

promote compliance with arms control agreements and link improvements in their relations to concrete, verifiable cessation of 

Iran’s destructive policies.’’

And based on that, what is the message that our diplomats are 

delivering to foreign governments whose companies are making 

deals with Iran in spite of their governments’ harsh statements? 

Would you say that our efforts have been successful? How is State 

defining what is concrete, verifiable stoppage of Iran’s policies, and 

what is the threshold that State is using with our EU partners to 

determine whether their actions are sufficient to substantiate a 

continuing waiver of ILSA? 

Related to that, are European diplomats willing to listen to our 

objections to deals with Iran, or do they dismiss our complaints out 

of hand? You have mentioned the new rhetoric that is coming out 

of the EU. We hope that it is followed up. Are there consequences 

to the EU’s lack of cooperation on some of these key areas? 
20

Mr. ENGLISH. Madam Chairwoman, in terms of the overall cooperation that the EU is beginning to show and is ever more showing in terms of understanding our position on Iran, I think that the 

best example, as I mentioned in my testimony, is—are the conditions that they are willing to consider in terms of their moving forward in their program of engagement. We have been in touch with 

the European Union 15 and increasingly now, with the European 

Union soon to be 25, very often. They meet monthly in something 

called the General Affairs and External Relations Council, and we 

ask them almost monthly to listen to our complaints about Iran, to 

listen to our proposals in this area, that they carry forward these 

linkages in their trade and cooperation agreement. We have not determined for them what those concrete, verifiable benchmarks 

must be. We have urged them to do so. We want to hold a dialogue 

with them as they are developing them. But the fact of the matter 

is their negotiations are going so slowly at the moment that we 

haven’t yet really engaged them to that point. 

So the bottom line is, through our diplomatic pressure, we have 

both gotten the European Union collectively to join us in such 

places as the IAEA Board of Governors to condemn Iran’s policies 

and to insist on change and to insist in that setting on possible consequences. And also, we have mitigated their warming of relations 

or any possibility of their warming relations with Iran by continually bringing to their attention Iran’s support for terrorism, Iran’s 

abysmal human rights record. And I think the proof that we have 

been successful on that is that no agreement—these agreements 

have not gone forward. 

Ms. ROS-LEHTINEN. Thank you very much. 

Mr. Smith. 

I will have other questions, and I will submit them in writing. 

Thank you. 

Mr. SMITH. Madam Chairman, thank you. I have a question on 

the demonstrations. 

At the time of his election, there was guarded optimism that the 

government of President Mohammad Khatami was going to move 

toward greater democracy and reform. However, it would seem that 

the protests that we observed in the last couple of weeks indicate 

that there is still a lot of frustration with both Khatami and the 

ruling mullahs. The protests are almost unprecedented in the number, apparently, that were involved, and the duration. And though 

the demonstrations pretty much have been silenced now, if 

Khatami and the mullahs can convince people that the demonstrations were instigated by the United States, then it seems to me like 

they are absolutely going to be unsuccessful in terms of bringing 

about any change. 

Will they be able to convince people and prove that the United 

States was instigating the demonstrations? 

Mr. DIBBLE. Well, of course, it is nonsense that we were. And it 

is very hard to prove a negative. But I am sure that the—all elements of the Iranian Government understand that they have a 

problem; that they are, in the President’s words, unable to meet 

the aspirations, whether political, social, cultural or economic, of a 

rising generation of Iranians. They are going to have to deal with 

this, and their problems have nothing to do with the United States. 
21

Mr. SMITH. What are our communications, and what is available 

in terms of radio/television communications? 

Mr. DIBBLE. We operate Radio Farda, and we operate Web sites. 

The Internet has been a very, very powerful weapon in both in Iran 

and communicating between Iran and the outside world, and we intend to use that as much as possible. 

Mr. SMITH. Let me ask a question about the Iran-Libya Sanctions Act. Ten billion dollars billion in foreign investment have 

been channeled into Iran in the last 5 years. So apparently those 

sanctions aren’t working the way at least I thought they were 

going to work. Can you react to that, anybody? 

Ms. BORG. Yes. Thank you. 

Ms. ROS-LEHTINEN. You can make your answer brief because I 

would like to recognize Mr. Chabot for his last question. Thank 

you. 

Ms. BORG. Right. I think there are a lot of different ways in 

which we have looked at effectiveness of sanctions, and one of 

them, again, has been the area of strengthening cooperation. The 

other has been I think people have looked at—as a number of oil 

company people have said, when they think about investments, 

they have a lot of different factors in front of them, and one of 

them described ILSA as having a dampening effect. 

Lastly I would say that one can look at all different numbers of 

investment over recent years in Iran, and the estimates range all 

across the map. Most recently we looked at the IMF, the chapter 

4 consultation piece, which estimated 360 million in a number of 

recent years and 2 billion, and then proposed—or possibly for this 

year, 1.9 billion, leading to a total of maybe 6 billion. But I think 

we agree it is very hard to get a sense of the numbers, and we certainly would never let up even if the numbers were low. Our concerns are there, and we raise them all the time. 

Ms. ROS-LEHTINEN. Thank you so much. 

Mr. SMITH. Madam Chairman, thank you. I understand we are 

under a time constraint, so I yield back. 

Ms. ROS-LEHTINEN. Right. Thank you. You can submit them for 

the record, and I am sorry I took up so much time. 

Mr. Chabot. 

Mr. CHABOT. Thank you, Madam Chair. Do you want me to ask 

and——

Ms. ROS-LEHTINEN. You could just ask one question, and then we 

will submit the rest. 

Mr. CHABOT. Thank you. 

This is relevant to the—or relative to the Total waiver. The Clinton Administration issued a waiver of ILSA for Total’s investment 

phases 2 and 3 of the South Pars gas project. Since then there have 

been several other foreign energy investments over $20 million. 

How many foreign energy investments over 20 million have the 

Iranians secured, and how many are actually online today? What 

is the total value of the investments, and how much in additional 

energy production and revenue will Iran acquire as a result of 

these foreign investments? 

And I have got some more questions, but we can submit them 

in writing and get answers later. 
22

Ms. BORG. Thank you. And we look forward, of course, to answering all the written questions and getting back to the Committee. 

We know it has been a day pressed for time. So let me just comment on the ones that you noted. 

In our semiannual report to Congress, under section 10 of ILSA, 

we have a section always on recent reported petroleum investments 

agreements in Iran where we note ones that we are watching, ones 

that been in the press, and also note the instances where we have 

brought these up with governments and oil company senior management. And as you can see from recent reports, we are looking—

or we have seen reports of investment agreements in the range of 

15-, 16-; some of these, you know, pop up on the horizon, as Tracer 

did, and then they disappear. So it has been a constant effort to 

see how many there are and what has happened to them. 

On the issue of how many do we think are actually onstream at 

this point, I think our best estimate is probably about four of them 

onstream. In terms of the total investments that these might 

amount to, as we tried to answer before, it is tough to gauge these 

because it is hard to gauge the actual investment or whether you 

add in capital costs or when it comes on at a certain point. And 

I think that answers most of the questions you outlined. 

Mr. CHABOT. Okay. Thank you very much. 

Ms. ROS-LEHTINEN. Thank you. And that was a question. 

Just one more. Mr. Berman, my traveling buddy from Jordan. 

We just got back the other day. Do you have a statement or a question? They must leave. 

Mr. BERMAN. Leave? No, I think it would be wrong to come in 

now and mess up the timing, so I will hold off on any questions. 

Ms. ROS-LEHTINEN. I messed up the timing. 

Mr. BERMAN. No——

Ms. ROS-LEHTINEN. They were very nice about it. 

Mr. BERMAN. We had issues on the Floor. 

Ms. ROS-LEHTINEN. We all have issues. 

Thank you so much, we appreciate it. And we will submit our 

questions in writing to you. 

I would like to introduce our second panel. Dr. Patrick Clawson 

is the Deputy Director of the Washington Institute for Near East 

Policy. He is the author of more than 30 scholarly articles on the 

Middle East and is currently Senior Editor of Middle East Quarterly. He has served as a Senior Research Professor at the Institute 

for National Strategic Studies of the National Defense University 

in Washington, and a Research Economist for 4 years each at the 

International Monetary Fund, World Bank, and Foreign Policy Research Institute. 

Roger Robinson, Jr., is President and CEO of Conflict Securities 

Advisory Group, a Washington, DC-based company that offers impartial research and advisory services in the field of global security 

risk management. He is also President of RWR, Inc., a consulting 

firm providing strategic planning services and analysis of geopolitical developments affecting international equity debt and currency markets. Prior to forming these firms, Mr. Robinson was 

Senior Director of International Economic Affairs at the National 

Security Council from 1982 to 1985. 

We will begin with Dr. Clawson. 
23

STATEMENT OF PATRICK CLAWSON, Ph.D., DEPUTY DIRECTOR, THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY 

Mr. CLAWSON. Thank you, Madam Chairwoman. I have a statement for the record I would like to submit. 

Ms. ROS-LEHTINEN. Without objection. Thank you. 

Mr. CLAWSON. Thank you. And let me just offer some brief remarks. 

Iranian proliferation and terrorism remain serious problems, and 

the question that we should be asking is whether or not ILSA is 

an effective instrument for addressing these problems for which 

more use could be made. 

To answer that question, I would pose three issues. First, are 

economic sanctions appropriate instruments against Iranian proliferation and terrorism, as ILSA presumes? Second, is European 

and Japanese cooperation important to making sanctions fully effective, as ILSA supposes? And third, is the threat of economic 

pressure an appropriate instrument to secure European and Japanese cooperation, as ILSA presumes? And I would suggest that the 

answer to all three questions is yes. Let me suggest why. 

First, our economic sanctions appropriate instruments against 

Iranian proliferation and terrorism. I would be the first to acknowledge that economic sanctions are imperfect instruments to use, but 

I would suggest that all of the instruments that we have available 

against Iranian proliferation and terrorism are imperfect instruments. It is easy to criticize each of those instruments considered 

individually. Indeed I run through some of the options that are 

available for dealing with Iran’s nuclear program to say that each 

one of them suffers from serious problems. 

For instance, multilateral diplomacy has made a lot of progress 

recently, but it is very optimistic to think that diplomatic pressure 

alone is going to lead Iran to reverse its nuclear program. As for 

a grand deal with Tehran’s hard-liners, which some have proposed, 

well, I see little interest that Iran’s hard-liners are interested in 

such a deal. Besides which they have a history of cheating on 

deals. And any deal we did with them would like look we were selling out Iran’s democratic forces to support autocratic rulers. 

Regime change. Well, it is true the vast majority of Iran’s people 

detest the hard-liners, but it would be optimistic to count on the 

Iranian people being able to seize power in the few years before 

Iran becomes a nuclear power. 

Preemptive military action. Unfortunately, the military action 

might not slow Iran’s programs much. They may have unknown facilities we wouldn’t be able to hit, and they could promptly reconstitute most destroyed facilities within a few years. Furthermore, 

Iran could retaliate, for instance, with terrorism. In other words, 

our policy choices for dealing with Iranian proliferation, are really 

pretty bad, and in that context economic sanctions look pretty good. 

For one thing, economic problems are high on the screen for Iran’s 

leaders. So I would argue that ILSA’s focus on economic sanctions 

is appropriate. Indeed, focusing on Iran’s oil and gas industry is 

the right focus for sanctions, because the oil and gas industry is 

what provides revenue to the Iranian government. What we should 

be primarily trying to do is restrict the financing of the Iranian 
24

government, while at the same time reaching out to the Iranian 

people and encouraging people to build exchanges. 

My second question was whether or not European and Japanese 

cooperation are important to make sanctions fully effective; and 

there the news, I am afraid, is not particularly good. Initially when 

we imposed sanctions, our unilateral action had a lot of effect. Indeed, Iran’s oil output has actually declined over the last 4 years. 

