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81–875 PDF 2013

S. HRG. 113–48 

IRAN SANCTIONS: ENSURING ROBUST 

ENFORCEMENT AND ASSESSING NEXT STEPS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE CURRENT STATE OF IMPLEMENTATION AND 

ENFORCEMENT OF U.S. AND MULTILATERAL SANCTIONS PROGRAMS 

JUNE 4, 2013 

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

( 

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

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

COLIN MCGINNIS, Policy Director 

LAURA SWANSON, Deputy Staff Director 

PAT GRANT, Counsel 

RIKER VERMILYE, Legislative Assistant 

JOHN O’HARA, Republican Senior Investigative Counsel 

GREG DEAN, Republican Chief Counsel 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

TUESDAY, JUNE 4, 2013 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Crapo ................................................................................................... 2 

Senator Menendez ............................................................................................ 3 

WITNESSES 

Wendy Sherman, Under Secretary for Political Affairs, Department of State ... 4 

Prepared statement .......................................................................................... 29 

Responses to written questions of: 

Senator Crapo ............................................................................................ 46 

Senator Toomey ......................................................................................... 49 

Senator Coburn ......................................................................................... 51 

David S. Cohen, Under Secretary for Terrorism and Financial Intelligence, 

Department of the Treasury ................................................................................ 7 

Prepared statement .......................................................................................... 33 

Responses to written questions of: 

Senator Crapo ............................................................................................ 52 

Senator Warren ......................................................................................... 54 

Senator Coburn ......................................................................................... 56 

Eric L. Hirschhorn, Under Secretary for Industry and Security, Department 

of Commerce ......................................................................................................... 8 

Prepared statement .......................................................................................... 42 

Responses to written questions of: 

Senator Crapo ............................................................................................ 57 

Senator Coburn ......................................................................................... 58 

(III)

(1) 

IRAN SANCTIONS: ENSURING ROBUST 

ENFORCEMENT AND ASSESSING NEXT STEPS 

TUESDAY, JUNE 4, 2013 

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

The Committee met at 10:05 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I call this hearing to order, 

and I welcome my colleagues and our witnesses. 

Today’s hearing is part of our oversight efforts to ensure effective 

enforcement of the Iran sanctions regime overseen by this Committee. We will assess what additional tools might enable the 

President to intensify the economic pressure on Iran’s leaders to 

make clear that they must reverse course and satisfy the unified 

demands of the international community to abandon their illicit 

nuclear activities and support for terrorism. 

Two weeks ago, the Senate again made clear where we stood, 

voting 99–0 for a resolution expressing support for aggressive sanctions enforcement and for Israel’s right to defend itself against 

threats from Iran. 

In addition to sanctions on Iran in place prior to 2010, in the last 

3 years Congress adopted and the President signed into law an unprecedented four new sanctions measures. These measures, coupled 

with those imposed by the Administration, the European Union, 

and the U.N. Security Council, have had profound effects. They 

have slowed Iran’s nuclear and missile program by restricting its 

access to key technologies. They have crippled Iran’s economy, 

causing its currency to plummet and inflation to skyrocket. In the 

last year, its oil sales were cut roughly in half, and Government 

revenues available for its enrichment programs were sharply reduced. 

Yet despite this progress, the core strategic objective of our sanctions has not yet been realized: Iran’s leaders still refuse to abandon their illicit nuclear program and verifiably limit their nuclear 

activities to peaceful purposes. 

The International Atomic Energy Agency reports that sophisticated new centrifuges being installed at Fordow and Natanz will 

substantially expand Iran’s enrichment capabilities. While the 

P5+1 talks have at least helped show the world Iran’s unwillingness to compromise, they have not yet generated results. Some 

2 

have expressed hope that the upcoming Presidential elections in 

June might lead to change, but that seems unlikely since the candidates are all handpicked supporters of Iran’s nuclear program. 

As Under Secretary Sherman stated recently, there is ultimately 

only one decision maker on Iran’s nuclear program: the Supreme 

Leader. He has remained indifferent to the suffering of his own 

people and to their demands for political, economic, and social reform. It seems clear that his decision to continue Iran’s illicit nuclear activities will not be reversed without intensified economic 

pressure, coupled with heightened political and diplomatic efforts 

by the P5+1 group, including Russia and China. 

Today we are fortunate again to have Under Secretary of State 

for Political Affairs Wendy Sherman, Under Secretary of Treasury 

for Terrorism and Financial Intelligence David Cohen, and Under 

Secretary of Commerce for Industry and Security Eric Hirschhorn. 

In their testimony and the question period, I hope they will highlight what sanctions are working, what additional measures are 

needed that could garner the broad support of the international 

community and preserve the unity of our coalition—a unity the Administration has worked very hard to preserve—and what challenges we continue to face in successfully implementing a strategy 

that will finally compel Iran to abandon its illicit nuclear activities. 

I look forward to their testimony. 

I now turn to Ranking Member Crapo for his opening statement. 

STATEMENT OF SENATOR MIKE CRAPO 

Senator CRAPO. Thank you, Mr. Chairman. 

Ten days from now, Iranians will vote in an election staged by 

the Ruling Guardian Council for a President who, once selected, is 

destined to continue the longstanding policies of the Ayatollah and 

the powers in Tehran. This is a regime that sustains itself through 

widespread human rights abuses and is dedicated to an illegal nuclear weapons program, threats against Israel, Hezbollah support 

for the Syrian regime, and the spread of global terror. 

Nothing is more critical than preventing Iran from making good 

on its intentions to obtain a nuclear weapon while trying to end the 

regime’s systematic human rights abuses and ability to project terror. 

Since our last hearing in October 2011, increasing pressure has 

challenged the Iranian regime through implementation and enforcement of sanctions statutes produced in this Committee, Presidential Executive orders, and the efforts of Senators Kirk and 

Menendez in the previous two Defense Authorization Acts which 

targeted the Central Bank of Iran’s export role and expanded sanctions over new sectors of the Iranian economy. 

Also, since then, 50 percent of Iran’s crude oil exports and over 

7 percent of its petrochemical exports have declined, nearly $5 billion a month in lost revenue to the Government of Iran. 

Thus, the impact of the sanctions on Iran’s economy is significant. Due to lost revenues for energy purposes, its relative isolation 

from the world’s financial system, and its own variety of economic 

mismanagement, Iran is running its largest budget deficit in nearly 

15 years. 

3 

The value of the rial, Iran’s currency, has declined by more than 

two-thirds, and Iran puts its own rate of inflation at 31 percent 

while others maintain it is double that in real terms. 

Clearly, sanctions make it more and more difficult for the Iranian regime to earn revenue from petroleum sales or to conduct 

international financial transactions. Each passing month shows important results obtained through sanctions. Yet the Iranian regime 

is still able to fund nuclear enrichment in ways that bear no relationship to a peaceful program. 

The Iranian regime still poses an existential threat to Israel, acts 

as a menace in the region, and is one of the more serious threats 

to the national security interests of the United States and its allies. 

Thus, sanctions may still be too narrowly tailored, have gaps in implementation, or be unduly hampered by evasive and deceptive 

practices that must be closed. 

We can no longer abide an Iran that continues to amass or otherwise access financial resources to pursue one of the most destabilizing nuclear programs in the world. The resolve of the United 

States and its partners must remain strong and be ready to implement a series of increasingly stricter sanctions that push the Iranian regime to change its nuclear enrichment calculus. 

The chiefs of the U.S.–Iran sanctions authorities are here to report on the progress and difficulties with implementation and enforcement of the U.S. multilateral sanctions programs. I understand, in fact, that some significant actions have taken place just 

last night and this morning. 

I look forward to working with the Members of our Committee, 

and particularly the Chairman, as we evaluate the best way to 

move forward to further constrict Iran’s access to funds, revenues, 

materials, and technologies in an effort to change the regime’s 

international behavior and terminate any nuclear weaponization 

efforts. 

Thank you very much, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Crapo. 

Are there any other Senators who wish to make a brief opening 

statement? Senator Menendez. 

STATEMENT OF SENATOR ROBERT MENENDEZ 

Senator MENENDEZ. Mr. Chairman, I want to thank you for the 

hearing, and clearly I appreciate the Committee’s jurisdiction and 

its work here on Iran sanctions. As I know that you know, I have 

been in the center of the focus on this issue, and we have had tremendous support from all of our colleagues on both sides of the 

aisle. And my recent visit to Jordan and Israel this past week only 

created for me a greater sense of urgency on what Iran’s role is in 

terms of the national security of the United States as well as the 

threats of instability in the region. Iran is participating significantly in Syria with Hezbollah. Half a million refugees in Jordan, 

now the fourth or fifth largest city in Jordan, a population that has 

grown by 20 percent, and a kingdom that is under siege by its generosity and a real challenge to it. That is an important ally to the 

United States, important to the security of our partner, the State 

of Israel. 

4 

The Iranians, if they have the resources to keep fueling 

Hezbollah and at the same time pursue their nuclear program, it 

becomes a major national security threat to the United States. And 

so I am looking forward to the testimony of our witnesses. I appreciate some of the recent actions that were taken. They are in line 

with both the law that we pass as well as some of the suggestions 

that we have made, and we look forward to hearing the implementation as we move forward. 

Chairman JOHNSON. Are there any further statements? 

[No response.] 

Chairman JOHNSON. I would like to remind my colleagues that 

the record will be open for the next 7 days for opening statements 

and any other materials you would like to submit. 

I would like to welcome the witnesses for our panel today. 

Our first witness is Wendy Sherman, the Under Secretary for Political Affairs at the State Department. Under Secretary Sherman 

has been the key negotiator for the U.S. in the P5+1 negotiations 

with Iran. 

Our next witness is David Cohen, the Under Secretary for Terrorism and Financial Intelligence at the Department of Treasury. 

Our final witness is Eric L. Hirschhorn, Under Secretary for Industry and Security at the U.S. Department of Commerce. 

I thank all of you again for being here today. I will ask the witnesses to limit your remarks to 5 minutes. Your written statements 

will be submitted for the record. 

Ambassador Sherman, please proceed. 

STATEMENT OF WENDY SHERMAN, UNDER SECRETARY FOR 

POLITICAL AFFAIRS, DEPARTMENT OF STATE 

Ms. SHERMAN. Thank you very much, Mr. Chairman, Ranking 

Member Crapo, Senators. Good morning, and thank you for inviting me to testify with my colleagues about a top foreign policy and 

national security priority—Iran. From an illicit nuclear program to 

support of terrorism to abusing human rights, the Iranian Government continues to ignore its international obligations and responsibilities and defy the consensus of the global international community. Their costly and destructive decisions threaten international 

security, increase tensions in one of the most vital parts of the 

world, and stifle the great potential of the Iranian people. 

In confronting these challenges, the U.S. Government and the 

State Department draw on a full range of tools. This includes holding Iran accountable on the world stage, directly empowering the 

Iranian people to hold their own Government accountable, and 

strengthening our alliances with partners to show Iran the world 

is united in its concerns. 

Under the President’s and Senator Kerry’s leadership, this is an 

all-hands effort. Every day, every bureau in the Department of 

State has their eye on Iran. Even as we speak, the IAEA Board of 

Governors is meeting in Vienna. Along with our P5+1 partners, we 

will urge Iran to comply without delay with its nuclear obligations. 

On Iran’s nuclear ambitions, the President has been clear. First, 

the United States will prevent Iran from acquiring a nuclear weapon. Second, Iran’s leaders have a choice: live up to their international obligations and become a player on the global stage, or 

5 

continue down the path toward isolation. We know which path Iran 

has chosen so far, so we have put in place a dual-track policy, 

ratcheting up pressure while pursuing a diplomatic solution—pressure to incentivize Iran to seek a deal that addresses the international community’s legitimate concerns, engagement to give Iran 

a way to negotiate that deal if they choose to take it. 

On the engagement side, we have offered Iran the opportunity to 

move forward toward a negotiated solution. Unfortunately, as you 

all know, so far the Iranians have fallen far short with their response. We are clear-eyed in our approach to the P5+1 talks and 

seek concrete results. After all, while the window for negotiation is 

still open, it will not remain so forever. We have an obligation to 

give diplomacy every chance to succeed, but the onus is on Iran. 

On the pressure track, we have worked closely with Congress 

and our allies to level sanctions on Iran that carry real consequences. Since 2008, there have been five U.N. Security Council 

resolutions, nine Executive orders by the executive branch, and 

four wide-ranging laws passed by the U.S. Congress. These sanctions carry real consequences for Iran. 

Those measures have worked to make sure that Iran understands there is a cost to their behavior. Iran is increasingly isolated 

and is under one of the toughest, most comprehensive sanctions regimes ever. 

The oil sanctions, which we have been implementing for 18 

months, have resulted in Iran exporting over 1 million fewer barrels of crude oil each day than it did in 2011, costing Iran between 

$3 and $5 billion per month. To date, all 20 importers of Iranian 

oil have either significantly reduced or eliminated oil purchases 

from Iran. In these cases, the exceptions have served as an artful 

point of leverage, an incentive with importers of Iranian oil. 

Countries cannot go to zero overnight, and we need to make sure 

that Iranian oil is withdrawn from the market in a timed and 

phased way that does not raise global oil prices. But exceptions require real and substantial action by our partners. This action puts 

pressure on Iran, not our coalition, and is a manifestation of our 

success. 

With that in mind, exceptions for nine economies will expire tomorrow. The Secretary is still reviewing the final documents, but 

as always, my staff will be ready to brief you on the results in classified hearing. Put simply, the Iranian economy is in a downward 

spiral. As we saw the candidates themselves say in a Wall Street 

Journal article of June 1 and 2, ‘‘Candidates air grim views of Iran 

economy.’’ The rial has depreciated more than 50 percent in the 

last year. Foreign investment has decreased dramatically. With 

yesterday’s Executive order, we are applying additional pressure on 

Iran’s automotive sector and expanding sanctions on Iran’s petrochemical sector. I understand Under Secretary Cohen will speak 

further to this Executive order momentarily. 

One reason we have succeeded is that we are not acting alone. 

The EU has imposed its own sanctions, including an oil import ban 

that resulted in all 27 EU member States ceasing oil purchases 

from Iran. Australia, Canada, Norway, South Korea, Japan, and 

others have enacted their own measures. And even among partners 

who are skeptical of unilateral sanctions, we have seen robust imVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
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plementation of U.N. Security Council resolutions and cooperation 

on specific sanctions issues. We must not backslide from this 

progress. The effectiveness of our sanctions depends on our partners, so we have to guard against measures that would put too 

great a burden on those partners. Sanctions must be felt by Iran, 

not by us or our allies, and Iran would surely exploit any sign of 

division. 

Beyond Iran’s nuclear ambitions, we are also concerned about 

the destabilizing influence Iran is casting across the entire Middle 

East and beyond. Support to the Assad regime, Iran’s closest ally, 

is sustaining the campaign of violence against the Syrian people. 

Its aid to terrorist organizations like Hezbollah is threatening our 

ally Israel and innocent civilians worldwide. That is why we are 

deepening our military partnerships across the region, particularly 

with Israel and Gulf States, to defend against attacks from the 

very groups supported by Iran’s leaders. 

If I may, Mr. Chairman, I will take one more minute. 

I also want to reiterate our commitment to seeking the safe return of Robert Levinson, Amir Hekmati, and Saeed Abedini, U.S. 

citizens missing or detained in Iran. We will continue to raise these 

cases as we pursue all available options until all three of these 

Americans are reunited with their families. And, of course, we are 

deeply concerned about the campaign of repression Iran’s leaders 

are waging against their own people. Iranians are owed their 

rights, freedoms, and dignity that we cherish here as bedrocks of 

our Nation and that all people around the world deserve. So we are 

helping Iranians break through the electric curtain, creating virtual spaces for those voices that are suppressed and leveling sanctions to hold the individuals and organizations behind the repression accountable. 

Just last week, the Treasury and State Departments worked together to announce a novel initiative to make personal secure communications tools more easily available for the Iranian people. 

I will finish by saying that we are closely watching the upcoming 

election, ahead of which we are again seeing increased repression. 

As Senator Crapo said, Iran’s unelected and unaccountable Guardian Council has disqualified hundreds of candidates based on vague 

criteria and reiterated that women, who make up half of Iran’s 

population, are barred from serving as President. While Iran’s Supreme Leader called for an ‘‘epic election’’ to demonstrate Iran’s 

strength, instead we have witnessed a process that appears to be 

unfair, unjust, and unrepresentative of the Iranian people, who deserve better from their leaders and from their Government. 

I conclude by saying I am confident we can continue to work together in dealing with this threat to our security and global stability and developing smart and effective measures—measures that 

increase pressure on the regime, allow us to maintain the strong 

coalition we have built, measures that will force Iran’s leader to 

make better choices and empower the Iranian people to hold their 

Government accountable. 

Thank you for your partnership. I look forward to answering 

your questions. 

Chairman JOHNSON. Thank you, Ambassador Sherman. 

Under Secretary Cohen, please proceed. 

7 

STATEMENT OF DAVID S. COHEN, UNDER SECRETARY FOR 

TERRORISM AND FINANCIAL INTELLIGENCE, DEPARTMENT 

OF THE TREASURY 

Mr. COHEN. Thank you, Chairman Johnson, Ranking Member 

Crapo, distinguished Members of the Committee. Thank you for the 

opportunity to testify today on the Treasury Department’s application of sanctions pressure as one part of the U.S. Government’s effort, coordinated with counterparts around the world, to counter 

the threat posed by Iran’s nuclear and ballistic missile program. 

Under Secretary Sherman has set out our overall policy approach 

to prevent Iran from obtaining a nuclear weapon, including the 

pressure track of the dual-track policy. And in my written testimony, I describe in detail how the expanding scope and intensity 

of U.S. sanctions on Iran, coupled with energetic and aggressive 

implementation and enforcement, have had a major impact on 

Iran. Creating this powerful sanctions regime has been and must 

continue to be a joint collaborative effort between the Congress and 

the Administration. 

Indeed, through the enactment and aggressive implementation of 

key pieces of legislation, along with a series of Executive orders 

issued by the President, we have been able to isolate Iran from the 

international financial system and drive down Iran’s oil exports by 

some 50 percent over the last 18 months. In addition, Iran’s dwindling oil revenues have been locked up by sanctions that require 

that Iran’s oil earnings can only be used for limited purposes. 

This morning, I would like to highlight a few actions, including 

some taken very recently, which illustrate well our aggressive sanctions posture and the creation, implementation, and enforcement of 

our sanctions. 

Just this morning, we imposed sanctions on an international network of 37 companies with ties to Iran’s leadership. This network, 

controlled by a foundation called the Execution of Imam Khomeini’s 

Order, or EIKO, E-I-K-O, manages businesses in countries around 

the world, including in Europe, the Middle East, and Africa, and 

produces billions of dollars in profits for the Iranian regime each 

year. 

The purpose of this network, which is an agency of the Iranian 

Government, is to generate and control massive off-the-books investments, shielded from the view of the Iranian people and international regulators. EIKO is also charged with assisting the Iranian Government’s efforts to try to circumvent U.S. and international sanctions. 

By identifying EIKO and its extensive networks of companies for 

sanctions today, the property of these entities is blocked in the 

United States. Foreign financial institutions that conduct transactions with any of these entities will be subject to being cutoff 

from the U.S. financial system. And those that provide them with 

material support are also at risk of being sanctioned. 

This action is just the latest in what has been a steady drumbeat 

of activity targeting Iran over the last several years and accelerating over the last few months. In the last month alone, we have 

sanctioned almost 50 additional entities for a range of illicit conduct, including human rights abuses, support for terrorism proliferation activities, and attempts to evade sanctions. 

8 

We have also continued to pursue Iran’s key sources of revenues. 

Last week, we targeted Iran’s second largest source of revenue, its 

petrochemical industry, by sanctioning eight Iranian petrochemical 

companies for being part of the Government of Iran while the State 

Department applied its sanctions against two other Iranian petrochemical companies. 

This Administration’s commitment to enhancing sanctions pressure on Iran is also made crystal clear in the nine Executive orders 

that President Obama has issued since he entered office, including 

six in the last 2 years. And just yesterday, the President signed the 

latest of these Executive orders. 

Although this Executive order contains a number of new and important provisions, including expanding our ability to impose sanctions on those providing material support to the Iranian Government and targeting the Iranian automobile sector, I would like to 

focus on one provision in particular that takes direct aim at Iran’s 

currency, the rial. 

As of July 1st, when this new Executive order goes into effect, 

we will be able to impose sanctions on any foreign financial institution that conducts significant transactions for the purchase or sale 

of rials or that holds accounts outside of Iran denominated in the 

rial. This new measure is designed to make the rial essentially unusable in international transactions, place additional restrictions 

on Iran’s ability to access its foreign reserves, and isolate Iran even 

more from the international financial system and commercial markets. 

We are taking direct aim at the rial because we have seen that 

its value and stability is of great importance to the Iranian regime. 

Already the rial has lost some two-thirds of its value in the last 

2 years, and when it plummeted uncontrollably last fall, the regime 

was rattled. 

Finally, we are committed to enhancing sanctions pressure in 

ways that are both effective and implementable. 

We have had productive discussions with this Committee on how 

best to advance our mutual cause of fundamentally changing the 

Iranian regime’s calculus on its nuclear program. And as we move 

forward to sharpen the choice for the Iranian regime, we stand 

ready to work hand-in-hand with this Committee and the Congress. 

Thank you. 