But, unfortunately, because of higher oil prices, Iran has built up 

a large cushion, a large reserve; and I am afraid that in the future 

we are really only going to be able to influence Iran’s economy if 

the European and Japanese join in with us. 

Indeed, it is instructive to see that the Iranians have—are so 

eager for good economic relations with Europe that the Iranians 

have agreed in their negotiations with the Europeans about a trade 

agreement to talk about human rights, about proliferation, about 

terrorism, and about Iran’s undermining of the Middle East peace 

process. So what we learn from these trade agreement negotiations 

the Europeans are conducting is that Iran is very sensitive to economic pressure from Europe. If we could get Europe to join in with 

us on economic sanctions, then we think we have a good prospects 

of making change. 

Then, very briefly, my last point is that the threat of economic 

pressure is an appropriate instrument to secure European and Japanese cooperation. 

It would be wonderful if Europe and Japan decided to join the 

United States in taking firm action against Iranian terrorism and 

proliferation solely on the basis of the excellent arguments that 

United States Government officials offered, but I suspect that in 

fact United States Government officials will get further if they can 

also have a big stick that they can threaten the European governments with and not just a sweet tongue. 

Ms. ROS-LEHTINEN. Thank you very much. 

[The prepared statement of Mr. Clawson follows:]

PREPARED STATEMENT OF PATRICK CLAWSON, PH.D., DEPUTY DIRECTOR, THE

WASHINGTON INSTITUTE FOR NEAR EAST POLICY

CAN ILSA HELP STOP IRANIAN PROLIFERATION AND TERRORISM?

I wish to primarily address the Iran side of the Iran-Libya Sanctions Act (ILSA). 

ILSA’s aim is not to sanction European or other foreign firms which invest in 

Iran. As set forth in its Section 3, ILSA’s purpose is ‘‘to deny Iran the ability to 

support acts of international terrorism and to fund the development and acquisition 

of weapons of mass destruction [WMD] and the means to deliver them by limiting 

the development of Iran’s’’ petroleum industry. Any evaluation of ILSA enforcement 

has to ask, has Iran’s proliferation and terrorism been successfully limited, whether 

by use of ILSA or through other policies? If Iranian proliferation and terrorism remain problems, could more use be made of ILSA to address these problems? These 

are the issues which should be at the heart of the report on the effectiveness of actions under ILSA, due no less than 24 months and no more than 30 months after 

the July 2001 ILSA Extension Act. To be more specific, that report should acknowledge that Iran has remained the principal state sponsor of terror and that Iran is 

making great progress towards acquiring nuclear weapons and long-range missiles 

with which to deliver them. After that sober assessment, the report should answer 

three questions:

• Are economic sanctions appropriate instruments against Iranian proliferation 

and terrorism, as ILSA presumes?

• Is European and Japanese cooperation important to making sanctions against 

fully effective, as ILSA presumes?
25

1 Andrew Jack, ‘‘Iran missiles a ‘potential threat to 20m Russians,’ ’’ Financial Times, June 

17, 2003, p 3, describing a report from the PIR Centre. 

• Is the threat of economic pressure an appropriate instrument to secure European and Japanese cooperation, as ILSA presumes?

The answer to all three questions is, yes. Let us see why. 

Are Economic Sanctions Appropriate Instruments Against Iranian Proliferation and 

Terrorism? 

Economic sanctions are imperfect instruments to use against Iranian proliferation 

and terrorism. But all the instruments available to the United States are imperfect, 

and sanctions make sense as part of a coordinated package. 

To understand the problem, consider the urgent question of how the United States 

can stop Iran’s relentless march towards acquiring nuclear weapons within the very 

near future. Iran’s program has acquired a dynamic which is going to be very hard 

to reverse. Iran has accomplished the most difficult technical step, which manufacturing enrichment devices, in this case, centrifuges. Many experts think Iran will 

have a complete fuel cycle, capable of going from natural uranium mined in Iran 

to enriched uranium ready for a bomb, within a matter of months rather than years, 

though it would then take more than a year to produce the first bombs using that 

fuel cycle. Even Russian experts now write about Iran having missiles carrying nuclear warheads by 2006—in other words, during the life of the next Congress.1 That 

is not good news. 

All of the options available for stopping this drive suffer from serious problems:

• Multilateral diplomacy: In recent months, the United States has made considerable progress at persuading the European Union (EU), the International 

Atomic Energy Agency (IAEA), and even Russia that Iran’s nuclear programs 

are troubling. But it is optimistic to think that Iran will cease or reverse nuclear proliferation because of diplomatic pressure. More likely, Tehran will do 

just enough to split the international community, while continuing with clandestine nuclear programs.

• A ‘‘grand deal’’ with Tehran: There is little reason to think that Iran’s 

hardliners, who for years refused to even talk to Washington, are interested 

in a deal. Based on their history (e.g., the release of hostages in Lebanon), 

Iran and the United States are each convinced the other cheats and refuses 

to respond to overtures. Any deal might involve terms so generous it would 

like Tehran was being rewarded for being a proliferator, which could encourage others to proliferate. Plus, any deal would look like Washington was supporting Iran’s hardliners, thereby selling out the democratic forces.

• Regime change: While the vast majority of Iran’s people detest the hardliners 

who control power, it would be optimistic to count on them seizing power in 

the few years before Iran becomes a nuclear power. It would therefore be prudent for the United States government to plan on having to deal with a problematic regime in Tehran for the indefinite future. It is not clear Washington 

can do much if anything to speed victory of democratic forces. And a democratic government would be intensely nationalist and so might be loathe to 

give up nuclear programs until it better understood the strategic cost such 

programs entail, e.g., the suspicion they cause.

• Preemptive military action: Iran’s known program involves several large facilities far inland which would require a large military action to destroy. Military action might not slow Iran’s program much: it may well have other unknown facilities, and it could probably reconsitute most destroyed facilities 

(other than the Bushehr nuclear power reactor) within a few years. Iran could 

retaliate, e.g., with terrorism. And military action could lose the United 

States the sympathy of the Iranian people.

Given this set of bad choices, economic sanctions look pretty good. After all, economic problems are high on the mind of Iran’s leaders. They are acutely aware that 

the youth protests threatening their rule are fueled by the poor prospects for the 

young. Schools are overcrowded, with three shifts common at high schools. The state 

universities accept less than one-fifth of those who take the entrance exam, and the 

private universities are beyond the reach of most Iranians (plus, they are not very 

good). Few of those leaving school find jobs readily: about 700,000 young men look 

for their first job each year, but less than 250,000 jobs become available, and the 

situation for young women is so bad that few bother even looking for employment. 

Iran’s ‘‘baby boom generation’’ (born in the decade after the 1979 revolution) faces 

a dismal future, and they are frustrated. These young people blame the hardliners 
26

2 IMF, ‘‘Islamic Republic of Iran: Selected Issues and Statistical Appendix,’’ Country Report 

No 02/212, September 2002. 3The 2518th meeting of the European Council (the ministerial body directing the EU) on June 

16, 2003 concluded, ‘‘The Council recalled that in deciding to open these negotiations [with Iran] 

it expected that deepening of economic and commercial relations between the EU and Iran 

for their economic problems. High on the list of complaints is that hardliners have 

prevented normal economic relations with the United States. In this situation, the 

U.S. government is in a good position to say to Iran’s leaders: stop proliferation and 

terrorism, and the United States will drop its sanctions. In other words, the sanctions provide a powerful leverage to advance the anti-terror, anti-proliferation goals 

of ILSA. 

In the long run, the prospects for stopping Iranian proliferation and terrorism are 

good, because the Iranian people hate the current system, want democracy, and are 

friendly to the United States. Therefore, any policy should reach out to the Iranian 

people to support their hopes for change while taking a tough stand against those 

who engage in repression at home and terror abroad. For this reason, economic 

pressure on Iran should be primarily through restrictions on the oil and gas industry, because those industries finance the Iranian government. Restrictions on the oil 

and gas industry in no way slow the people-to-people contact which is so important 

for supporting democratic forces in Iran. Nor do restrictions on oil and gas directly 

hurt private Iranian business people, many of whom are fierce opponents of the 

present regime. For all these reasons, the focus in ILSA on the oil and gas industry 

is a wise choice. 

Is European and Japanese Cooperation Important to Making Sanctions Fully Effective? 

While initially denying that U.S. economic sanctions and ILSA would have much 

impact, Iran and international oil analysts now agree that in fact the U.S. actions 

significantly impeded investment in Iran’s oil and gas industry, which is exactly its 

stated purpose. To be sure, the Iranian government’s own incompetence—its corruption, inefficiency, and generally inflexible stance in negotiations with international 

oil companies—have had more impact than U.S. actions at reducing foreign investment in Iranian oil and gas. But Iranian commentators regularly ascribe the failure 

to attract foreign investment to U.S. pressure, even though the Iranian oil experts 

recognize that is not the case. In other words, Iranians see the U.S. government as 

being more powerful than it really is, which is a fine thing—if we can take credit 

for the actions of others, that magnifies our perceived power. 

Because it has not been able to attract as much foreign investment as it hoped, 

Iran has not been able to increase its oil output in recent years. According to the 

most recent International Monetary Fund (IMF) report on Iran,2 Iran’s oil output 

in 1997/98 was 3.623 million barrels of oil per day and that actually fell over the 

next four years to 3.441 million in 2001/02. In other words, despite the tremendous 

importance the Iranian government put on increasing oil output, it has not been 

able to do so. Unfortunately, however, higher oil prices have allowed the Iranian 

government to substantially increase its income. According to the IMF report, Iran’s 

crude oil exports averaged $11.6 billion in 1997/98–1998/99, but then averaged $17.1 

billion in 1999/00–2001/02, and I estimate they were at least that much in 2002/

03. That extra $5.5 billion a year for four years has provided the Iranian government considerable margin. Tehran has used the money to reduce its vulnerability 

to external economic pressure, paying off at least $5 billion dollars in foreign debt 

and building up at least $12 billion in foreign exchange reserves. In what it told 

the IMF, Iran claimed its foreign exchange reserves were $17.5 billion in March 

2002 and projected they would be $22.9 billion in March 2003. The sad reality is 

that Iran is extremely well positioned at present to resist foreign economic pressures. 

Because Iran has used the high oil prices of the last few years to build up a cushion against foreign economic pressure, the United States is no longer in as good a 

position to press Iran on its own. Iran’s leaders seem convinced they can outlast any 

economic pressure the United States can apply. On the other hand, they are anxious 

to secure closer economic cooperation with Europe and to a lesser extent Japan. 

Once the United States blocked Iran’s application to join the World Trade Organization, Iran’s hardline government bent every effort to reaching a ‘‘Trade Cooperation 

Agreement’’ (TCA) with the EU. To its credit, the EU insisted that the TCA had 

to include provisions about human rights (which has become the norm for TCAs) 

and, in an unusual move, that the TCA could only proceed if progress were made 

in parallel on three political issues: proliferation, terrorism, and Iran’s undermining 

of the Middle East peace process.3 It is a sign of just how desperate Iran’s 
27

should be matched by similar progress in all other aspects of the EU’s relations with Iran. It 

identified in particular the need for significant positive developments on human rights, non-proliferation, terrorism, and the Middle East Peace Process.’’ 4 In its Declaration on Non-Proliferation of Weapons of Mass Destruction adopted June 16, 

2003, the Council concluded, ‘‘The proliferation of weapons of mass destruction and means of 

delivery such as ballistic missiles is a growing threat to international peace and security . . . 

We have a wide range of instruments available [against proliferation, including] as a last resort, 

coercive measures in accordance with the UN Charter. While all [these instruments] are necessary, none is sufficient in itself. We need to strengthen them all, and deploy those which are 

most effective in each case.’’ 5 As Undersecretary of State for Economic Affairs Sutart Eizenstat explained to this committee on June 3, 1998, the EU wanted a country waiver under ILSA’s Section 4(c). What the 

United States agreed to instead was a national security waiver under Section 9(c) for one project 

(the South Pars project). The United States specifically said that it would apply ILSA sanctions 

on any EU firm that invested in building a trans-Iranian oil or gas pipeline from the Caspian. 

hardliners are for a trade agreement with Europe that they agreed to discuss these 

issues. Several rounds of negotiations have been held. To be sure, the EU is making 

only mild demands of the Iranians, e.g., on human rights, the EU asked that stoning adulterers to death be stopped, and it appears to have accepted Iran’s counteroffer to suspend the stonings. 

The TCA negotiations show that economic pressure by Europe can bring Iran to 

the negotiating table to discuss the most important political issues. Therefore, a priority for U.S. policy should be pushing Europe, and if possible also Japan, into taking joint economic actions to stop Iranian proliferation and terrorism. This is the 

objective of ILSA. 

Is the Threat of Economic Pressure an Appropriate Instrument to Secure European 

and Japanese Cooperation? 

It would be wonderful if Europe and Japan decided to join the United States in 

taking firm action against Iranian terrorism and proliferation solely on the basis of 

the excellent arguments which U.S. government officials offered. Perhaps that can 

be done. Already, the EU has become active pressing Iran to do more to address 

the IAEA’s concerns about Iran’s nuclear program, and the EU has formally said 

that ‘‘coercive measures’’ have to remain a last resort to prevent proliferation.4

Nevertheless, the record of the EU’s ‘‘critical dialogue’’ with Iran during the 1990s 

and the more recent TCA negotiations suggest that the EU will be less than vigorous in pressing Iran to end terrorism and proliferation. Under those circumstances, surely it is helpful if U.S. policymakers have additional instruments 

they can use to influence European decisions. ILSA provides a wide range of instruments that can be held over the head of European governments. For instance, ILSA 

provides that if a government adopts a program to use economic pressure to impede 

Iranian proliferation and terrorism, then the president can issue a general waiver 

of any sanctions because of investments by nationals of that country. This provision 

has not been used. There are lots of ways that it could be productively applied. For 

instance, it would be very useful if the EU countries joined with the United States 

in applying economic sanctions on Russian, Chinese, and North Korean firms involved in the proliferation of nuclear and missile technologies to Iran. So long as 

only the United States is raising this matter, the Russians can dismiss the concerns 

as American exaggerations, whereas the Russian reaction might be quite different 

if it were faced with concern from all the G–7 countries. 

Instead of making use of the general waiver provision, the Clinton administration 

concluded an agreement with the EU on May 18, 1998 under which it issued a waiver for a specific investment project.5 In return, the EU agreed to a series of measures designed to tighten export controls on military and dual-use technologies for 

Iran and it signed eleven counterrorism conventions with the United States. Another aspect of the deal was that the EU agreed to suspend its complaint to the 

WTO about ILSA and the United States agreed that ‘‘like treatment for future 

projects [i.e., project-specific waivers] would occur only in the circumstance where 

we were getting the kind of enhanced cooperation on weapons of mass destruction 

and counterterrorism that we’ve gotten as a result of our May 18, 1998 agreement,’’ 

to quote Undersecretary of State Stuart Eizenstat’s testimony to this committee on 

June 3, 1998. 

That may have been the best that could be gotten from the EU at the time. However, times change. With the problem of Iranian proliferation growing markedly 

worse, and with the EU becoming more cognizant of the grave danger from the 

nexus of proliferation and terrorism, the time has come to revisit whether we are 

getting the kind of enhanced cooperation Secretary Eizenstat spoke of. Surely as the 

problem grows worse, the cooperation we expect from Europe should grow. The 1998 

agreement to grant future waivers was conditional upon such ‘‘enhanced coopera-
28

tion.’’ There are a variety of issues which could be raised with the EU about enhanced cooperation. And it would be useful to adopt the same approach with countries outside the EU, namely, to make waivers contingent on enhanced cooperation 

on Iranian proliferation and terrorism. Iran has been soliciting investments in its 

oil industry from Japan, China, Russia, Canada, and a number of other industrial 

and industrializing nations; all of these countries could be approached about enhanced cooperation against Iranian proliferation and terrorism. 

Many in European circles regard ILSA has too intrusive on Europe’s turf. I have 

never understood how the U.S. and the EU decide which issues are sufficiently important that the two sides will escalate the issue into a serious trade dispute. Offhand, I would have said that bananas are less of a threat to U.S. security and prosperity than are prospective Iranian nuclear missiles. But the United States and Europe have repeatedly gone toe to toe over bananas, imposing far-reaching sanctions 

against offenders, while the United States agreed to waivers to prevent a trade dispute about Iranian proliferation and terrorism. Unless some more effective policies 

are developed to prevent Iran’s rapidly advancing nuclear program, it is time to reconsider risking a trade dispute if need be in order to secure European enhanced 

coooperation against Iranian proliferation and terorism.

Ms. ROS-LEHTINEN. Mr. Robinson. 

STATEMENT OF ROGER W. ROBINSON, CEO AND PRESIDENT, 

CONFLICT SECURITIES ADVISORY GROUP, INC. 

Mr. ROBINSON. Thank you, Madam Chair and the Committee, for 

convening this timely session. As you noted, I will be testifying 

today in my capacity as President and CEO of Conflict Securities 

Advisory Group, which specializes in impartially assessing the financial and reputational risks associated with the operation of 

publicly-traded companies in or with countries that sponsor terrorism. 

Our company was founded in 2001 to help investors identify 

portfolio companies exposed to global security risk of the type described as well as those firms that have been associated with proliferation-related concerns. I am also currently serving as Chairman of the Congressional United States-China Economic and Security Review Commission. 

By way of background, I have been evaluating the nexus between 

national security and global finance for over 25 years. Prior to my 

government service at the National Security Council, I was a Vice 

President in the International Department of the Chase Manhattan 

Bank, with responsibilities for the bank’s loan portfolios in the 

former Soviet Union, Eastern and Central Europe and Yugoslavia. 

A determination was made by the SEC in May, 2001, that significant corporate operations in United States-sanctioned countries, 

including Iran and Libya, can represent a material risk to investors 

and should be properly disclosed. Pursuant to this development, we 

launched our Global Security Risk Monitor online service in May 

of last year. The Monitor is the world’s only online research and 

risk assessment tool that identifies and profiles every publicly-traded company worldwide that does business in Iran, Libya, and other 

terrorist-sponsoring states. Put simply, it allows investors and government analysts to know who is doing business where and, more 

importantly, what specific operations are under way in these higher-risk countries. It is recognized, for example, that there is a substantial difference between a firm selling soft drinks and one that 

is constructing a potentially dual-use fiberoptic network. 

Due to time constraints, I would encourage interested parties to 

review our Web site, www.conflictsecurities.com, for more informa-
29

tion regarding global security risk and our Global Security Risk 

Monitor subscription service. The site includes some examples of 

at-risk companies and dozens of mainstream press and broadcast 

media pieces covering of this subject. As we now have over $1 trillion in funds under management that 

have subscribed to the Monitor, it is reasonable to assert that corporate ties to terrorist-sponsoring states is a market issue that has 

taken on national prominence. To underscore this point, the announcements of the shareholder resolutions on this subject registered with the SEC by New York City firefighters and police officers pension funds, which incidentally signaled out three of America’s largest corporations doing business in Iran through their overseas subsidiaries, and the unanimously-passed legislative resolution of Pennsylvania’s State assembly are submitted for the record 

of this hearing. 

I should emphasize at this point that, as an impartial information provider, we don’t take a position regarding whether companies should or should not do business in Iran, Libya, or other terrorist-sponsoring states. The relevance and use of our data is for 

the individual investor to determine. We likewise assume that the 

operations of companies included in our Monitor product are legal 

and commercial in nature. That said, we recognize the important 

public policy issues embedded in our research, hence the relevance 

of our findings to today’s discussion. 

Following an exhaustive 7-month research effort, our company 

and our partner firm, Investor Responsibility Research Center, determined that roughly 375 publicly-traded companies are operating 

in State Department-designated terrorist-sponsoring states—not including Cuba. There are over 200 publicly-traded companies with 

such links to Iran. Over 60 have business activities in Libya. Based 

on our research findings, it is my view that these companies offer 

critical commercial infrastructure for the governments of Iran, 

Libya, and other terrorist-sponsoring governments and nations. 

These three major points I should say underpin this view. 

First, as might be expected, it is primarily the largest and most 

well-known companies in the world that have the risk appetite to 

conduct business with government sponsors of terrorism. Many of 

these firms are found in the retirement portfolios and mutual funds 

of millions of Americans. 

Some 70 percent of those firms identified in our Monitor product 

are of European and Asian origin—companies such as TotalFinaElf 

and Alcatel of France, ENI of Italy, Hyundai of South Korea and 

several leading Japanese firms come to mind. Notwithstanding 

U.S. sanctions, some 35 major U.S. companies have legal operations in these countries through their overseas subsidiaries. 

Second, virtually all of these nations are afflicted with serious 

economic shortcomings and bottlenecks. Years of economic mismanagement, corruption and ill-advised policies have left these nations inordinately dependent on foreign corporate and government 

assistance. Accordingly, it is common for these firms to be required 

to partner with state-owned enterprises in these countries to ensure that the government can access advanced technology, equipment and expertise as well as maintain control over associated revenue flows. 
30

Third, the sheer volume of business being conducted by publiclytraded firms in these countries is worth noting. Many companies 

don’t disclose figures associated with projects in terrorist-sponsoring states or document how much revenue they are generating 

for these governments. Our research, however, indicates that these 

companies are participating in projects and financial and commercial transactions totalling, at minimum, tens of billions of dollars 

in these countries. ENI alone is engaged in consortia energy deals 

in Iran and Libya totalling as much as $9 billion. Given the size 

of these economies, this level of foreign corporate involvement is of 

great significance. 

In conclusion, publicly-traded companies are providing substantial hard currency revenues and infrastructure support to terroristsponsoring governments. The fact that legal commercial transactions and revenue flows can in select cases be employed by these 

irresponsible governments for dual-use, militarily-relevant purposes has created a risk to the share values and reputations of 

many companies doing business in these nations. Such risks can 

take the form of official sanctions, lawsuits, negative publicity, 

shareholder activism or military intervention. 

Thank you, and I would be pleased to take your questions. 

Ms. ROS-LEHTINEN. Thank you very much. 

[The prepared statement of Mr. Robinson follows:]

PREPARED STATEMENT OF ROGER W. ROBINSON, CEO AND PRESIDENT, CONFLICT

SECURITIES ADVISORY GROUP, INC. 

I’d like to thank the Chairman and the Committee for convening this timely session. I am testifying today in my capacity as President and CEO of Conflict Securities Advisory Group, which specializes in impartially assessing the financial and 

reputational risks associated with the operations of publicly traded companies in or 

with countries that sponsor terrorism. Our firm was founded in 2001 to help investors identify portfolio companies exposed to global security risk of the type described 

as well as those firms that have been associated with proliferation-related concerns. 

I also currently serve as Chairman of the Congressional U.S.-China Economic and 

Security Review Commission. 

By way of background, I have been evaluating the nexus between national security and global finance for over twenty-five years. From 1982–1985, I served as Senior Director of International Economic Affairs at the National Security Council. 

Prior to my government service, I was a Vice President in the International Department of the Chase Manhattan Bank, with responsibilities for the bank’s loan portfolios in the former Soviet Union, Eastern and Central Europe and Yugoslavia. 

A determination was made by the SEC in May 2001 that significant corporate operations in U.S.-sanctioned countries, including Iran and Libya, can represent a material risk to investors and should properly be disclosed. Pursuant to this development, we launched our Global Security Risk Monitor online service in May of last 

year. The Monitor is the world’s only on-line research and risk assessment tool that 

identifies and profiles every publicly traded company worldwide that does business 

in Iran, Libya and other terrorist-sponsoring states. Put simply, it allows investors 

and government analysts to know who is doing business where and, more importantly, what specific operations are underway in these higher risk countries. It is 

recognized, for example, that there is a substantial difference between a firm selling 

soft drinks and one that is constructing a potentially dual-use fiber optic network. 