Chairman JOHNSON. Thank you, Under Secretary Cohen. 

Under Secretary Hirschhorn, please proceed. 

STATEMENT OF ERIC L. HIRSCHHORN, UNDER SECRETARY 

FOR INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE 

Mr. HIRSCHHORN. Thank you, Mr. Chairman, Ranking Member 

Crapo, and Members of the Committee. I appreciate the opportunity today to discuss the Commerce Department’s role regarding 

U.S. export controls on Iran. 

Iran continues to engage in widespread efforts to illegally acquire 

U.S.-origin commodities, software, and technology. Indeed, 40 percent of the open enforcement cases in the Bureau of Industry and 

Security involve Iran. 

The Bureau’s wide range of enforcement tools includes imprisonment, criminal and civil fines, temporary denial orders, long-term 

9 

denials of export privileges—not only for Iranian entities but entities around the world who cooperate in diversions to Iran—the BIS 

Entity List, and asset forfeitures. We employ all these tools, and 

vigorously so, to fight unlawful diversions to Iran. 

We have approximately 100 Federal law enforcement officers in 

nine field offices throughout the United States, supported by investigative and intelligence analysts at headquarters. They are the 

only Federal law enforcement agency that is dedicated solely to investigating and enforcing U.S. export control violations. 

We also have export control officers in six foreign locations who 

conduct end-use monitoring in 28 countries. Their work is augmented by Foreign Service personnel at other locations overseas as 

well as Sentinel visits led by domestically based BIS agents. Moreover, we coordinate with the State Department on end-use checks 

in places where Munitions List and Commerce Control List items 

are colocated. And in the last full fiscal year, we conducted nearly 

1,000 end-use checks in 53 different countries. 

Beyond the traditional criminal penalties and civil fines, we have 

made effective use of temporary denial orders to prevent diversion 

of U.S.-origin aircraft items to Iran. We also can deny privileges for 

longer periods than the 180-day temporary periods, and can apply 

other civil and administrative penalties. 

Another powerful tool we employ is the Entity List, which generally prohibits named entities from receiving any items subject to 

our rules without a license from our Bureau. BIS rarely, if ever, approves such licenses. Since October 2009, we have added 80 entities 

to the Entity List because of their involvement in diverting U.S.- 

origin items to Iran. 

We also maintain a consolidated list of persons sanctioned by 

Commerce, State, and Treasury that is available to the public without charge. We are averaging close to 1,000 hits from exporters and 

re-exporters every business day, and 12,000 companies have signed 

up for email notification whenever the list is updated. 

Importantly, companies and banks worldwide screen against this 

list. Many companies and financial institutions outside the United 

States will refuse all business with listed entities, even in cases 

where no U.S.-origin items are involved. 

Another important enforcement tool is asset forfeitures. In the 

last year, we have produced—in our own investigations and those 

with other agencies—forfeitures exceeding $600 million, and a substantial proportion of that relates to Iran. 

The President’s Export Control Reform Initiative is strengthening Iran-related enforcement. The Departments of Commerce, 

State, Defense, Energy, and Treasury, along with the Office of the 

Director of National Intelligence, participate in the new Information Triage Unit, which assembles and disseminates relevant information, including classified materials, to ensure that all agencies 

have full data on license applications. In its first year, this ITU 

produced more than 1,000 transaction reports, many of them dealing with Iran. 

We also have the new Export Enforcement Coordinating Center, 

which facilitates information sharing and coordination among 18 

law enforcement and intelligence agencies. A great deal of this cenVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
10 

ter’s efforts are focused on diversions and potential diversions to 

Iran. 

You asked in your letter, Mr. Chairman, whether additional resources would increase our effectiveness, and I am pleased to note 

that the President’s budget for fiscal year 2014 requests just over 

$8 million to augment our enforcement capabilities. This is for additional analysts, special agents, and three new export control officers. And two of those officers would be stationed in Turkey and 

the UAE, which, of course, are countries proximate to Iran, and 

that is why we want to put them there. 

We stand ready, as always, to work closely with this Committee 

and the Senate to maintain all the aspects of the aggressive and 

effective export control program against Iran. 

Thank you, sir. 

Chairman JOHNSON. Thank you. Thank you all for your testimony. 

As we begin questions, I will ask the clerk to put 5 minutes on 

the clock for each Member. 

Mr. Cohen, in your opening statement you mentioned new sanctions announced today against EIKO. How will these new sanctions 

targeting the Supreme Leader and his associates help further pressure the Iranians? 

Mr. COHEN. Well, Mr. Chairman, as you note, this morning we 

announced a set of designations of a labyrinth of companies associated with an organization called EIKO, the Execution of Imam 

Khomeini’s Office. This is an agency of the Iranian Government. It 

works on behalf of the Iranian leadership. It works under the direction of the Supreme Leader’s office. And one of the two major components of this group of companies, something called Tadbeer 

Group, manages billions of dollars of investments for Iran, for the 

Iranian leadership, including investments for the Supreme Leader 

himself and other leadership figures. 

One of the things that we have tried to do in our sanctions over 

time is to target our actions to the greatest extent possible on those 

aspects of the Iranian economy, the Iranian financial system, that 

have the greatest likelihood of affecting the calculation of the leadership. And as Under Secretary Sherman noted, the very top of the 

Iranian leadership is where the nuclear file resides. So it is our 

hope that in exposing this network of front companies that generates enormous profits for the Iranian regime and operates under 

the direction of the Supreme Leader’s office, we will advance our 

efforts to gain the attention of those who hold the nuclear file. 

Chairman JOHNSON. Ambassador Sherman, a new round of significant reduction to terminations is due this week. The recent reduction of purchases of Iran crude oil has had a significant impact 

on Iran’s revenues. What additional steps could be taken to further 

reduce Iranian revenue from crude oil or other petroleum-related 

products, including by accelerating the pace of reductions? What do 

you think is an appropriate target for such reductions in barrels 

per day? 

Ms. SHERMAN. Thank you very much, Mr. Chairman. As you 

noted, the NDAA focuses on reducing Iran’s exports of crude oil, 

which is the single biggest by far source of revenue for the Iranian 

Government. As I mentioned in my opening statement, we estimate 

11 

that costs, the reductions so far, $3 to $5 billion per month to the 

Iranian economy. We have concentrated on areas, as David said, 

that have the biggest impact on Iran with the least impact on global oil markets. And as I think most of you know, when the NDAA 

first went into effect, we sent teams around the world to the oil 

producers to get them to put as much on the table as they could, 

to offer contracts to people who were going to do reductions, and 

we played a very active role in trying to marry up those who were 

reducing with those who were providing so that we could try to 

maintain a good oil price for the American consumer as we sought 

to change the calculus by Iran. 

Executive Order 13622 extends the Administration’s ability to 

target other petroleum products. This includes condensate, liquefied petroleum gas—LPG—and similar petroleum products. We 

have a very active and robust dialog with a number of companies 

that are still involved in purchasing petroleum products such as 

condensates from Iran. Our message to those companies and the 

countries that they supply is simple: Find other sources or face 

sanctions. And we are trying to help them solve their problems 

where they have specific industry issues. 

We have turned to focus on Iran’s other petroleum sales as Iran 

itself has turned to them to generate lost revenue. We are engaging 

with companies to secure their exit from those transactions, and we 

are prepared to use sanctions, as we have already demonstrated, 

if they fail to do so. 

So we are looking at these, and I know that our teams are working with your Committee as you consider further legislative action 

to see where we might further deepen our actions around oil while 

ensuring that we maintain the international coalition, we ensure 

that we maintain a good oil price for American consumers, and 

that we manage the world’s energy security. 

Chairman JOHNSON. Senator Crapo. 

Senator CRAPO. Thank you very much, Mr. Chairman. 

Ms. Sherman, one of the three people you identified being wrongly held in Iran is Pastor Saeed Abedini from Idaho. I want to assure you again that the people of Idaho are extremely committed 

to obtaining Pastor Abedini’s release. And to the extent that you 

can in a nonsecure hearing, I would like you to tell me what is 

being done to obtain his release and also assure me that the release of Pastor Abedini and the other Americans who are wrongly 

held in Iran is of the highest priority at the Department of State. 

Ms. SHERMAN. Thank you very much, Senator. For those of you 

who do not know on the Committee and those who may be watching, Saeed Abedini was spearheading the construction of an orphanage in 2009 when the Revolutionary Guard detained him and 

threw him into prison, which is just outrageous on its face. 

Senator CRAPO. And his treatment in prison has been outrageous. 

Ms. SHERMAN. His treatment has been outrageous. We are very 

concerned. Secretary Kerry issued a written statement on March 

22nd expressing his concern over reports that Mr. Abedini has suffered physical and psychological abuse in prison, that Iran continues to refuse consular access by Swiss authorities. We have had 

the Swiss go in on countless occasions to request consular access. 

12 

They are our protecting power in Iran, and we have called for his 

immediate release. 

We condemn Iran’s continued violation of the universal right of 

freedom of religion and call on the Iranian authorities to respect 

Mr. Abedini’s human rights and release him. We will continue to 

pursue this in every way that we possibly can through every channel that we possibly can to gain his release, as we will for Mr. 

Levinson and Mr. Hekmati. 

Senator CRAPO. Well, thank you very much, and I will continue 

to work with you to get further briefings on that. I appreciate your 

attention to it and your assurance of its priority. 

I just have a quick question for each of you, and since I only have 

2 or 3 minutes left, maybe I will just focus it on Mr. Cohen, but 

maybe others, if you have other responses, please give them. And 

my question is simple. The overall sanction efforts imposed by the 

United Nations and the United States and its allies have not to 

date achieved the intended goal of reaching a sustained suspension 

of Iran’s uranium enrichment activities. We have discussed that 

there has been a lot of progress, but the bottom line is and the 

question is: Are we doing everything we can? Do we have adequate 

resources? Does Congress need to provide additional tools? What 

else can we do in terms of providing authority and support to help 

us achieve this objective? 

Mr. COHEN. Well, Senator, I think your observation is exactly 

right, that we have, I think, substantially increased the pressure 

on Iran over the last several years, working in close tandem with 

Congress and in the efforts that my colleagues and I and our teams 

have been engaged in. We have not yet achieved the objective, 

which is to change the Iranian Government’s calculus. 

I think we have seen some indications in the last negotiating session that the sanctions pressure that we are applying on Iran is beginning to have some impact on the calculus of the regime. They 

came to the Almaty, Kazakhstan, negotiating sessions with a request, the desire to get sanctions relief, which only, I think, reaffirms that we are on the right path in pursuing the dual-track 

strategy. 

In terms of additional measures, as I described in my oral testimony and as you noted in your opening statement, we took two actions in the last 2 days that I think promise to increase the pressure. This is in line with actions that we have been taking over the 

last several months to ramp up the pressure, which is in line with 

actions we have been taking over the last several years to ramp up 

the pressure. 