Due to time constraints, I encourage interested parties to review our website—

www.conflictsecurities.com—for more information regarding global security risk and 

our Global Security Risk Monitor subscription service. The site includes some examples of ‘‘at risk’’ companies and dozens of mainstream print and broadcast media 

pieces covering this topic. As we now have over $1 trillion in funds under management that have subscribed to the Monitor, it is reasonable to assert that corporate 

ties to terrorist-sponsoring states is a market issue that has taken on national 

prominence. To underscore this point, the announcement of the shareholder resolutions on this subject recently registered with the SEC by the New York City fire-
31

fighters and police pension funds and the unanimously-passed legislative resolution 

of Pennsylvania’s State Assembly are submitted for the record of this hearing. 

I should emphasize at this point that we do not take a position regarding whether 

companies should or should not do business in Iran, Libya or other terrorist-sponsoring states. The relevance and use of our data is for the individual investor to determine. We likewise assume that the operations of companies included in our Monitor product are legal and commercial in nature. That said, we recognize the important public policy issues embedded in our research, hence the relevance of our findings to today’s discussion. 

Following an exhaustive, seven-month research effort, our company and our partner firm, Investor Responsibility Research Center, determined that roughly 375

publicly traded companies are operating in State Department-designated terroristsponsoring states (not including Cuba). There are over 200 publicly traded firms 

with such links to Iran. Over 60 have business activities in Libya. Based on our research findings, it is my view that these companies offer critical commercial infrastructure for the governments of Iran, Libya and other terrorist-sponsoring nations. 

Three major points underpin this view.

• Size and Type of Companies: First, as might be expected, it is primarily the 

largest and most well-known companies in the world that have the risk appetite to conduct business with government sponsors of terrorism. Many of these 

firms are found in the retirement portfolios and mutual funds of millions of 

Americans. 

Some 70 percent of those firms identified in our Monitor product are of European and Asian origin—companies such as TotalFinaElf and Alcatel of 

France, ENI of Italy, Hyundai of South Korea and several leading Japanese 

firms come to mind. Notwithstanding U.S. sanctions, some 35 major U.S. 

companies have legal operations in these countries through their overseas 

subsidiaries.

• Country Assessments: Second, virtually all of these nations are afflicted with 

serious economic shortcomings and bottlenecks. Years of economic mismanagement, corruption and ill-advised policies have left these nations inordinately dependent on foreign corporate and government assistance. Accordingly, it is common for these firms to be required to partner with state-owned 

enterprises in these countries to ensure that the government can access advanced technology, equipment and expertise as well as maintain control over 

associated revenue flows.

• Volume: Third, the shear volume of business being conducted by publicly traded firms in these countries is worth noting. Many companies do not disclose 

figures associated with projects in terrorist-sponsoring states or document 

how much revenue they are generating for these governments. Our research, 

however, indicates that these companies are participating in projects and financial and commercial transactions totaling, at minimum, tens of billions of 

dollars in these countries. ENI alone is engaged in consortia energy deals in 

Iran and Libya totaling as much as $9 billion. Given the size of these economies, this level of foreign corporate involvement is of great significance.

In conclusion, publicly traded companies are providing substantial hard currency 

revenues and infrastructure support to terrorist-sponsoring governments. The fact 

that legal, commercial transactions and revenue flows can, in select cases, be employed by these irresponsible governments for dual-use, military-relevant purposes, 

has created a risk to the sharevalues and reputations of many companies doing 

business in these nations. Such risks can take the form of official sanctions, lawsuits, negative publicity, shareholder activism or military intervention. Thank you 

and I would be pleased to take your questions.

Ms. ROS-LEHTINEN. Mr. Berman, I would like to recognize you to 

begin the questions so that you could have an opportunity. 

Mr. BERMAN. Thank you very much, Madam Chairwoman; and 

appreciate both of you being here. 

Maybe just initially, Mr. Robinson, did you quantify how much 

of this corporate involvement was in the oil and gas sector of Iran 

as opposed to other investments? 

Mr. ROBINSON. It’s very difficult to quantify, but I can give you 

a sense of the scale of corporate involvement in the energy sectors 

for both Iran and Libya. 
32

Mr. BERMAN. Okay. I am particularly focused on Iran here. 

Mr. ROBINSON. In the case of Iran, we have identified some 58 

publicly-traded firms worldwide doing business in the energy sector 

as defined by the ILSA statute of which as many as 41 appear to 

have investments totaling over $20 million. 

Mr. BERMAN. Any of those foreign subsidiaries of American corporations? 

Mr. ROBINSON. I would have to check, but I don’t believe that is 

the case. Just one moment on that. 

I don’t think so, but we can check that for you. 

Mr. BERMAN. Then, given that data of approximately $20 billion, 

Dr. Clawson, I would like to go to the second question you posed, 

which was if ILSA picked that sector of the Iranian economy to 

focus on on the theory that that was the most value-added kind of 

investments that Iran could have, that would bring them more resources to continue their activities both in the proliferation and terrorism support effort. 

The second question was Europe and Japan cooperation and the 

essentiality—ILSA was designed—we didn’t need ILSA to deal with 

United States company involvement. We already had an embargo 

on Iran, somewhat modified, as my colleague Mr. Sherman likes to 

point out, recently in the last few years, but basically still prohibiting investments in the oil and gas sector. ILSA was designed to 

tear through what some view as extraterritorial sanctions on foreign investment and in particular European and Japanese investment. It seemed like in the first years of ILSA it was having that 

effect. 

Would you comment on the extent to which this long list of 

projects that are now under way, that are reported in our staff 

memo, to what extent our willingness to provide waivers of those 

sanctions has encouraged the level of investment that Mr. Robinson talked about? 

Mr. CLAWSON. Not only have we provided waivers, but we have 

often looked the other way, and the United States Government has 

not been noted for the effort which it has devoted to investigating 

whether or not companies are becoming involved. As someone who 

has for years had visitors from many of the companies that have 

become involved and asking my opinion and my advice as to whether or not the United States Government would single them out for 

these investments, I have had to tell them candidly that so long as 

they can keep the investments off the front pages of the newspapers it is likely that the United States Government will do very 

little about these investments. 

Mr. BERMAN. While that process started in the previous Administration I take it it has continued into this Administration, that notion of both waivers and looking at but never deciding the investments and deals that have been made since that time. 

Mr. CLAWSON. Yes, sir. In part, if I may say so, that is because 

the Iranian incompetence and mismanagement has done quite a 

good job at slowing down many of those projects so that, in many 

cases, grand investments are announced and not much happens for 

years and years. 

Mr. BERMAN. I think my time has expired. Thank you, Madam 

Chair. 
33

Ms. ROS-LEHTINEN. Mr. Sherman. 

Mr. SHERMAN. Thank you, Madam Chair, for letting me participate. I am a Member of the Full Committee, and it is good to be 

with you here in the Subcommittee. 

Looking at the Middle East at the beginning of this year, we saw 

two threats to the security of Americans, Iraq and Iran. It is pretty 

clear that Iran was overwhelmingly the greater threat, far more 

advanced in its nuclear program, not suffering from the diplomatic 

infirmities of having invaded a country in the 1990s, and not subject to any international inspections it wasn’t happy with and easily able to evade. Recent efforts to find weapons of mass destruction in Iraq have shown that it was a distant competitor with Iran 

in terms of which country was most likely to develop weapons of 

mass destruction, particularly nuclear weapons, and have the capacity to smuggle them into American cities. 

It is odd that the Administration has sacrificed the lives of American servicemen and women to go after this distant competitor of 

Iran and yet when it comes to Iran we have not even used the economic tools. It is as if we are more willing to risk the lives of our 

servicemen and women than we are to inconvenience the corporate 

sector. 

You gentlemen have talked about the Iran-Libya Sanctions Act. 

You have made us even more aware of the tendency to simply 

waive it or our new don’t-ask, don’t-tell policy toward whether 

countries are loaning and investing hundreds of millions of dollars. 

I can add to that the fact that the United States has adopted a 

hear-no-evil, see-no-evil policy with regard to the World Bank loaning roughly $200 million to this government just in the last 7 

months. Pursuant to laws passed by Congress, they voted no; and 

then, as I pointed out, I had tea and crumpets with the folks who 

outvoted us and voted yes. Finally, we import $150 million from Iran so that they can easily 

sell their oil to elsewhere, but they can export to our markets for 

caviar and carpets. I won’t even ask the question of whether we 

have a caviar crisis in the United States that necessitates those imports for our own domestic needs. 

I want to thank both of you for your testimony and ask Mr. 

Clawson whether—the one bit of economic pressure that is being 

put on Iran to try to force it to not develop nuclear weapons and 

not support terrorism has been the possibility of not being able to 

conclude a trade agreement with Europe. How does the importance 

of that trade agreement on the one hand compare to the things 

that we can do that have a more direct impact on, namely, enforcement of ILSA, a withdrawal of the World Bank loans which haven’t 

been disbursed and will not be disbursed if we threaten to withdraw from the World Bank and the closing of our markets? 

So if you were an economic advisor to the Government of Iran 

trying to deal with which is of greater economic importance, which 

would you fear most, a denial of a trade agreement with Europe 

or the withdrawal of the World Bank loans and end of the ability 

to export to the United States and an Ileana Ros-Lehtinen approach to enforcement of ILSA? 

Mr. CLAWSON. Congressman Sherman, the Iranian government 

seems to have decided that once ILSA was enacted it wanted to re-
34

duce its vulnerability to United States economic pressure. So it 

adopted really quite a belt-tightening approach. That combined 

with higher oil income allowed them to repay a lot of their foreign 

debt and to build up a reserve of at least 12, possibly as much as 

20, billion dollars in foreign exchange reserves. 

So they decided that whatever economic pain the United States 

may inflict upon them they are prepared to sustain. So that while 

certainly the methods that you mentioned which the United States 

could do would have a greater impact upon the Iranian economy, 

Iran’s leaders seem to have decided as a political matter that they 

would be prepared to sustain that kind of price, if necessary, in 

large part because they are reasonably confident they wouldn’t 

have to sustain any economic pain from Europe. So it would come 

to them as an unpleasant shock if Europe were to join in with us. 

Therefore, if Europe were to join in with us, that might have a 

greater political impact on Iran’s nuclear program. 

So that my answer to your question would be two parts: Which 

has got a greater economic impact? The U.S. action. Which would 

likely have the greater political impact? I suspect the European action might have the greater political impact. 

There is a good prospect that Europe might do this. The European leaders are talking about suspending the trade cooperation 

agreement negotiations unless there is greater progress on these 

political fronts by September. 

Mr. SHERMAN. So you are saying that rejection by Europe—if 

they have got these billions in reserve, they could easily survive 4 

or 5 years without the benefits of a trade deal that they don’t have 

now. 

Mr. CLAWSON. That is true, Congressman. But I think the concern that the Iranian leaders have is that suspension of the trade 

cooperation agreement negotiations might be just one shoe dropping. The other shoe which might drop might be that if Iran in fact 

is, as it may well be, found by the International Atomic Energy 

Agency Board to be not in compliance with its obligations under 

the Nonproliferation Treaty, then Europe might actually be prepared to consider some far-reaching economic sanctions. 

We saw in this morning’s Wall Street Journal the former Israeli 

Prime Minister Simon Perez arguing for comprehensive international economic sanctions against Iran unless it halts its nuclear 

program. I think the Iranian leaders are afraid that those kind of 

arguments are gaining greater ground even in places like Europe. 

Mr. SHERMAN. I would hope this Administration would be willing 

if necessary to endanger, as they have been all too willing to endanger in the past, our relations with Europe to achieve that economic pressure than to endanger American cities by allowing the 

culmination of the nuclear weapons program in Iran. 

I want to thank you for your time. 