We are looking forward to the implementation of IFCA, which 

goes into effect on July 1st, which has a number of important provisions that will increase the pressure on Iran. And we are looking 

forward to working with this Committee on potential new legislation that is both effective and implementable, that keeps our coalition together with our international partners and adds pressure on 

the regime. 

I think we remain committed to this dual-track policy. We think 

that it bears the potential to succeed, that through the combination 

of enhanced pressure and the offer of diplomatic engagement, we 

can help change the course of the program. But as Under Secretary 

13 

Sherman noted, the window of time is shortening, and the time to 

really ramp up the pressure is now. 

Senator CRAPO. Well, thank you. My time is up. I would just ask 

each of the witnesses to submit in writing what specific additional 

measures we should be considering, in your opinion, with regard to 

providing the full set of tools that we need in order to deal with 

this issue. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Let me first congratulate you for the actions you took last week 

in sanctioning Iran’s petrochemical industry as a revenue source 

for Iran’s illicit nuclear program, as well as yesterday’s Executive 

order and new sanctions on Iran’s automotive sector, which is 

something I had recommended—and I am glad to see that you took 

the existing law as an opportunity to consider it a dual-use venue— 

and on significant transactions in the rial, which I think basically 

makes the rial rather worthless outside of Iran. Those actions have 

a real impact on Iran. 

And our challenge is at the end of the day how do we get the 

Supreme Leader to change his calculus because the nuclear portfolio is purely in his domain, regardless of what the elections 

produce. And while we have significantly impacted Iran’s economy, 

we have not, at least visibly, deterred the thinking of the Supreme 

Leader toward the goal. 

So, in my mind, what has to be clear here is that every tomorrow 

is a worse tomorrow than today for the Iranian regime and that 

our sanctions effort, which is the last tools of peaceful diplomacy, 

are our best opportunity to try to avert other options, and to do 

that, we need it to be so strong that it becomes very clear to the 

regime that every tomorrow is far worse than today, and that altering the course is totally in the domain of the Supreme Leader so 

that his country does not get affected in the ways that the reductions have. 

So, in that respect, I know that—I have two particular lines of 

questions. One is I know that tomorrow is the day that exceptions 

are up, and a large portion of the sales that have been taking 

place, even though we have cut crude oil exports by half, Iran still 

has energy sector exports of about $83 billion in 2012—about $60 

billion in oil, $23 billion in natural gas, fuel oil, and condensates. 

Under Secretary Sherman, do you expect that the exception of 

China will be renewed tomorrow? And if so, will we see for China 

and those other countries for which we have given exceptions a further reduction? And if so, is it a significant reduction? 

Ms. SHERMAN. Senator, thank you for your question. As you 

noted, indeed the NDAA sanctions on oil have been very effective. 

More than 20 countries have either reduced or eliminated crude oil 

purchases from Iran, and there are only six remaining purchasers 

of Iranian oil: India, Japan, China, Republic of Korea, Turkey, and 

Taiwan. The Secretary will make his decision tomorrow, so I am 

not at liberty to say what that decision is today since he has not 

made it yet. But I can assure you that every country that gets an 

exception tomorrow, for those who do, they will have made a significant reduction because that is, in fact, what is required by law, 

and we will be up briefing you on that significant reduction. 

14 

Senator MENENDEZ. Since you cannot answer the question, let 

me go on to my next—— 

Ms. SHERMAN. Sure. 

Senator MENENDEZ. I just hope—and I will be watching—to see 

that what you and I might describe as ‘‘significant reduction’’ is in 

harmony versus a reduction that is to some degree a reduction, but 

it is not what we need to do in order to achieve our ultimate goal. 

So I will be looking at that. 

I want to know—you know, obviously this whole purpose of reduction is to get to a certain point, which is to change the regime’s 

calculation. Would the Administration support tightening the CBI 

Petroleum sanctions to ultimately complete cessation of purchases 

of petroleum of Iran by a certain date, let us say at the end of 

2014? It would send a very clear message of the consequences that 

would flow. 

Ms. SHERMAN. Let me begin, and then Under Secretary Cohen 

may want to add. We are happy to discuss with the Congress any 

ideas to further tighten sanctions. I think that we absolutely share 

the goal of the Congress to maximize the pressure on Iran in every 

way we possibly can. I think we want to make sure that whatever 

we do, it follows a set of principles. The onus is on Iran, not on our 

partners, because we have to keep the international coalition together. We want to make sure that we help our friends and allies 

replace any petroleum needs that they have as they make these reductions and changes and that the world community can sustain 

that and can sustain prices that are acceptable to consumers, even 

with the need to put pressure on Iran. So we are happy, Senator, 

to discuss any option with you. 

Senator MENENDEZ. Well, I appreciate that. I think we need to 

look at that possibility as a way to achieve our ultimate goal. 

Finally, if I may, Mr. Chairman, Secretary Cohen, I think you 

have been doing a pretty good job of pursuing the enforcements. I 

have two questions for you. 

One, we keep adding sanctions regimes, which we need to. My 

first question is: Do you have the wherewithal, the resources, to 

continue to pursue the sanctions regime we want? Because if I give 

you tenfold the work and it still remains with the same universe 

to enforce, I get concerned that your enforcement capability is limited by your resources. That is question number one. 

Then question number two, you outlined or put out a release a 

little while ago about a network of front companies that Iran has 

to try to circumvent the sanctions, and you talked about that network. Is there anything that we are going to do to that network? 

Or are we just identifying the network? 

Mr. COHEN. Senator, thank you for the kind words. In terms of 

resources, my team is working flat out. I can tell you that we have 

a lot of important issues on our plate, none more important than 

this, and we are devoting an enormous amount of energy and resources to implementing the range of sanctions programs that we 

have. I think we are doing a good job of it, but, you know, my folks 

are working very, very hard at this. 

Senator MENENDEZ. Well, that is diplomatic speak for you will 

not give me a direct answer that you need more money, but it 

sounds like if you are working flat out, then, you know—— 

15 

Mr. COHEN. We are working flat out. I think one very important 

principle as we look at the sanctions, particularly sanctions to 

come, is that they are implementable. And one of the things that 

we try to work with this Committee on is, as new ideas are generated, to make sure that we look at them both in terms of the impact on what we are trying to achieve here and ability to implement. That is obviously hugely important to our ability to enforce 

these sanctions regimes, that the sanctions that we adopt and that 

Congress legislates can be implemented effectively. 

I am sorry. I am forgetting the second—— 

Senator MENENDEZ. The network, and then I will—— 

Mr. COHEN. The network that we identified this morning, this 

network of 37 companies that are related to EIKO, they are all now 

on the SDN List, the Specially Designated Nationals List. Come 

July 1st, any foreign financial institution that does business with 

any one of those entities risks being cut off from the United States, 

and anybody working with them has the potential to be sanctioned. 

So we have done more than identify them. They are now, to use 

a bad pun, ‘‘radioactive.’’ 

Senator MENENDEZ. Thank you, Mr. Chairman, for your courtesy, 

and I look forward to working with you and the Ranking Member 

as to how do we continue to perfect this regime. 

Chairman JOHNSON. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and I, too, want to 

thank you and look forward to working with you on the two committees to come to the best conclusion. 

With that, Secretary Cohen, I appreciate the time we spent yesterday in the classified setting looking at some of the issues we 

cannot talk about here. And Senator Menendez seemed to have a 

hard time getting the words ‘‘good job’’ out, but I will say also 

again I think you are doing a good job. I know that it began with 

actually people like Menendez and others pushing the Administration toward sanctions, and now you all have taken that and actually are pushing ahead with things you can do through the executive branch, and I appreciate that very much. 

Do you want to expand a little bit on what you think the impact 

is going to be on the recent Executive order regarding the rial? 

Mr. COHEN. Thank you, Senator Corker, and I should say for 

other Members of the Committee, the classified briefing that we 

did yesterday, available, of course, to share that with other Members of the Committee. 

In terms of the Executive order, there are three main components to the Executive order that was issued yesterday—one which 

targets the rial directly, and as I noted in my oral testimony, it 

makes it now sanctionable for any foreign financial institution to 

convert rials into any other currency or to hold the rial in accounts 

outside of Iran. That should make the rial essentially unusable. No 

foreign financial institution outside of Iran I think will risk the potential of being cut off from the United States simply so they can 

exchange rials for other currencies or hold rial-denominated accounts. 

We are going to—— 

Senator CORKER. Do you think the world community has yet digested the impact that this is going to have on the rial? 

16 

Mr. COHEN. Not yet, inasmuch as we just announced this late 

yesterday. One of the important aspects of this Executive order is 

we announced it yesterday, it goes into effect on July 1st. So for 

this 25-day period or so, foreign financial institutions have the opportunity essentially to dump their rials without facing sanctions. 

We would encourage them to do so because, come July 1st, if they 

hold rials or exchange rials, they would be subject to sanction. 

The dumping of the rial in this period ought to have the effect 

of driving down the value of the rial versus other currencies in the 

world, which, as I noted, is—one of the measures of the effectiveness of our sanctions has been the really precipitous decline in the 

value of the rial over the last couple of years. 

Senator CORKER. Very good, and I hope this hearing will help 

make that happen. The Chairman is parsimonious with his time, 

so I am going to move on to two other points. 

I think one of the things that I guess we try to do here is we 

want to make sure the sanctions that we put in place work. We are 

trying to time them and put as much pressure as we can to cause 

behavior change. At the same time, we do not want to do things 

that are going to end up being ineffective or cause our coalition to 

break apart. Is that correct? So there is sort of a thread that we 

are trying to go down that keeps the pressure on as strongly as 

possible, keeps our coalition together, and does not do those things 

to really upset the world economy. 

I know a House bill has come over and is being looked at. If 

somebody, one person, could speak to both the issue of taking oil 

sanctions down to zero and the effect that that would have on the 

coalition that we have together, and also the broad-based sanctions. I know we have it against oil, petrochemicals, shipping. We 

are getting ready to do it against autos. Now there are discussions 

about everything, and if you could address those two, and I have 

one more question if you would be fairly brief in response. 

Ms. SHERMAN. Sure. On going to zero, we think we have to be 

very thoughtful about this. As you point out, we have to keep the 

coalition together. Energy security is critical for all of the countries 

of the world, and the six that I mentioned that still import oil— 

Indian, Japan, China, Republic of Korea, Turkey, and Taiwan—are 

all very energy security dependent. And as I know you have heard 

me say, Senator Corker, but I know is a great concern to everyone 

in Congress is where China is, which is the largest consumer of oil. 

A given percentage reduction—to give people an idea of how large 

it is, a given percentage reduction from China, currently the largest purchaser of oil from Iran, would be approximately equal to a 

volume reduction twice as large as the same percentage reduction 

from India, 3 times as that of South Korea, and 4 times of Turkey. 

So it is an enormous draw for their energy security to reduce their 

oil when, in fact, their consumption has gone up. And world oil consumption in 2012 went up 1.1 million barrels a day, which is more 

than the number of barrels of oil that went down in Iran. So that 

has to be replaced and you have to keep up with the growing demand for oil. 

One of the discussions, I am sure, that the President will have 

with the Chinese when he meets with President Xi Jinping this 

weekend is around climate, around energy security, and ways that 

17 

we can help China move more quickly away from oil so that they 

can further reduce their dependence on Iranian oil. 

So I think we all would like all of Iran’s oil to go, but it is not 

in our interest to have any of those six economies tank in the process, because we are all interdependent on each other. So we have 

to do this in exactly the way you say: drive toward it, make sure 

we keep the coalition together, ensure energy security, ensure 

economies hold up together, because that is important for our own 

economy. 

Senator CORKER. The broad-based sanctions, I know we have 

talked a little bit about that, maybe in another response—I want 

to honor the Chairman’s time, so I will just make a statement on 

my last point. We have had some pretty extensive communications 

recently with folks, you know, that are, quote, many of our Iran 

watchers, and I guess one of the things, that is beginning to be of 

concern, and that is the—and, again, I applaud the efforts that are 

taking place in all three of your departments regarding sanctions. 

What is beginning to happen, I fear, is that we are impacting 

sort of the broader population. The wealthy, though, are getting 

wealthier. And the wealthy are those folks that are right around 

the regime that actually have the greatest ability, if you will, to try 

to impact the behavior change. So I would just make a statement, 

and we will probably follow up with a QFR. But I think that we 

need to focus on those more targeted sanctions toward those individuals that most readily can effect regime behavior change, and 

I fear that the path we are going down—and, again, I applaud it, 

OK? I applaud what you are doing. But I think we are ending up 

sort of turning public opinion in a different way than we would 

like, and yet not really affecting the actual behavior of the leaders 

that can actually change what is happening. 

So I thank you for your efforts. I know we will follow up. You 

may speak to that in other testimony and questioning, but, Mr. 

Chairman, again, thank you for the hearing. 

Chairman JOHNSON. Senator Corker, I know better than to be 

overly parsimonious with your time. 

[Laughter.] 

Chairman JOHNSON. Senator Manchin. 

Senator MANCHIN. Thank you, Mr. Chairman, and I thank all 

three of you for being here today, and I appreciate the direct answers we are receiving, and it is very helpful. 

I know it has been noted by Senator Menendez and also Senator 

Corker that we have been trying to hurt Iran’s economy, and we 

have hurt Iran’s economy, but it has not kind of stopped them, and 

it looks like they are determined to move on, which is something 

that we cannot accept or tolerate in any way, shape, or form. 

I am convinced that we have to do more on the sanctions, and 

along with Senator Kirk and many Members of this Committee, we 

have introduced a bill, which is the Sanction Loophole Elimination 

Act. I think you are aware of it, and it is about a $30 billion—I 

think it is $30 billion foreign exchange reserves, and we thought 

that would have an impact. What are your feelings on that? And 

do you think—first of all, have you recognized that—I think, Mr. 

Cohen, maybe you could start with this. Have you recognized that 

18 

to be a concern and how much of an impact would it have if we 

implemented it? 

Mr. COHEN. Well, Senator, we have been looking carefully at that 

legislation. Just to take a step back, one of the efforts that we have 

been engaged in is, as the oil revenues that Iran is earning have 

decreased because of the amount of oil that they are selling is decreasing, we are also looking at ways to make it more difficult for 

Iran to get access to the revenue that it is earning. So it has sort 

of a multiplier effect on their oil sales. 

Senator MANCHIN. Right. 

Mr. COHEN. Legislation that went into effect earlier this year, as 

I noted in my oral testimony, has locked up in the six oil-importing 

countries the revenue that Iran is earning. It can only be used to 

facilitate bilateral trade between those six countries and Iran. The 

money cannot be moved outside of those countries, cannot be repatriated back to Iran. That has had an impact on the value of the 

rial. It has had an impact of essentially reducing on a dollar-fordollar basis the value of their oil exports. 

The proposal that is in the legislation that you have introduced, 

as I understand it, is a way to intensify the impact of this lockup 

by requiring the payment for oil to be in local currency. I think this 

is an issue along with sort of a range of issues that are very much 

worth looking at to figure out how we can make it more difficult 

for Iran to get access to their oil revenues. And I think as we go 

forward in the season where there is legislative activity, I think we 

are very much interested in working closely with you on that piece 

of legislation, sort of as it fits into this whole network of sanctions—— 

Senator MANCHIN. Do you all agree that it is about $30 billion 

for Iran right now being able to really transfer in euros, is really 

what seems to be their most aggressive change? 

Mr. COHEN. I think we are probably best talking about that in 

a closed session. 

Senator MANCHIN. Got you. OK. Then next of all, I would say 

along those same lines, I am concerned about their advancement 

of natural gas in the pipeline, and that would give them a tremendous amount of security and also a lot of, I think, exchange with 

these countries that would be dependent on them. What is your 

feelings of that and the direction we have taken? 

Mr. COHEN. We are just choreographing here. Let me just give 

one quick answer and then turn it over to Under Secretary Sherman. 

One important point on natural gas is that, come July 1st, under 

IFCA, which goes into effect on July 1st, that same mechanism of 

locking up the earnings from oil will apply to Iran’s natural gas 

sales. So after July 1st, the natural gas that they sell, which is significantly less than their oil exports, will also be subject to this bilateral trade restriction. So the value of their natural gas—— 

Senator MANCHIN. The development of the pipeline is continuing 

as we speak? 

Mr. COHEN. I will let you speak to the pipeline. 

Ms. SHERMAN. Let me speak to the natural gas broadly, if I may, 

Senator. We do not support natural gas sanctions as it is not a significant revenue earner for Iran, and it would not really increase 

19 

pressure on the Iranian regime, and it would be highly disruptive 

to the neighbors, some of whom we depend on. Iran is a net natural 

gas importer and trades natural gas with only four countries: Turkey, Turkmenistan, Azerbaijan, and Armenia. Of the four, only 

Turkey purchases natural gas, and there is a classified report I 

would refer you to on the impact of natural gas sanctions. It was 

a classified report provided pursuant to Section 505(b) of the TRA 

in December 2012, and I would urge you to read that, and I would 

be glad to discuss it further with you in a classified setting. 

Senator MANCHIN. And the only thing I can ask you about the 

classified setting, me and Senator Warren were just talking, if 

there could be maybe more than one of us that can meet with you 

on this Committee. 

Ms. SHERMAN. Sure. 

Senator MANCHIN. Would that be something that could be arranged through the chairmanship? 

Ms. SHERMAN. Sure. And, in fact, for the House Foreign Affairs 

Committee, and it is a standing—to the Senate Foreign Relations 

Committee to this Committee as well, we are happy to do a classified briefing on Iran, writ large, and bring in the intelligence community to answer your questions in detail. And I think the Senate 

Foreign Relations Committee had to reschedule that, but the House 

held the classified briefing, and I think they found it very helpful. 

Senator MANCHIN. Mr. Chairman, if you could set up a meeting 

for us, we would deeply appreciate that. That would be very helpful, and, again, I want to thank you all. I think all of you are doing 

a great job, and we appreciate it very much. Thank you. 

Chairman JOHNSON. Senator Moran. 

Senator MORAN. Mr. Chairman, thank you very much. I thank 

the witnesses for being with us today. Our country faces tremendous foreign policy challenges. I cannot think of one more serious, 

more challenging than this one. And I just want to encourage you 

to use every tool that is available that Congress gives you to implement these sanctions in as dramatic and drastic and such a consequential effect as possible. 

I want to ask just a couple of questions about these issues. Sanctions only work if they are imposed and enforced in a broad way 

across the globe. Secretary Sherman, what countries are you most 

concerned about violating the sanctions? Who is the least likely— 

who is not cooperating with us? And what is our reaction to that? 

Ms. SHERMAN. Well, I do not know that I could single out an individual country. 

Senator MORAN. I assume that you could, but I doubt that you 

would. 

Ms. SHERMAN. That is true. But what I will say is that we really 

press every country—with the new IFCA legislation that goes into 

effect July 1, where the Executive order was passed yesterday, we 

have done extensive briefings already with embassies all over the 

world. We have had our Ambassadors go in with guidance and instructions. We have sent teams to—I think in Singapore alone, because of all the shipping, they briefed something like 300 companies that wanted to know what the impact of those sanctions would 

be. 

20 

We have met with embassies and invited them into briefings 

here in Washington. As each piece of legislation comes through, we 

send out teams around the world. And besides the terrific investigatory teams of Treasury and Commerce, before Secretary Clinton 

left, she set up a new Sanctions Office, and we now have a Sanctions Coordinator, Dan Fried, with a team that also helps to bring 

together all the strands of sanctions—human rights, business, economic—that we have at the Department of State. 

And, in addition, I think all Members should understand that we 

work extensively with the intelligence community to put together 

dossiers and evidentiary packages for each one of these sanctions 

implementations because many of these sanctions have to be able 

to stand up in court. And, in fact, in Europe, where sometimes the 

thresholds have been lower than U.S. standards, they are now facing several challenges in courts. 

And, of course, we use sanctions often because the threat of sanctions alone may get a company or a country to take the action necessary without us having to impose the sanctions. 

So although we have sanctioned over 350 entities and individuals, I would suspect thousands more have stopped nefarious behavior because of the threat of sanctions. 

Senator MORAN. That makes sense to me. Is there a common 

theme or thread among those who are less cooperative? Is it economic? Is that the reason that—— 

Ms. SHERMAN. Oh, I would say far and away it is just commercial 

avarice that plays out. 

Senator MORAN. OK. The State Department imposed visa restrictions on nearly 60 Iranian officials and individuals that we believe 

are involved in human rights violations. That is required by the 

Comprehensive Iran Sanctions, Accountability, and Divestment 

Act. I think that act also requires that those individual names be 

posted at both State and Treasury Web sites. 

Ms. SHERMAN. I was checking with my expert. I do not believe 

that is the case, Senator. 

Senator MORAN. Would you confirm that with me, although I 

trust your expert, but I would like to know that, because I think 

that the public knowledge of that is important. Do the banks—— 

Ms. SHERMAN. The reason we do not do that is no visa decision 

is public information. You would not want your visa history to be 

public information, and so we do not do that in any visa situation. 

It is always classified and private. 

Senator MORAN. The financial institutions involved are provided 

with names and identification but not the public? 

Mr. COHEN. Senator, there were two related actions taken. The 

State Department identified I think 60-odd people for visa restrictions. At the same time, the Treasury Department imposed sanctions on a set of individuals for human rights abuses. The designations that the Treasury Department—— 

Senator MORAN. Sanctions as compared to the visa—— 

Mr. COHEN. Exactly. 