Ms. ROS-LEHTINEN. Very good statement. Thank you, Mr. Sherman. 

What role does ILSA play within the broader United States policy toward the Iranian regime? What message does the lack of 

ILSA implementation send to other rogue states in the region such 

as Syria? 
35

Mr. CLAWSON. The lack of enforcement of ILSA along with some 

statements indeed from President Clinton while he was still President would suggest that sometimes the Administration is forced to 

sign bills which are popular in Congress but which it then has no 

intentions of enforcing. Sometimes that leaves the impression in 

rogue states that the United States may take a tough rhetorical 

stance but you can ignore that because the actions may be less. 

That undercuts our position. Indeed, we saw some former officials of the Bush Administration, such as former Policy Planning 

Director Richard Haas, who was well-known to be someone who 

was eager to find ways to reduce economic sanctions. This led to 

the impression in a number of these states that there may be tough 

words said by Administration officials, but when it comes to actions 

don’t expect much. 

Mr. ROBINSON. While I can’t take a public policy position on 

ILSA, as it could impact on companies profiled in our Global Security Risk Monitor, I would only say our research findings indicate 

that publicly-traded companies don’t appear to be deterred by the 

legislation based on the number of firms that I have just cited that 

are involved in Iran’s and Libya’s energy sector. 

To elaborate on a point that I was starting to make a little earlier in the case of Libya you have approximately 22 public-traded 

firms that are engaged in corporate operations in the country’s energy sector as defined, at least as we understand it, by ILSA; and 

of those 22 companies, about half appear to have investments of 

over $20 million. So this is at least one numerical indicator of corporate attitudes on the matter. 

Ms. ROS-LEHTINEN. Thank you. 

Dr. Clawson, in your testimony you note that Iran’s nuclear program has acquired a dynamic which is going to be very hard to reverse. Do you believe that Iran’s rush to go nuclear is also being 

motivated by the different approaches in the United States that we 

undertook against the Iraqi regime where our actions were preventative in nature versus the North Korea regime which already 

has the nuclear weapons? 

Mr. CLAWSON. It would certainly seem from the public debate in 

Iran that some people in Iran have concluded from the contrast between United States policy toward Iraq and United States policy 

toward North Korea that Iran would be well-advised to acquire a 

nuclear weapon as soon as possible or, at the very least, to create 

an ambiguity as to whether or not Iran has a nuclear weapon because that could then deter the United States from military action 

against Iran, a military action which many in Iran erroneously believe is imminent. 

Ms. ROS-LEHTINEN. Thank you. 

Mr. Sherman, I don’t know if you wanted another follow-up question. 

Mr. SHERMAN. What would be more entertaining? We have got 

a situation where the World Bank has approved these loans. It is 

a couple hundred million dollars, but it is also the World Bank 

making a loan. Has this provided some degree of psychological solace to either the upper echelons of the Iranian government or Iranians in general that they are approved by doing business in favorable terms with the major economic institutions of the world? 
36

Mr. CLAWSON. Yes, Congressman. I would contrast that with 

Iran’s considerable annoyance that its application for membership 

in the World Trade Organization continues to be blocked by United 

States action. 

Mr. SHERMAN. Now, we have a chance to put some political pressure on the Europeans or just to encourage them not to trade with 

Iran. What effect would it have on Iran if Europe adopted a 

minimalist approach to trade, which I would define as a willingness to purchase oil at the world price, a willingness to sell European goods for cash on the barrelhead, but, aside from that, no investments, no loans. If Europe adopted that approach, what affect 

would that have on the ability of the Iranian government to carry 

out its objectives? 

Mr. CLAWSON. One of the more dramatic impacts it might have 

is on political discontent inside Iran, where the growing unemployment problem is often attributed by the youth to the hard-line regime in Iran’s inability to attract foreign investment and to establish normal economic relations with the rest of the world. Indeed, 

I suspect the youth may exaggerate the impact, that I suspect Iran 

would have difficult problems creating jobs under any circumstances. 

But in the event of Europe adopting the kind of policy described 

I suspect that a great many young people in Iran who are dissatisfied about their inability to find jobs would feel that the Iranian 

government has once again taken steps to isolate the country and 

hurt their prospects for a better life. That would make them more 

likely to join protests. 

Mr. SHERMAN. What effect would it have on the likely European 

investment or Japanese investment in Iran if we were to announce 

that, while we have no intention at the present time of any military action, that any dollars invested after today in economic facilities would be regarded as fair economic targets should events require military action in the future? In other words, any investments you make are first on our target list and on that basis you 

can go ahead and decide whether to make investments. 

Mr. Robinson, do you think that your 300 and some—or 200 and 

some companies would be investing in anything physical in Iran if 

they knew that our smart bombs already had the location programmed into their GPS systems? 

Mr. ROBINSON. I think it is an interesting question. I believe in 

the first instance the companies would be testing U.S. political resolve and raising their risk profile to ignore such a development. 

Mr. SHERMAN. They wouldn’t know whether hostilities were 

going to break out or not. We simply issue the statement, and then 

if you are thinking of building something in Iran and owning it, 

maybe there will be a war, maybe we have the GPS location of 

your facility recorded. I don’t—and is there anybody in the world 

who would sell war hazard insurance if the target had been so 

speculated about or identified? 

Mr. ROBINSON. I think it is safe to say that the risk profile of 

Iran would rise markedly, certainly among the publicly-traded companies because they have shareholders who read newspapers and 

many of whom pay attention to the political and economic cir-
37

cumstances of the countries in which their portfolio companies are 

invested. 

Mr. SHERMAN. So, to cut to the chase, if we wanted to, we could 

enforce ILSA. If we wanted to, with one press release we could 

pretty much prevent investment in Iran. You might see a willingness to make loans to the government on the theory that some 

way, some how they are going to repay, but if you owned a physical 

facility in Iran, you wouldn’t make that investment after such a 

press release was issued. 

Mr. ROBINSON. I would only say that I think it would clearly 

have a dampening affect. But as far as electrocuting investment I 

tend to doubt it, only because in the real world the kind of European and Asian companies that comprise the bulk of the firms that 

are investing in Iran have a substantial risk appetite, as I mentioned in testimony. They probably believe they are going to get 

some top cover from their respective governments and those governments are loathe to see anything that smacks of U.S. extra 

territoriality, as we well know. So leave it to say that I don’t think 

it would vaporize investment in Iran, but I do think that it would 

cast a pall over the investment landscape. 

Mr. SHERMAN. Can you think of anything that has been mentioned in this room that would cast a greater pall over investment 

appetite? 

Mr. ROBINSON. Not so far. 

Ms. ROS-LEHTINEN. Thank you very much. 

Thank you, witnesses, for appearing before us. Thank you to the 

audience members. 

In preparation for this hearing and as an initial step in exerting 

oversight over ILSA implementation, I sent letters of inquiry to the 

State Department and Treasury, which I would like to include in 

the hearing record. Without objection. 

The Subcommittee is now adjourned. Thank you. 

[Whereupon, at 4:13 p.m., the Subcommittee was adjourned.] 

(39)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE NICK SMITH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MICHIGAN

Mrs. Chairwoman, thank you for scheduling this hearing today. Despite the fall 

of Saddam Hussein’s brutal regime earlier this spring, the prospects for a lasting 

and prosperous peace in the region remain threatened by one particularly fanatical 

government. Two years into the War on Terror, the Islamic Republic of Iran continues to be uncooperative and conspicuously unresponsive to calls by the international community to combat terror. Iran has been labeled by the US State Department as the ‘‘most active state sponsor of international terrorism,’’ and is most deserving of membership in President Bush’s ‘‘Axis of Evil.’’ Having demonstrated our 

resolve since the 9–11 terror attacks in Afghanistan and Iraq, it is no surprise that 

we now find ourselves at the doorstep of this growing threat. 

The list of American grievances against Iran is long and horrific. Iran is known 

to provide training and material support to terrorist groups like HAMAS, Hezbollah, 

and Palestinian Islamic Jihad. These actions and the subsequent activities of these 

groups continue to poison the Middle East peace process, bringing death, destruction, and insecurity to Israelis and Palestinians alike. The Iranian regime is directly 

responsible for the 1983 attacks on the United States Embassy and Marine barracks 

in Beirut, Lebanon that killed a combined 314 Americans. More recently, we have 

heard Iran implicated in the bombing of the Khobar Towers in Saudi Arabia, which 

killed another 19 US servicemen. Most recently, we believe that Al-Qaeda 

operatives based in Iran were responsible for bomb attacks on American expatriates 

living in Riyadh. 

Iran is also active in fomenting resistance and revolt against American reconstruction efforts in Iraq and Afghanistan, especially amongst Shiite communities. 

Domestically, Iran is responsible for the persecution of Iranian Jews, Baha’i, and 

other religious minorities. Furthermore, the Iranian regime continues to stifle the 

most basic democratic rights of its 65 million citizens, half of whom are under the 

age of 20 and never experienced the Islamic Revolution. 

Internationally, Iran is a member of the Biological Weapons Convention, Chemical 

Weapons Convention, and the Nuclear Non-proliferation treaty. In blatant defiance 

of its international obligations and commitments, Iran is widely known to have biochemical weapons, and is working furiously to develop nuclear-weapons capabilities. 

The trajectory here is extremely troubling: Iran, an extremely active sponsor of 

international terrorism, having acquired biological and chemical weapons, is doggedly pursuing nuclear weapons. The implications for the Mid-East peace process, 

the emergence of democracy in the region, and the War on Terror are clear. Something must be done. 

Last week, President Bush said that ‘‘the international community must come together to make it very clear to Iran that we will not tolerate’’ proliferation of WMD. 

Since that time, Russia has stated that it will make its nuclear contracts with Iran 

contingent on Iran working openly and constructively with the IAEA. Iran has also 

since signaled that it will cooperate. This is a good sign for international efforts to 

stop Iranian WMD proliferation, but words must still be matched by action and 

other concerns must still be addressed. 

Of course, today we are here to discuss the role of the Iran-Libya Sanctions Act 

(ILSA) as a tool of foreign policy. Since being signed into law in 1996, the sanctions 

it established have never been invoked. This is not a result of strict foreign compliance to our law, as $10 billion in foreign investment has been channeled into Iran 

in the last 5 years alone. Are the penalties of this Act simply hollow or has the stick 
40

of sanctions played a subtler role in international efforts to isolate Iran and alter 

its behavior? 

At the time of his election, there was guarded optimism that the government of 

President Mohammed Khatami would bring democratic reform to his country. However, the protests we witnessed last week of hundreds of thousands of Iranians in 

the streets of Tehran apparently show frustration with both Khatami and the ruling 

mullahs. The protests are unprecedented in their duration, enthusiasm, and extent 

since the 1979 revolution, and they represent what seems to be the hostility of many 

average Iranians to their draconian oppressive government. Though the demonstrations have now been silenced as security forces continue their mass arrests of students, their voice is still clear. They demand reform, openness, and the downfall of 

the clerics. 

We should make it clear, that despite the problems facing Iranian-US relations, 

the American people wholeheartedly support many Iranians’ goals of basic democratic reform and closer ties to the West, including the United States. 

PREPARED STATEMENT OF THE HONORABLE JOSEPH R. PITTS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF PENNSYLVANIA

Madam Chairwoman, I would like to thank you for convening this hearing today 

on an issue of such great national importance and national security. 

In this post-September 11th world, we have become even more aware of the 

threats posed by the proliferation of nuclear weapons to rogue states and terrorist 

groups. 

Since President Bush’s designation of Iraq, North Korea, and Iran as the ‘‘axis 

of evil,’’ we have uncovered disturbing and frightening new evidence of each country’s drive to possess weapons of mass destruction, including nuclear weapons. 

The Iranian government continues to insist that its nuclear research program is 

for civilian use only, but this argument must be dismissed as mere propaganda in 

the face of Iran’s plentiful supplies of oil and natural gas. 

The recently released International Atomic Energy Agency’s report on Iranian nuclear capability demonstrates that Iran is aggressively pursuing fissile material for 

a nuclear weapon, and is engaged in all stages of the nuclear fuel cycle, from the 

mining of uranium to the production of highly enriched uranium through centrifuge 

technology. 

Estimates on the length of time it will take Iran to produce a nuclear bomb range 

from late 2005 to the end of this decade. Even the most conservative assessment 

is not comforting. 

According to the testimony of Deputy Assistant Secretary Philo Dibble, Bureau of 

Near Eastern Affairs, ‘‘Iran is currently the most active state supporter of terrorism,’’ adding that Iran ‘‘is the primary political and financial backer of Hizballah, 

and the chief supplier of its military equipment and training.’’

Senior-level al-Qaeda officials are also reportedly finding safe haven inside Iran’s 

borders, and Tehran is said to be actively supporting extremist Shia groups inside 

Iraq even as the Coalition attempts to rebuild that country and establish a democratic government. 

It is clear that Iran must not be allowed to possess a nuclear bomb, and that the 

United States must use every tool at its disposal to prevent this from happening. 

It is in this context that we must evaluate the enforcement and effectiveness of 

the Iran-Libya Sanctions Act (ILSA) of 1996. Designed to deter foreign investment 

in Iran’s key source of revenue—the petroleum sector—ILSA requires the President 

to impose at least two out of a menu of six sanctions on foreign companies that 

make an ‘‘investment’’ of more than $20 million in one year in Iran’s energy sector. 

Stiff resistance from the European Union, combined with a decision by the Clinton Administration to waive ILSA sanction on the first project determined to be in 

violation, however, have hampered attempts by the United States to enforce the Act. 

Further, a number of our allies have invested heavily in Iran, which signed an 

$800 million deal with Russia in 1995 to build a nuclear power plant in the southern port of Bushehr, and announced in October 2002 that it plans to build six more 

nuclear power reactors with Russian assistance. 

The United States and others in the international community have strongly criticized the Russian nuclear cooperation with Iran, but the Russian government is defending its investment, arguing that abandoning the project would simply open the 

market to other nuclear export competitors. 

Despite the Russian government’s recently expressed concern that Iran is developing nuclear weapons, Russia continues to ship nuclear material to the newly com-
41

pleted Bushehr plant, and denies any involvement in transferring nuclear weapons 

technology to Iran. 

U.S. officials have also expressed concern about a trade and cooperation agreement Iran is currently negotiating with the European Union. The EU is currently 

Iran’s largest trading partner with imports of around $7.6 billion ($6 billion of which 

is oil), and exports of approximately $5 billion. 

EU leaders reject the U.S. characterization of Iran as part of the ‘‘axis of evil,’’ 

and maintain that engagement with Iran will bolster the cause of the reformists. 

I hope the panel today will address how and when these sanctions have been used 

since September 11, 2001, and the message the lack of ILSA implementation sends 

to other rogue states in the region such as Syria. 

I am also interested in learning the witnesses’ views on whether or not countries 

whose companies have violated ILSA should be given the right to bid on contracts 

for the reconstruction of the Iraqi oil industry. 

Madam Chairwoman, I welcome the opportunity today to hear this important testimony, and I yield back my time. 

QUESTIONS SUBMITTED FOR THE RECORD TO ANNA BORG, DEPUTY ASSISTANT SECRETARY, BUREAU OF ECONOMIC AND BUSINESS AFFAIRS, U.S. DEPARTMENT OF

STATE, PHILO DIBBLE, DEPUTY ASSISTANT SECRETARY, BUREAU OF NEAR EASTERN

AFFAIRS, U.S. DEPARTMENT OF STATE, AND CHARLES RIES, ACTING ASSISTANT SECRETARY, BUREAU OF EUROPEAN AND EURASIAN AFFAIRS, BY THE MEMBERS OF THE

SUBCOMMITTEE ON THE MIDDLE EAST AND CENTRAL ASIA, ALONG WITH THE RESPONSES

Question: 

ILSA seems to be of more use to the State Department as a threat than a tool for 

use. Under what conditions do you foresee the Department sanctioning a foreign company for violating ILSA? 

Response: 

US national interest is the key to the decision that would be made in every individual ILSA case about whether to impose or waive sanctions. Each case is different 

as to its circumstances and the evidence available to us, and each case must be 

treated on its own terms. A careful weighing of all the factors affecting US national 

interest is required in all cases. 

Question: 

Is there, or has there ever been any connection, implicit or explicit, between ILSA 

implementation and U.S. talks with our European allies on the Roadmap or Iraq? 

Response: 

In talks with European allies on the Roadmap and Iraq, we make clear our concerns about Iran’s role in both. We stress that as a member of the Quartet, the EU 

has the responsibility to make clear to Iran that any attempts by it to derail the 

Roadmap’s progress through terrorism will have serious ramifications in its relationship with the EU. We also encourage the EU to underscore to Iran how it has 

isolated itself in the region, following the Arab League’s acceptance of Crown Prince 

Abdullah’s initiative indicating acceptance of a two-state solution. 

On Iraq, we have spoken out strongly—both publicly and in diplomatic exchanges 

with allies—against Iranian interference in the political reconstruction of the country and its attempts to help pro-Iranian elements solidify power post-Saddam. 

Question: 

Iran’s improved debt picture since the Total (TOE–TALL) waiver has led most European export credit agencies, including Germany’s Hermes, France’s COFACE, and 

that of Spain, to restore insurance cover for exports to Iran. In July 2002, Iran 

tapped international capital markets for the first time since the Islamic revolution, 

selling $500 million in bonds to European banks. What has the State Department 

done to prevent these countries from extending Iran’s lifeline through loans and credits? 

Response: 

We frequently raise with other countries, both bilaterally and in international 

fora, our serious concerns about Iran’s objectionable actions and policies. Overall, we 

believe that those concerns—particularly with respect to Iran’s nuclear ambitions—

are shared to an increasing degree by other countries. Nevertheless, at present, 

most countries still regard themselves as having normal commercial relations with 
42

Iran, and the potential availability of financing by export credit agencies is seen as 

an ordinary aspect of that status. With respect to bonds, perceptions of risk, which 

impact bond sales and prices, may be affected by the continuing effort we have 

made to highlight Iran’s objectionable behavior. 

Question: 

What is the great attraction in Iran for Europe to be so intensely interested in investing there? Is there a specter of European competitiveness involved? 

Response: 

The great attraction of Iran for foreign investors is its oil and gas resources. Iran 

is usually said to have the 4th or 5th largest reserves of oil in the world, about 9% 

of the world total, and the second largest reserves of natural gas, after Russia. Oil 

companies from a variety of countries see Iran as an arena for competition. A number of countries are almost totally dependent on imports from producing countries 

abroad for their oil supply. 

Question: 

The most recent ‘‘Report to Congress on Iran-Related Multilateral Sanctions Regime Efforts’’ states that the U.S. ‘‘works with other countries and regional organizations, such as the European Union, that have relations with Iran to promote compliance with arms control agreements and link improvements in their relations to concrete, verifiable cessation of Iran’s destructive policies.’’

(A) What is the message that our diplomats are delivering to foreign governments 

whose companies are making deals with Iran? Would you say our efforts have been 

successful? How is State defining ‘‘concrete, verifiable cessation’’ of Iran’s policies? 

What is the threshold State is using with our EU partners to determine when their 

actions are sufficient to substantiate a continuing waiver of ILSA? 

(B) Are European diplomats willing to listen to our objections to deals with Iran, 

or do they dismiss our complaints out of hand? Are there any consequences to the 

EU’s lack of cooperation on these critical issues? 

Response: 

(A) The message is, first, that we have deep concerns about Iranian policies and 

actions—Iran’s pursuit of weapons of mass destruction and missile delivery systems; 

its support for terrorism, its violent opposition to Middle East peace; its poor human 

rights record and denial of democratic reform; and more recently, its interference 

in Iraq and its safehaven of al-Qaida. We are particularly at a critical point now 

of formulating international consensus on Iran’s nuclear program and believe the results of the June IAEA Board of Governors meeting sent Iran a very strong message 

from the international community. We work closely with other countries on 

counterterrorism efforts, as well as to try to cut off Iranian access to technology and 

materials that could further its WMD programs, and believe we have seen significant progress in these areas. We stress that given these concerns about Iranian behavior, the US opposes investment in Iran’s petroleum sector and that any such 

project raises concerns under ILSA, which provides for sanctions in the case of certain such investments. President Bush’s statement upon the signing of the ILSA reauthorization legislation last year emphasized the critical importance of ‘‘strengthening our efforts with other countries, whose cooperation is essential to pursuing 

the most effective approaches to solving the problems of proliferation and terrorism 

addressed by ILSA.’’

In the case of the EU, we have seen improvements in U.S.–EU cooperation and 

coordination on Iran, particularly as EU concerns have heightened as the Iranian 

human rights situation continues to deteriorate, revelations have emerged of Iran’s 

ambitious and hidden nuclear program, and terrorist attacks continue to threaten 

the Middle east peace process. In this regard, the EU has decided to link improvement in economic relations with improvement in Iran’s policies with respect to key 

areas of concern. As the EU recently stated after a meeting of Foreign Ministers, 

‘‘The [Foreign Ministers’] Council reconfirmed that progress in economic and political relations with Iran should be evaluated in parallel. More intense economic relations can be achieved only if progress is reached in the four areas of concern, namely human rights, terrorism, non-proliferation and the Middle East Peace Process.’’ 

In addition, the EU–U.S. cooperation within the IAEA on Iran’s nuclear program 

has been particularly close. The EU has made clear that they share our areas of 

concern, and that they see the nuclear issue as critical. There is no ‘‘continuing 

waiver’’; cases must be examined and decided upon individually. 

(B) We have extensive consultations on the situation in Iran and the broad question of investment in Iran both bilaterally and with the EU. Our European interlocutors do not dismiss our arguments about Iran out of hand. The EU and its mem-
43

ber states often separate their views of ILSA from their view of the best EU policy 

toward Iran. Discussions on ILSA from the EU side focus on European objections 

to what they view as the extraterritorial application of US law and the imposition 

of a secondary boycott. They have a specific policy forbidding EU companies from 

complying with ILSA. On Iran, European officials usually make clear that the US 

and EU both object to Iranian policies and have the same goals, but there are differences on the best way to achieve those goals. As a practical matter, in recent 

years these differences over tactics for dealing with Iran have narrowed substantially as the situation in Iran has deteriorated. However, EU policy remains opposed 

to ILSA. 

Disagreements between global partners can have consequences on the tone and 

substance of the relationship for both sides of the dispute. The EU is well aware—

and we remind European officials often—that investment in the Iranian oil and gas 

sector may have implications under U.S. law. They respond that imposition of ILSA 

sanctions on an EU company would generate an EU counter action. 

Question: 

Today, U.S. and EU delegations are meeting in a summit to discuss a myriad of 

issues in our bilateral relations. Could you please elaborate upon the specific arguments U.S. officials are making regarding their investments and ILSA applicability? 

Response: 

Discussions on Iran at the June 25 Washington Summit focused closely on the 

threats posed by the Iranian nuclear program and how the U.S. and EU could most 

effectively counter these threats. Both sides pledged cooperation on a joint work program to combat the proliferation of dangerous weapons. 

Question: 

How are violating companies approached to express our disagreement with their 

violation of ILSA? At what levels are these contacts made—Ambassadorial or lower? 

Are the contacts made at the corporate or governmental levels, or both? Are 

demarches filed? Can we get access to these demarches? 

Response: 

We normally ask our Embassy to make a demarche to both the host country and 

the firm involved. We not only make clear our ILSA concerns, but also stress the 

range of issues that trouble us with regard to Iran and Libya. Such demarches may 

be made by an Ambassador or a less senior officer. 

Question: 

What role does ILSA play within the broader U.S. policy toward the Iranian regime? What message does the lack of ILSA implementation send to other rogue states 

in the region such as Syria? 