Ms. SHERMAN. Correct. So his is public. The visas are not. 

Senator MORAN. Let me then turn to Under Secretary Cohen. 

Mr. COHEN. So, to answer your question, the names of every 

human rights abuser who we apply sanctions against, that is on 

21 

our Web site. It is on State’s Web site. Financial institutions know 

that. 

Senator MORAN. And the field of people, the 60, are not necessarily the same 60 that have visa restrictions versus those that 

you are posting? 

Mr. COHEN. That is right. 

Senator MORAN. OK. And, finally, Iran’s foreign currency reserves, at the rate that Iran is spending its reserves, at what point 

in time do they disappear? 

Mr. COHEN. I think that would be a great topic for the classified 

sessions that we are going to have. 

Senator MORAN. OK. Thank you. 

Chairman JOHNSON. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Ms. Sherman, I want to ask you about our sanctions strategy. 

This country is committed to making sure that Iran does not develop a nuclear weapon and to protecting our allies in the region, 

including Israel. As a country, there is a broad consensus that we 

should keep all options open and on the table, but that a negotiated 

solution is far superior to war. 

Now, a recent report from the bipartisan Iran Project, a group 

of former diplomats and national security experts, has identified 

how a system of sanctions works. They describe it as strong sanctions are a stick that gets the Iranians to the negotiating table, and 

once they come to the table and start negotiating, strong sanctions 

are a carrot—that is, we can remove those sanctions in exchange 

for Iran giving up a nuclear program. 

That means for our sanctions strategy to work, it has to be possible not only to put sanctions in place but also to take them away 

if the Iranians want to make a deal. If the sanctions cannot be easily reversed, that is, if they face sanctions no matter what, then the 

Iranians will not give up their nuclear program. 

So I support tough, strong sanctions because I think they are 

necessary to make the strategy work. But what I want to know, 

Ms. Sherman, is whether you are confident that the sanctions that 

are currently in place are structured so that the Administration 

can reverse those sanctions as part of reaching a negotiated agreement. 

Ms. SHERMAN. Thank you, Senator. It is a very—actually, a quite 

sophisticated and important question. We have spent a considerable amount of time in preparing for the P5+1 negotiations to look 

at every single sanction and figure out what we would do and how 

we could indeed take them off. Some are easier than others. All of 

them could ultimately be removed either by Executive action or 

congressional action. But, of course, it is preferable that there be 

a way within the existing legislation or the existing EO to do so 

as opposed to having to pass new legislation to accomplish that. 

So your point is extremely well taken, and as Under Secretary 

Cohen said, in the last P5+1 negotiation, for the first time Iran was 

very, very vocal about its desire to have sanctions removed, particularly financial and oil sanctions, which are, of course, connected 

to each other in terms of viability. And we are not in any rush, of 

course, to remove any sanction until we see concrete, verifiable results that can be monitored and cannot be reversed. 

22 

Senator WARREN. Well, I very much appreciate that. I am sure 

you have seen the report from the International Crisis Group in 

which they had looked at sanctions, evaluated those sanctions in 

terms of how easy it would be to remove them on a scale of 1 to 

4, and found that of the congressional, all nine of the laws we have 

passed are Category 4, 4 being the toughest to reverse; and that 

of the Executive orders, seven have been codified and are also now 

rated as a 4, very tough to reverse. 

I raise this because I think it is something we need to focus on. 

The goal is to keep Iran from developing nuclear weapons, and I 

support strong sanctions because I think they are necessary to 

make this strategy work. But if the Iranians see that the sanctions 

cannot be lifted, then they will be only more firmly entrenched in 

pursuing nuclear weapons. In other words, badly designed sanctions might actually increase the likelihood of Iran getting a nuclear weapon or increase the likelihood of war. 

We have broad consensus in this country that we would prefer 

a negotiated solution in the Middle East, and if badly designed 

sanctions are going to increase the likelihood of Iran developing a 

nuclear weapon, then we need to focus now on how to fix that. So 

thank you very much. 

I have one other area I want to ask about. Mr. Cohen, when you 

last appeared before the Committee, we had a discussion about the 

Government’s enforcement against HSBC for laundering hundreds 

of millions of dollars over at least a 6-year period. They were helping drug lords, and they were also helping people who were evading the sanctions against Iran. 

Now, Treasury’s response was to settle for a fine, a very big fine, over $1 billion. But some of us wondered why the Government did 

not take HSBC to trial or at least look at imposing stronger penalties, including closing down the bank in the U.S. for a period of 

time or banning certain HSBC employees and executives from 

banking. 

Last week, Public Citizen released some internal Treasury 

emails that it received in response to a FOIA request. The documents were heavily redacted, but there were a couple of things that 

were clear. 

First, in the fall of last year, Treasury officials were suddenly 

quite anxious to settle with HSBC. After years of violations, a 

Treasury working group was quickly set up to scour through the 

violations, and senior Treasury officials were assured that the enforcement officials ‘‘were moving as quickly as possible to put together administrative penalty actions.’’ 

The second thing that is clear from the documents is that, at the 

same time, State officials of New York were starting to press forward with charges of their own against HSBC. The emails show 

that reporters began to contact Treasury about rumors that its senior officials had discouraged the Justice Department from leveling 

any criminal charges, and the emails show that Treasury official 

were suddenly talking about, in their words, ‘‘atmospherics.’’ 

So I have a couple of questions, Mr. Cohen. Since you played a 

key role in the HSBC conversations, HSBC actions have been going 

on for years. Why all of a sudden was Treasury interested in enforcement only in the fall of 2012? Was it because of what Ben 

23 

Lawsky, New York superintendent of banks, referred to last week 

as ‘‘a dose of healthy competition among the regulators’’? What was 

the sudden urgency? What was Treasury trying to get out in front 

of? And I will ask you to be brief because I know I am over my 

time, Mr. Chairman. 

Mr. COHEN. So, Senator, I think what you are reading into the 

emails is inaccurate. There was no special urgency that was first 

felt in the fall of last year to resolve the HSBC—— 

Senator WARREN. Well, let me just stop you there. The language 

in your own emails, from the small part that is left over that was 

not redacted, is that they are moving as quickly as possible to put 

together administrative actions, they seem to see the urgency, and 

they start talking about the atmospherics of a settlement? Can you 

just explain what that means? 

Mr. COHEN. So I do not believe any of these emails are mine, but 

I have looked at them, and I can tell you from my own experience 

being in the Department in the last year and over the last several 

years, the investigation of HSBC was proceeding. It had reached a 

conclusion. It was time to resolve the action, and that is what happened. 

Senator WARREN. So you are saying that what was happening in 

New York had nothing to do with it, you were not trying to get in 

front of anything? 

Mr. COHEN. That is not my recollection. 

Senator WARREN. And the word ‘‘atmospherics’’ means what in 

this context? 

Mr. COHEN. Senator, I do not know what you are reading from, 

so I cannot answer that question. 

Senator WARREN. Well, I am not sure I know entirely what I am 

reading from because of how redacted it is. But it is clear that 

Treasury was talking back and forth about the atmospherics surrounding a settlement at this point. 

Mr. COHEN. I would be happy to take a look at the document. 

I do not have it front of me, so I would be at a loss trying to answer 

your question. 

Senator WARREN. Well, I hope we both agree that the only thing 

that Treasury would be doing appropriately would be trying to enforce the law and making sure that the banks are enforcing these 

sanctions and not worrying about the atmospherics around that. 

Mr. COHEN. And as you noted, we have enforced these sanctions 

very vigorously in this case and in many others. 

Senator WARREN. Well, I think we have agreed to disagree about 

how vigorous that is, but thank you. 

Chairman JOHNSON. Senator Kirk. 

Senator KIRK. Thank you, Mr. Chairman, for having this hearing. I would like to raise one—ask that you designate President 

Ahmadinejad and Supreme Leader Khomeini as human rights 

abusers, I think we ought to call a human rights abuser a human 

rights abuser. And let me introduce you to Neda. As you know, 

when you work the Iran account, you will know that she has become the next young martyr of the Green Movement, shot down on 

the streets of Tehran for protesting against an election which was 

about to be stolen. 

24 

And the other case I would like to introduce you to is Nasrin 

Sotoudeh, who is someone that I will put forward to be a Nobel 

Prize winner. I hope that she is. She is a mother of two, and she 

has been in jail for 3 years now on the crime of representing 

human rights defendants. My hope is that we can call these guys 

for what they—what unites these two cases is that both Khomeini 

and Ahmadinejad ordered the actions which killed Neda and put 

Nasrin into Evin prison without her kids. 

Ms. SHERMAN. Thank you, Senator. I want to thank you first for 

being such a champion on human rights. I have known you for a 

very long time back when—— 

Senator KIRK. You do. 

Ms. SHERMAN. ——we were both staffers here on Capitol Hill, 

and it has always been a passion of yours, and we are fortunate 

to have an advocate for the rights of people in their lives. 

We could not agree with you more that the human rights situation in Iran is deplorable. We continue to raise our concerns about 

human rights on numerous occasions, both bilaterally and in multilateral fora. For 10 consecutive years, we have supported a successful resolution at the U.N. General Assembly that condemns Iran’s 

human rights practices. We help lead efforts in the Human Rights 

Council and did in 2011 to mandate a special rapporteur—— 

Senator KIRK. Let me interrupt you. Are the Iranians still the 

Chair of the human rights arm of U.N.? Which was always the ultimate joke about the U.N. 

Ms. SHERMAN. Iran is not the ultimate chair of human rights at 

the United Nations, and we continue to call on the community to 

join us in calling for the release of not only Saeed Abedini but 

human rights defender Nasrin Sotoudeh and Christian Pastor 

Youcef Nadarkahni and others. We have gone after and condemned 

the reported torture of a blogger while in police custody, and it goes 

on and on. And as others on this Committee have said, we are 

about to witness an election on June 14th that is not what any of 

us would call free and fair. 

Senator KIRK. I would definitely ask you to confirm to the Committee, we have had several hundred people disqualified to run for 

President and that you must be approved by the Guardian Council 

to even run for President. 

I just have a joke to ask you. What is the definition of an Iranian 

moderate? It is an Iranian who is out of nuclear weapons. 

Ms. SHERMAN. I appreciate the humor, but I think you and I 

would agree that there is nothing humorous about the situation in 

Iran. 

Senator KIRK. Right. Thank you. I will send over the picture of 

Nasrin to your office so you see her and think about her all the 

time. Thanks. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Heitkamp. 

Senator HEITKAMP. Thank you so much, and thank you for your 

excellent work in this area. Unfortunately, we are an impatient 

country. We would like to see things happen a lot faster, and my 

concern about sanctions is really achieving the new normal in Iran. 

You know, as you take each one of your sanctions and each one of 

these activities, you end up kind of adjusting their economy accordVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
25 

ingly. And it seems as if there is not a shock value, and maybe the 

most recent Executive order will achieve that shock value to the 

economy. But it seems like there has been this constant adaptation, 

and it is necessary—I will not disagree with that, that it is necessary to keep your coalition together. But by the same token, I 

think it results in an ineffective outcome. 

And so I have two questions and maybe one comment, a little 

self-serving comment, Ms. Sherman. One of the things that we can 

continue to do in this country is increase our domestic supply of oil. 

And as you were talking about equalizing the price and making 

sure that you do not have shock, we would certainly like to think 

that North Dakota has been a big part of helping you out in maintaining a rational, worldwide, global oil price. And, obviously, you 

know, without comment, because I know it is out of your area, I 

am looking forward to the State Department decision on Keystone. 

I think that development in North America will go a long way. 

But my main thrust of my questions is beyond what Senator 

Crapo has already said about increase, what more can we do. I 

want to know if there is something that we can do that has higher 

shock value. 

Ms. SHERMAN. Let me make a quick statement, and then my colleagues may want to add to it. I think that certainly when the EU 

passed its sanctions and immediately every EU country that imported oil stopped, it had shock value. I think that when the NDAA 

was passed here it had a shock value. 

I think some of the EOs that the President has signed, including, 

quite frankly, the one that we just did that allows mobile technology hardware and software to be sold right before the Iranian 

election, has a shock value. But the reality is that sanctions historically only have impact over time as they build, and particularly 

with oil markets, it takes time for some of those contracts to unwind, for the ships to never find their way to port, for insurance 

companies—quite frankly, on the oil sanctions, it was as much not 

being able to get secondary insurance for tankers that pulled back 

the oil shipments as much as the sanctions on oil in and of themselves. Getting through the financial assets of individuals and companies that is done out of Treasury has had a major impact. 

So it is really the cumulative effect, and I think we are seeing 

that cumulative effect, but we need to keep up and make sure that 

we keep the coalition together so we sustain that pressure, because 

it is having an impact. As I said in my opening comments, it is 

very interesting that all of the candidates for Presidential election, 

as unelected, unaccounted as the Senator has said it is, are talking 

about how horrific the economy is. 

Senator HEITKAMP. And I guess we could get more response as 

we do the follow-up, but my second question is really about the 

election. We have not talked a lot about that. You have raised it 

now twice. What hope do you have coming out of this election, if 

any—you know, simply saying it has got an effect, so what? We 

would imagine that these sanctions, when you reduce their revenue 

by 50 percent, is having an effect. What is the political outcome or 

the political effect? 

Ms. SHERMAN. The reality, Senator, is that the nuclear file is 

held by the Supreme Leader of Iran, and so he is the sole decisionVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
26 

maker—he is affected by others around him, but he is the sole decision maker when it comes to the strategic calculation about whether to really deal in these negotiations. 

We believe he will do that when he thinks there is a greater risk 

to him to not doing it than—to doing it than to not doing it. We 

do not think he has made that calculation yet. We think we are 

getting closer to the potential for him doing so. And the one other 

impact I will say, partly in humor, partly in reality, is one of the 

leading candidates is the lead negotiator for the P5+1, Saeed Jalili, 

and if he becomes President, we will have a new negotiator, and 

I do not know whether that will make any difference whatsoever. 

Chairman JOHNSON. Senator Schumer. 

Senator SCHUMER. Thank you, and I want to thank the three 

witnesses here today for their hard work here. 

I want to begin by applauding the Administration’s recent announcement of new sanctions on any financial institutions that conduct significant transactions in Iranian currency. It is an important 

step that, as you know, Senators Kirk, Menendez, and I have been 

urging for years when we started with our central bank legislation. 

And so I am glad to see we are finally taking that step. 

Now, I hope that you will follow through and actually sanction 

firms who violate the sanctions. Despite U.S. and international interests, too many banks have ignored the sanctions and continue 

to do business with designated Iranian entities. To date, the Treasury Department has sanctioned just two non-Iranian foreign banks 

for conducting significant transactions with sanctioned banks. 

Treasury recently lifted the sanctions on one of these banks after 

it stopped the prohibited activities, but there is ample information 

indicating that other banks have violated U.S. laws by conducting 

such transactions. 

I believe the Administration has to start sanctioning foreign 

banks that continue to conduct significant financial transactions or 

provide significant financial services with the sanctioned Iranian 

banks or the Revolutionary Guard or the Central Bank of Iran; otherwise, there is no incentive to refrain from doing business with 

these entities. The banks are liable. You know the sections of the 

law. I will not cite them. 

And so my question is very simple. I guess it goes to Mr. Cohen. 

Can you state today that you are prepared to announce sanctions 

against specific non-Iranian banks in the near future? 

Mr. COHEN. Well, Senator, I do not have any announcements to 

make sitting here today, but I can tell you that we have been very 

aggressive in implementing the various legislations and Executive 

orders that create the sanctions framework. And as you noted, we 

have applied sanctions on two foreign banks for doing business 

with designated Iranian banks, and we have been watching very 

carefully at any evidence of other financial institutions engaged in 

that behavior. 

One of the remarkable results of the legislation that was enacted—and Senator Heitkamp’s question about having sort of shock 

value effect—was the passage of CISADA in July of 2010, which 

gave us the authority to apply sanctions on foreign banks doing 

business with designated Iranian banks. 

Senator SCHUMER. Right. 

27 

Mr. COHEN. We went around the world, made sure that the foreign financial institutions understood the import of that legislation 

and the business with Iran that had existed before CISADA fell off 

the cliff. So the reality is the financial institutions around the 

world do not misunderstand the seriousness of the Administration’s 

applying sanctions. 

Senator SCHUMER. But let me just say, isn’t it true that if even 

a few say, ‘‘I will take up the slack when the others fall off,’’ we 

will not accomplish our goal? So unless there is a clear, bright 

line—you start doing this, you are going to be sanctioned—we are 

not going to have the effect that we had, because just to have one 

bank replace another because they think they have some advantage—I have a list of banks here that are suspected of violating 

U.S. law that you have not sanctioned. 

Mr. COHEN. Well, Senator, I think that bright line is known to 

the financial community around the world, and I am happy to take 

a look at your list. 

Senator SCHUMER. But as you said, the law is from 2010. Two 

banks have been sanctioned. One had its sanctions removed as 

soon as it said, ‘‘I will not do it again.’’ It does not sound—if I were 

a bad bank, which I am not, let me state for the record, I would 

not be too worried here. 

Mr. COHEN. So, Senator, I think that the impact speaks to the 

effectiveness of the implementation, and implementation involves 

both sanctioning and deterring. If you look at the extent to which 

designated Iranian banks today have access to the foreign financial 

system, it is essentially nil, and that is because we have taken action and because the foreign financial institutions that had been 

doing business with designated Iranian banks exited that business. 

I am very interested in the list you have—— 

Senator SCHUMER. OK. I will get it to you. 

Mr. COHEN. ——and we can follow up on that. 

Senator SCHUMER. OK. Thank you. 

And, finally, for Ms. Sherman—I know my time is running out— 

the President’s meeting with the President of China—I can never 

remember who is a President and who is a Prime Minister. 

Ms. SHERMAN. President. 

Senator SCHUMER. President Xi of China, I take it that the issue 

of China’s dealings with Iran will be high on the list, and we will 

be quite firm in how important this is to not only our interests but 

the interests of the world? 

Ms. SHERMAN. Absolutely, Senator. It is on the list. It is high on 

the list. And our pressure on China in this regard has had an impact. In the past year, all Chinese trade with Iran has declined by 

approximately 18 percent. We have sanctioned Chinese companies, 

including five Chinese foreign persons for nonproliferation activities as well. 

I will also say that in the P5+1 China has been a valuable partner. We have maintained unity in the P5+1. It is crucial that we 

maintain unity so that Iran cannot split us apart. They always look 

for divisions. They always look for wedges. And the Chinese have 

been part of the unity which we have presented. But there is no 

doubt that the President will be very clear, as he has been in the 

28 

past with President Xi, that we will not permit Iran to have a nuclear weapon, period. 

Senator SCHUMER. Thank you. 

Chairman JOHNSON. I want to thank the witnesses for their testimony. This hearing was an important and useful oversight exercise to begin to identify some of the next steps that should be 

taken. I look forward to working with my colleagues in the coming 

months on this important issue. 

This hearing is adjourned. 

[Whereupon, at 11:38 a.m., the hearing was adjourned.] 

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

29 

PREPARED STATEMENT OF WENDY SHERMAN 

UNDER SECRETARY FOR POLITICAL AFFAIRS, DEPARTMENT OF STATE

JUNE 4, 2013 

Chairman Johnson, Ranking Member Crapo, distinguished Members of the Committee, thank you for inviting me here today to update you on our approach to one 

of our country’s top national security priorities, Iran. The Administration confronts 

a range of challenges on Iran—its nuclear ambitions, its support for international 

terrorism and destabilizing activities in the region, and its human rights abuses at 

home. In confronting these challenges we have employed a range of diplomatic tools, 

from negotiations, to sanctions, initiatives in multilateral fora, and bilateral engagements; we have also strengthened our efforts to empower the Iranian people and 

promote their right to the basic freedoms. 

Around the world, countries have joined this effort because they share our grave 

concerns about Iran’s activities. Just last week, Canada announced tough new measures to ban virtually all trade with Iran, just as we do. Today, Iran is under the 

toughest, most comprehensive sanctions regime ever. The breadth of these international sanctions has been unprecedented, targeting both specific individuals and 

entities, as well as entire sectors critical to the regime’s illicit activities. Maintaining 

this coalition will be critical as we move forward. 

Over 4 years ago the President offered Iran a choice: fulfill your international obligations and assume your place among the community of Nations, or continue down 

a path of increasing isolation and pressure. In light of Iran’s refusal to act responsibly, we remain resolved to sharpen that choice for Iran until it decides to change 

its behavior and resolve the international community’s concerns about its nuclear 

program. 

The Dual-Track Policy 

The United States is determined to prevent Iran from acquiring a nuclear weapon 

and committed to a dual-track approach of pressure and engagement to address the 

international community’s concerns over Iran’s nuclear activities. On the engagement track, we have worked within the P5+1—which include the five members of 

the U.N. Security Council plus Germany, and coordinated by the European Union— 

to pursue a diplomatic solution to address concerns over Iran’s nuclear program. On 

February 26, 2013, the P5+1 met with Iranian representatives in Almaty, where we 

jointly presented Iran with an updated, balanced proposal that offered Iran a real 

opportunity to take steps toward reducing tensions and creating the time and space 

to negotiate a comprehensive solution to the nuclear issue. 