Response: 

U.S. policy towards state sponsors of terrorism has always been oriented towards 

maximum U.S. effort to end those countries’ destructive policies, combined with 

maximum effort to garner international consensus against that country. Sanctions 

are one tool in our toolbox. In the case of Iran, while it is not subject to any multilateral sanctions, the U.S. has enacted numerous national sanctions laws as a deterrent to its negative behavior. In addition to ILSA, there are a number of other restrictions on activities involving Iran. These include numerous nonproliferation laws 

we use to deter exports to Iran that can contribute to its WMD and missile programs. We have used ILSA and other sanctions within our constant dialogue with 

other countries on ending Iran’s support for terrorism and pursuit of WMD. 

In keeping the pressure on Iran, we have many tools at our disposal, from diplomatic dialogue with the international community to export controls and sanctions. 

The success of all of our efforts depends to a great deal on cooperation from other 

countries. 

As U.S. officials have made clear, there is no cookie-cutter solution for all state 

sponsors of terrorism, but we make maximum use of all levers in our efforts to put 

an end to the scourge of terrorism. 

Question: 

The Karine-A incident in January 2002 highlighted the new arms relationship between the Iranian regime and senior PLS leadership. Were any of the current Palestinian Ministers involved in the Karine-A incident? 
44

Response: 

We have no concrete information that any current Palestinian Ministers were involved in the Karine-A affair. 

Question: 

How is the new Palestinian leadership addressing the arms links to the Iranian 

regime and other state-sponsors of terrorism? What safeguards is the U.S. monitoring 

team implementing to ensure that Palestinians involved in the security services do 

not have ties to the Iranian regime, other state-sponsors of terrorism, and terrorist 

groups? How are we ensuring that U.S. assistance, such as the $300 million transferred to the Palestinian security Minister, is not directly or indirectly going to the 

terrorists or state-sponsors such as the Iranian regime? 

Response: 

Several current Palestinian Ministers and other senior Palestinian leaders have 

often and publicly voiced their concerns about links between Iran and armed elements of Fatah and the Islamist Palestinian rejectionist groups. These officials recognize the destabilizing effects posed by Iranian involvement and seek to minimize 

this threat. The Palestinian Prime Minister’s strong public statements calling for an 

end to violence also send an important signal to other regional state sponsors of terror. 

Ambassador Wolf and the members of his team are coordinating, monitoring, and 

promoting implementation of Israeli and Palestinian commitments, with particular 

emphasis on the roadmap, in furtherance of President Bush’s vision of two states, 

Palestine and Israeli, co-existing in peace and security. The President expects both 

parties to fulfill their commitments to him. He further expects the Palestinian Authority to dismantle all terrorist groups and their infrastructure. 

For information on the US support for the restructuring and rebuilding of the Palestinian security forces, a classified intelligence briefing would be appropriate. 

Question: 

What does the Administration plan to do to prevent Iran from acquiring nuclear 

weapons, keeping in mind President Bush’s recent statement that we would not allow 

Iran to gain a nuclear capability? 

Response: 

This Administration is committed to using all available tools to try to stop Iran’s 

nuclear weapons program. The President noted June 18 that the international community must come together to make it very clear to Iran that we will not tolerate 

the construction of a nuclear weapon. He said he brought this subject up in the G–

8; they had a good discussion on the subject, with near universal agreement that 

we all must work together to prevent Iran from developing a nuclear weapon. 

We are supporting fully the efforts of the International Atomic Energy Agency 

(IAEA) to investigate concerns over Iran’s nuclear activities. The IAEA has already 

uncovered proof of Iranian safeguards failures—including the import and use of 

undeclared nuclear material at undeclared locations. We are confident that IAEA inspections throughout this summer will find further evidence of serious Iranian safeguards violations. At its next meeting, the IAEA Board of Governors will consider 

evidence reported to it by the Director General, and will determine whether Iran 

is in noncompliance with its safeguards obligations. We are working actively with 

friends, allies, and partners to prepare the IAEA Board to take such action. 

We are continuing to engage Russia extensively, to urge Russia to suspend all nuclear cooperation with Iran. The President has raised this issue frequently with 

President Putin, who has assured us that Russia shares our goal of preventing Iran 

from acquiring nuclear weapons capability. Russia has been pressing Iran to cooperate fully with the IAEA and to sign and implement a safeguards-strengthening 

IAEA Additional Protocol. We remain concerned by Russian cooperation with Iran, 

including on the Bushehr light-water reactor. We have made our concerns clear to 

Russia. We expect that if Iran is found in noncompliance with its safeguards obligations, this will significantly affect Russia’s cooperation with Iran. 

We are also working closely with the European Union, as underscored by the June 

25 joint U.S.–EU Summit Statement on Proliferation of Weapons of Mass Destruction (WMD). The EU shares our serious concerns about Iran’s program. The EU has 

made clear to Iran that EU-Iran relations are linked with Iran’s cooperation with 

the IAEA, its commitment to giving more transparency to its nuclear program, and 

its willingness to answer fully the international community’s concerns about its nuclear program. 
45

Finally, we have been working with nuclear supplier countries in the Nuclear 

Suppliers Group (NSG) and the Zangger Committee to urge closer scrutiny of proposed exports to Iran and to tighten up on Iranian nuclear procurement attempts. 

Question: 

One of the witnesses in the second panel asserts that it is optimistic to think that 

Iran will cease or reverse nuclear proliferation because of diplomatic pressure. Do 

you agree or disagree? Have our diplomatic efforts with the Iranians in the last year 

yielded any concrete results on the WMD front? 

Response: 

We believe our diplomatic efforts have met with concrete results, though we recognize that significant work remains. Over the past ten months, Russian nuclear cooperation with Iran has been bounded in important ways and Russia has expressed 

growing concern about Iran’s enrichment program. China has become an increasingly helpful interlocutor. The EU is requiring that Iran demonstrate verifiable improvements in its nonproliferation behavior as a condition to progress in relations 

with Iran, and key European states have told Iran it should cease development of 

nuclear fuel cycle technology. Nuclear supplier countries are more closely scrutinizing exports destined for Iran. In addition, the IAEA is undertaking a rigorous 

examination into Iran’s nuclear activities that has already confirmed serious Iranian 

safeguards violations. 

The international community has made clear to Iran the steps it must take. Iran, 

however, has refused to meet the IAEA’s requests, in a timely fashion, and when 

it does ‘‘cooperate’’ after repeated delays, it seems to be doing so only as a result 

of being confronted with evidence it can no longer refute. Additionally, Iran continues to talk about signing and implementing an Additional Protocol, but has taken 

no step to actually do so. Nonetheless, we believe sustained diplomatic pressure and 

the threat of isolation that would result from a finding of Iranian noncompliance 

are beginning to force the regime to reconsider its nuclear goals and ambitions. Continued firm diplomacy, combined with ongoing IAEA inspections, can help achieve 

our policy goal. However, as the President and others have indicated, we will not 

rule out any policy option that would help prevent Iran from developing nuclear 

weapons. 

Question: 

Would you agree that the only sure way to remove the threat of Iran’s WMD is regime change? Would you agree that, to accomplish this long-term goal, the U.S. 

should be supportive of democratic forces? Would you agree that ILSA implementation would, at the very least, demonstrate to pro-democracy elements in Iran that the 

U.S. supports their efforts and not the regime? Within this context, could you please 

explain the statement made by Deputy Secretary of State Armitage a couple of 

months ago, referring to Iran as a democracy? 

Response: 

As President Bush has made clear, it is U.S. policy to call on the government of 

Iran to listen to the will of its people who are so clearly desirous of democratic and 

economic reform in their country, and to offer our moral support to those brave political activists. Our problems are with the policies of the government and not with 

the Iranian people, and we take every opportunity to underscore how the government’s destructive policies hurt the population. While we see indications of support 

for pursuing a nuclear program across the political spectrum in Iran, we believe 

that a truly democratic Iran will make more responsible choices about its future. 

In addition, ending its destructive policies will greatly reduce the tensions in the 

region that currently makes Iran feel it needs the strongest of defenses. 

We hear repeatedly from Iranian activists that they appreciate the strong political 

stands the U.S. makes in its Iran policy, and that the Iranian people will remember 

how other countries dealt with Iran. We also hear that they do not seek outside 

military intervention or leaders or fighters imposed from abroad. They desire the 

international community’s moral support; they see that the U.S. clearly stands with 

them. 

Iran has some of the fundamental structures of a democracy, such as an elected 

president and a parliament that debates the real issues of concern in the country. 

In that way, Iran has more of a grounding of civil society than we see in many other 

countries, and citizens and the press understand the power of their voice. Nonetheless, real power in the country is maintained by people who do not answer to the 

electorate. Until power is transferred to elected officials in a transparent manner 

and vetting of candidates ends, Iran will not experience true democracy. 
46

Question: 

How is the State Department’s approach to ILSA different today than it was five 

years ago? 

Response: 

Our approach has always focused on how best to achieve the nonproliferation and 

counterterrorism objectives of the Act. This continues to be the case. 

Question: 

Which countries have been more accommodating with trying to restrict their own 

companies from violating ILSA? Which ones have been less accommodating? 

Response: 

Absent a national law or policy, or a recognized international action such as a 

UNSC resolution, most countries take the position that commercial investment decisions should be left to the companies concerned. 

Question: 

Will countries whose companies have violated ILSA be given the right to bid on 

contracts for the reconstruction of the Iraqi oil industry? Have we discussed this issue 

with EU countries? Are we monitoring for such activity and are we implementing any 

safeguards to prevent against rewarding ILSA violators with Iraqi contracts? 

Response: 

Iraq’s oil belongs to the Iraqi people and will be used for the benefit of all Iraqis, 

consistent with UN Security Council Resolution 1483. Near-term decisions regarding Iraq’s oil sector are being taken by an interim Iraqi management team, headed 

by Thamir Ghadhban, in coordination with the Coalition Provisional Authority. Neither the Coalition Provisional Authority nor the interim Iraqi management team 

will enter into contracts for the exploration and development of Iraq’s oil resources. 

Those decisions will be made by an internationally recognized, representative Iraqi 

government, when in place. 

The United States is supporting, with appropriated funds, the immediate rehabilitation of Iraq’s existing oil infrastructure and the restoration of oil production. Efforts funded by the U.S. Government are being undertaken by the Army Corps of 

Engineers in consultation with the interim Iraqi oil management team and the Coalition Provisional Authority. Contracts funded out of U.S. appropriated funds related 

to these efforts will comply fully with applicable U.S. procurement regulations. 

We continue to raise with our European and other partners our concerns related 

to Iran’s support for terrorism and the potential application of ILSA to companies 

that choose to invest in Iran’s energy sector. 

Question: 

How would you characterize the Administration’s position on imposing sanctions 

on foreign firms, if any, determined to have violated ILSA? To what extent are you 

concerned that imposing ILSA sanctions might complicate the achievement of other 

U.S. foreign policy objectives? Please explain. 

Response: 

If the Secretary determined that a firm had engaged in activity covered by the 

statute, the Secretary would decide in light of our national interests what action 

under the statute to take. It’s a case by case decision, in light of the circumstances 

that apply at the time. Imposing sanctions might have a negative impact on U.S. 

foreign policy interests, and even work against the foreign policy goals set out in 

ILSA. In recognition of this possibility, ILSA authorizes the executive branch to 

waive the imposition of sanctions if a waiver is found to be important to the U.S. 

national interest. 

Question: 

To what extent does ILSA supplement other U.S. sanctions against Iran? 

Response: 

ILSA is one of a number of tools we have for addressing proliferation and terrorism concerns relating to Iran. ILSA is one platform for raising these concerns 

with other countries. 

Question: 

The most recent report on ‘‘Iran-Related Multilateral Sanctions Regime Efforts’’ 

states that the U.S. has continued to enforce sanctions against specific foreign entities 
47

that we have determined are involved in the supply of sensitive WMD and missilerelated materials and technology to Iran. 

(A) Please elaborate on which entities have been sanctioned? What about governments, such as Russia, who have been contributing to Iran’s nuclear capabilities? 

(B) The report also states that these sanctions have delayed Iran’s progress but it 

has not halted Iran’s continued drive for WMD. Does ILSA have a useful role to play 

with respect to constraining Iran’s nuclear programs or its support for terrorism by 

closing the loopholes and truly raising the costs for Iran? Please explain. 

Response: 

(A) Since January 2001 the United States has imposed penalties in forty-one 

cases, based on foreign entities’ roles in supplying to Iran goods or technology related to weapons of mass destruction (WMD) or missile-related items. No foreign 

governments have triggered the sanctions laws during that time through WMD/missile-related transfers. The United States has an extensive dialogue with Russia regarding its nuclear cooperation with Iran, and we believe Russia supports fully the 

ongoing IAEA investigation into Iran’s nuclear program. The following is a list of 

these cases, organized on the basis of the legal authority for the penalties and the 

date of imposition. 

Chemical and Biological Weapons Sanctions: 

July 9, 2002: 

Jiangsu Yongli Chemicals and Technology Import and Export Corporation (Chinese 

company), 

Q.C. Chen (Chinese citizen), 

China Machinery and Equipment Import Export Corporation (Chinese company), 

China National Machinery and Equipment Import Export Corporation (Chinese 

company), 

CMEC Machinery and Electric Equipment Import and Export Company Ltd. 

(CMECMEE) (Chinese company), 

CMEC Machinery and Electrical Import Export Company, Ltd. (Chinese company), 

China Machinery and Electric Equipment Import and Export Company (Chinese 

company), and 

Wha Cheong Tai Company Ltd. (Chinese company). 

Missile Sanctions 

May 9, 2003: 

Cuanta S.A. (Moldova) 

Computer & Communicatii SRL (Moldova), and Mikhail Vladov (Moldova). 

Executive Order 12938

May 9, 2003: 

Shahid Hemmat Industrial Group (SHIG). 

[NOTE: E.O. penalties were imposed on SHIG twice for two different transactions.] 

North China Industries (NORINCO). 

Iran Nonproliferation Act Sanctions 

January 2, 2001: 

Changgwang Sinyong Corporation (North Korea). 

June 14, 2001: 

Jiangsu Yongli Chemicals and Technology Import and Export Corporation (China), 

Changgwang Sinyong Corporation (North Korea). 

January 16, 2002: 

Liyang Chemical Equipment (China), 

China Machinery and Electric Equipment Import and Export Company (China), and 

Q.C. Chen (China). 

May 9, 2002: 

Lizen Open Joint Stock Company (Armenia), Armen Sargsian (Armenia), 

Liyang Yunlong, aka Liyang Chemical Equipment Company (China), 

Zibo Chemical Equipment Plant, aka Chemet Global Ltd. (China), 

China National Machinery and Electric Equipment Import and Export Company 

(China), 

Wha Cheong Tai Company (China), 

China Shipbuilding Trading Company (China), 
48

The China Precision Machinery Import/Export Corporation (China), 

The China National Aero-Technology Import And Export Corporation (China), 

Q.C. Chen (China), 

Cuanta, SA (Moldova), and 

Mikhail Pavlovich Vladov (Moldova). 

Iran-Iraq Nonproliferation Act of 1992 Sanctions 

July 9, 2002: 

Jiangsu Yongli Chemicals and Technology Import and Export Corporation (Chinese 

company), 

Q.C. Chen (Chinese citizen), 

China Machinery and Equipment Import Export Corporation (Chinese company), 

China National Machinery and Equipment Import Export Corporation (Chinese 

company), 

CMEC Machinery and Electric Equipment Import and Export Company Ltd. 

(CMECMEE) (Chinese company), 

CMEC Machinery and Electrical Import Export Company, Ltd. (Chinese company), 

China Machinery and Electric Equipment Import and Export Company (Chinese 

company), 

Wha Cheong Tai Company Ltd. (Chinese company), and 

China Shipbuilding Trading Company (Chinese company).

(B) In the 1998 South Pars case, we concluded that the imposition of sanctions 

would not have stopped the investment. However, as noted, we have had some success in increasing the level of cooperation with other countries in inhibiting Iran’s 

WMD development. 

Question: 

To what extent, if any, did ILSA contribute to the decision of regional states and 

corporations operating in the Caspian to construct the Baku-Ceyhan pipeline? 

Response: 

This is a difficult matter to prove, but some observers and analysts have concluded that ILSA did have some impact in discouraging the ‘‘Iran option’’ for pipelines to export Caspian oil and gas resources. This enhanced the prospects for the 

Baku-Tbilisi-Ceyhan pipeline (BTC), which is now under construction. 

Question: 

To what extent are foreign corporations satisfied with their returns on their energy 

investments in Iran? What problems, if any, have foreign firms reported in implementing their projects in Iran? 

Response: 

The terms offered by Iran have reportedly been sufficient to attract some foreign 

investment. However, we note that the pace of agreements on oil projects appears 

to have slowed, and industry press reporting suggests that there is dissatisfaction 

by foreign oil companies with the terms currently being offered by Iran. Problems 

of which we have heard also include general political opposition to deals with foreign firms in the sensitive oil and gas sector, bureaucratic inefficiency, corruption, 

and high local-content requirements. 

Question: 

Have deals, such as continued contracts for South Pars, which have been amended 

after June 13, 2001, been reviewed for sanctions as new investments as called for in 

the re-authorization of ILSA in August 2001? 

Response: 

The agreements reportedly signed since the 1998 waiver decision (which covered 

Phases 2 and 3) for development of the later phases of the South Pars project, are 

the subjects of pending ILSA cases. 

Question: 

What is the status of review of the signed agreements between the South Korean 

firm, LG Constructions, with the National Iranian Oil Company to develop Phases 

9 and 10 of the South Pars field? What about the review of Norway’s Statoil for the 

offshore portions of Phases 6, 7, and 8 of South Pars? Has a decision been made on 

sanctionability? If so, what is the determination and why? If not, when should the 

Congress anticipate such a decision? 
49

Response: 

The reported agreement by LG Construction regarding Phases 9 and 10 of South 

Pars, and that by Statoil for the offshore portions of Phases 6, 7, and 8 are the subjects of pending cases. No determination on sanctionability has yet been made. We 

are not able to say when that decision will be made. 

Question: 

How is the information obtained to decide whether an investment deal is in violation of ILSA? Does the information gathering begin at our overseas diplomatic posts? 

What is the quality of the Administration’s information on the details of the investment deals that have been signed with Iran since ILSA was enacted into law? 

Response: 

We seek information from all available sources. In many cases, our initial step 

is to request that Embassies seek additional information from the company concerned. In some cases, we have met with company officials or representatives in 

Washington. Some information is available about most major ‘‘deals’’, but the quality and extent of information could always be improved. 

Question: 

To what extent has the Administration received information from the foreign investors themselves about their deals with Iran? How is that information obtained? Does 

the information gathering begin at our overseas diplomatic posts? What is the quality 

of the Administration’s information on the details of the investment deals that have 

been signed with Iran since ILSA was enacted into law? 

Response: 

When there are reports about plans or actions that raise ILSA concerns, we regularly request that our Embassies seek additional information. In such cases, the information-gathering process could begin at a post abroad, and the first point of inquiry is likely to be the company concerned. Some information is available about 

most major ‘‘deals’’, but, as we have said, the quality and extent of information, and 

our knowledge of the facts, could always be improved. 

Question: 

There are about 10 foreign investments in Iran for which no determination with 

respect to ILSA has been announced. When will the Administration issue decisions 

on these deals? Why is it taking so long to come to formal conclusions on whether 

or not a particular investment violates ILSA? What is the process by which a final 

determination is made on these cases? 

(A) What is the degree of information the Department considers necessary to make 

the appropriate decision on sanctionability? Is any information lacking preventing 

the Department from making a decision on the deal’s sanctionability? 

(B) Please provide the rationale for determinations of an investment deal’s 

sanctionability? Can you describe the overall process for examining oil investment 

deals with Iran? What specific variables/ criteria are used to evaluate/ investigate 

possible ILSA violations? 

(C) Who is responsible for the final decision on ILSA violations—the Economic Bureau, NEA, or the European Bureau? Does any other department weigh in on the decision? Is there input by the non-proliferation and counter-terrorism bureaus in these 

decisions? 

Response: 

We cannot provide a timeline for these decisions: each case is different as to its 

circumstances and the evidence available to us, and each case must be treated on 

its own terms. We have to proceed carefully to ensure not only that we understand 

the facts, but that we understand the implications of those facts in terms of the provisions of the law. Meanwhile, as noted, we are continuing to seek enhanced cooperation from other countries on our WMD and terrorism concerns with respect to 

Iran, particularly on forming international consensus on Iran’s nuclear program. 

The process involves fact-finding and information-gathering about the particular 

project; internal meetings and interagency consultations; and an eventual decision 

by the Secretary of State on whether the deal comes within the statute, and if it 

does, what action to take under the law. 

(A) As indicated, in terms of information, each case is different as to its circumstances and the evidence available to us concerning its nature, value, and the 

like. In all cases, of course, we must satisfy ourselves that sanctionable activity is 

involved. While we have some knowledge about the major deals, our information 

could be improved. 
50

(B) The basis for the examination of cases, and the selection of variables or criteria to be considered, is the text of the statute, which defines key terms, such as 

‘‘investment’’ and ‘‘development’’, and establishes other criteria, such as the investment threshold, and the ‘‘directly and significantly’’ requirement. Regarding process, 

as indicated, it involves, first, fact-finding and information-gathering about the particular project, internal meetings and interagency consultations; then an eventual 

decision by the Secretary of State on whether the deal comes within the statute, 

and if it does, what action to take under the law. 

(C) The Secretary of State, under authority delegated by the President, is responsible for making the final determination. Within the Department, all relevant bureaus would be involved. Consultation with other agencies is a part of the process 

required by the delegation of authority. 

Question: 

Have there been any oil trans-shipment arrangements through Iran that have been 

sanctioned or denied licenses? 

Response: 

We understand from Treasury’s Office of Foreign Assets Control (OFAC) that a 

license for transshipment was issued in 1999, after consultation with the State Department, to a US oil-service company for equipment to be used in operations in the 

Caspian area. 

Question: 

What will the report called for in the 2001 ILSA reauthorization contain and when 

can we expect it? Will there be any further policy recommendations in that report? 

Response: 

The report will be submitted, as required, in the six-month period following August 3, 2003. The report will, of course, address the issues specified in the legislation. No decisions have yet been made on specific content, or on whether to make 

a policy recommendation. 

QUESTION SUBMITTED FOR THE RECORD TO ROGER W. ROBINSON, CEO AND PRESIDENT, CONFLICT SECURITIES ADVISORY GROUP, INC., BY THE HONORABLE ILEANA

ROS-LEHTINEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA, AND CHAIRWOMAN, SUBCOMMITTEE ON THE MIDDLE EAST AND CENTRAL ASIA, AND

MR. ROBINSON’S RESPONSE

Ms. Ros-Lehtinen’s Question: 

The Administration indicated that four companies are currently in violation of 

ILSA. You stated in your testimony that some 375 are currently operating in terrorist-sponsoring states. Can you tell us how many are in Iran and Libya and, to 

your knowledge, whether those firms have investments totaling more than $20 million. 

Mr. Robinson’s Response: 

Our research findings show that some 22 publicly traded companies are doing 

business in Libya’s energy sector, as we understand that sector to be defined by the 

Iran-Libya Sanctions Act (ILSA). Of this total, about half appear to have investments in excess of $20 million. In the case of Iran, the Global Security Risk Monitor 

research indicates that 58 publicly traded companies have operations in the energy 

sector of that country (as we understand the ILSA definition), of which some 41 are 

engaged in investment activity of over $20 million.

Æ