Yet, when on April 5, 2013, the P5+1 returned to Almaty, the Iranian response 

was disappointing. While the P5+1 had a substantive exchange of views with Iran 

during the talks, in the end, Iran’s counterproposal to the P5+1 initiative sought to 

place little or no constraint on its current nuclear activities, while demanding that 

major sanctions be removed immediately. Given the significant gulf between the two 

sides, the P5+1 members did not believe scheduling another round was warranted 

at that time. On May 15, EU High Representative Catherine Ashton met with Iran’s 

Chief Nuclear Negotiator Saeed Jalili. Consultations on next steps are still ongoing, 

however we have been clear that we expect to see concrete signs that Iran is prepared to substantively address all aspects of the proposal we discussed in Almaty. 

While we must give diplomacy every chance to succeed, our patience is not infinite. 

We have approached these negotiations realistically, conscious of our difficult history, and we will continue to seek concrete results in our talks, not empty promises. 

But the onus is on Iran. 

Simultaneous with our efforts to seek a diplomatic solution, we have bolstered our 

efforts on the second track of our policy—pressure. This track is robust and focuses 

on a range of Iranian activities. At international fora such as the United Nations 

and International Atomic Energy Agency, we have repeatedly highlighted Iran’s activities, including its human rights violations, sponsorship of terrorism, and illicit 

nuclear program. In our daily interactions with foreign Governments around the 

world, we are making clear that actions constitute violations of international norms 

and are unacceptable. In our courts, we have brought Iranians involved in terrorist 

or proliferation activities to justice. And we continue to underscore directly to the 

Iranian people that we will assist their efforts to hold their Government accountable 

and exercise their universal human rights including the right to freedom of expression. 

Sanctions have also played a major role within this framework. It is important 

to remember that we impose sanctions not as an end in themselves, but because 

they are a valuable tool to increase pressure on the Iranian Government to address 

the international community’s concerns over its nuclear program. Working through 

30 

the United Nations and with our allies, we have built and led a global coalition to 

create the toughest, most comprehensive sanctions to date on the Iranian regime. 

Indeed, we believe the costs these sanctions are imposing on Iran are one of the reasons the regime decided to restart the negotiations. 

Today, our sanctions are having a real impact on the ground in Iran, exacerbated 

by the regime’s own mismanagement of its economy. As a result of our implementation of sanctions under the National Defense Authorization Act for Fiscal Year 2012, 

Iran exports over 1 million fewer barrels of crude oil each day than it did in 2011, 

costing Iran between $3–$5 billion per month. All 20 importers of Iranian oil have 

either significantly reduced or eliminated oil purchases from Iran. Financial sanctions have crippled Iran’s access to the international financial system and fueled the 

depreciation of the value of Iran’s currency to less than half of what it was last year. 

Foreign direct investment into Iran has decreased dramatically as major oil companies and international firms as diverse as Ernst & Young, Daimler AG, Caterpillar, 

ENI, Total, and hundreds more have divested themselves from Iran. The International Monetary Fund projects the Iranian economy will contract in 2013, a significant decrease from the over 7 percent growth 6 years ago, and far below the performance of neighboring oil-exporting countries. Put simply, the Iranian economy is 

in a downward spiral, with no prospect for near-term relief. 

We continue to increase the pressure through a range of actions. Iranian oil exports will continue to decline as we implement the law through our engagement 

with the last remaining six importers of Iranian oil. The exceptions to the sanctions 

under the FY12 NDAA that the State Department has granted the 20 importers are 

a measure of our success; those exceptions are what permitted us to achieve this 

monumental reduction in Iranian oil sales that has reverberated throughout the Iranian economy while maintaining stability in the global economy. Iran’s currency will 

remain volatile as we block Iran’s revenue streams and its access to funds held 

abroad. And we will continue to track, identify, and designate individuals and entities assisting Iran’s proliferation efforts and attempting to evade sanctions on Iran. 

To give some recent examples, on May 31 the State Department imposed sanctions 

on Ferland Company Limited under the Iran Sanctions Act for knowingly concealing 

the origin of Iranian crude oil carried on a ship under its control, in conjunction 

with Treasury sanctions against Ferland the same day under its Foreign Sanctions 

Evader authorities. The same day, we also imposed sanctions on Jam Petrochemical 

Company and Niksima Food and Beverage JLT under Executive Order 13622 for 

knowingly engaging in transactions for the purchase or acquisition of petrochemicals 

from Iran. Finally, on July 1, the Iran Freedom and Counter-Proliferation Act of 

2012 takes full effect, further increasing pressure on Iran by targeting an array of 

sectors and industries in Iran. Looking forward, as long as Iran continues on its current unproductive path, the Administration will continue to assess and implement 

additional sanctions on sectors and industries that can serve as pressure points. 

One of the keys to our success in ratcheting up the pressure on Iran is that we 

are not doing so alone. The European Union has enacted its own stringent sanctions 

regime, including an oil import ban in July 2012 that resulted in all 27 EU member 

States banning oil purchases from Iran. Australia, Canada, Norway, South Korea, 

Japan, and others have enacted their own sets of domestic measures. And, even 

among partners who are frankly skeptical of sanctions, we have seen robust implementation of U.N. Security Council resolutions and cooperation on specific sanctions 

issues. As we move forward, it will be critical that we continue to move together 

and take no steps that undo the progress made so far. Such steps would signal divisions to Iran that it could and likely would exploit. Further, as the effect of our 

sanctions on Iran depends in part on the actions of our partners, we must ensure 

that our sanctions do not place an undue burden on those countries. It is not in our 

interest to create fissures within the international coalition facing Iran, as the impact of our pressure comes from the steps these countries take. So we look forward 

to continued strong collaboration with members of Congress to develop sanctions 

and other tools that are smart, effective, and increase pressure on the regime in a 

way that allows us to maintain the strong coalition we have built. 

Even as we significantly increase pressure on the Iranian regime, we remain committed to ensuring that legitimate, humanitarian trade can continue for the benefit 

of the Iranian people. We take no pleasure in any hardship our sanctions might 

cause the Iranian people in their everyday lives, and it is U.S. policy to not target 

Iranian imports of humanitarian items. We have worked hard to ensure U.S. regulations do not unduly interfere with transactions for the sale of agricultural commodities, food, medicine, or medical devices to Iran as long as the transactions do not 

involve a designated entity or otherwise proscribed conduct. 

31 

Human Rights and Support for the Iranian People 

In all our efforts on Iran, we have demonstrated that supporting the Iranian people and pressuring the policies of their Government are not mutually exclusive. Labeled by press advocacy group Reporters Without Borders as an ‘‘enemy of the Internet,’’ the Iranian regime filters online content, slows Internet speeds, and blocks access to the Internet to prevent Iranian people from freely acquiring information 

about their own country and the outside world. With that in mind, last week the 

Treasury and State Departments unveiled an initiative that will make communications technology that is safe and secure more accessible to the Iranian people. We 

issued a general license that will allow U.S. companies to export certain mass market, consumer personal communications devices such as smart phones, satellite 

phones, and basic computer equipment to Iran, as well as related services and software—such as the important security updates to software that make these products 

safer to use. The license also covers other essential tools to safely navigate the 

Internet, like antivirus software and virtual private network technology, so that the 

Iranian people have the latest tools to combat their own Government’s efforts to envelope them with an ‘‘electronic curtain’’ that shuts them off from the world. 

In the same vein, last week the Administration designated one individual and two 

entities for their involvement in serious human rights abuses or censorship activities to curtail or penalize freedom of expression. This was just the latest example 

of how we are using our authorities to hold the Iranian Government accountable on 

its human rights violations. Indeed, over the last 3 years, we have imposed sanctions—including asset freezes and visa bans—on 30 Iranian individuals and entities 

for such abuses, including the Islamic Revolutionary Guard Corps (IRGC), the Ministry of Intelligence and Security (MOIS), Iran’s Cyber Police, and the Islamic Republic of Iran Broadcasting. In addition, we have imposed separate visa restrictions 

on more than 100 Iranian officials involved in human rights abuses in Iran, and 

used Executive Order 13606 to target entities using technology to assist in or enable 

human rights abuses by the Iranian Government. 

Unfortunately, the Iranian Government continues to take actions that underscore 

how much it fears its own people. This campaign of repression has included the harassment and intimidation of family members of those who speak out for freedoms, 

the torture of political prisoners, and the limitation of freedom of expression and access to information. These acts of aggression have created a culture of fear in which 

few dare to voice dissent or challenge regime officials. Students, lawyers, journalists, 

and bloggers, ethnic and religious minorities, artists, and human rights activists are 

all targets for abuse, intimidation, or discrimination. This trend has only increased 

as Iran prepares for its June 14 presidential elections. We saw Iran’s unelected and 

unaccountable Guardian Council disqualify hundreds of candidates based on vague 

criteria—and declare that women, who make up half of Iran’s population, are barred 

from serving as president. While Iran’s Supreme Leader called for an ‘‘epic’’ election 

to demonstrate Iran’s strength, the regime’s decisions are denying the Iranian people an electoral process that meets international standards. 

Levinson, Abedini, and Hekmati Cases 

Just as we are concerned about Iran’s treatment of its own citizens, we remain 

concerned about Iran’s treatment of U.S. citizens detained and missing in Iran. The 

U.S. Government is fully dedicated to the return of American citizen Robert 

Levinson and U.S.–Iranian dual nationals Saeed Abedini and Amir Hekmati. Mr. 

Levinson went missing from Kish Island, Iran, on March 9, 2007, and his whereabouts remain unknown. We continue to call on the Iranian Government to make 

good on its promises to assist the U.S. Government in finding Mr. Levinson so that 

he can be reunited with his family. Mr. Hekmati, a former U.S. Marine who served 

with distinction in Iraq, has been detained in Iran since August 2011, and endured 

a closed-door trial with little regard for fairness or transparency. Mr. Abedini has 

been detained in Iran since September 2012 on charges related to his religious beliefs, and reportedly has suffered physical abuse by Iranian officials in prison. Despite our repeated requests, Iranian authorities have failed to provide them with 

adequate medical treatment or permit visits from our protecting power. We will continue to raise these cases directly and publicly as we also pursue all available options until all three of these Americans return home safely. 

Support for Terrorism 

We also have grave concerns about Iran’s destabilizing activities in the Middle 

East, particularly its support for Bashar Al Asad in Syria; its support for terrorist 

organizations like Hizballah; and its unacceptable attacks on innocent civilians 

worldwide. 

32 

Iran is the world’s foremost State sponsor of terrorism. Led by the IRGC-Qods 

Force and MOIS, the ‘‘Iran Threat Network’’ comprises an alliance of surrogates, 

proxies, and partners such as Hizballah, HAMAS, and Kata’ib Hizballah, among 

others. Iran funds, trains, and equips these terrorist organizations, in whole or in 

part, to use in attacks around the world. This clandestine threat network destabilizes countries throughout the Middle East and threatens regional security. Iran’s 

leaders have aimed most of their threats at one of our closest allies, blatantly declaring their desire to see the destruction of the State of Israel. We have a moral 

obligation and strategic imperative to ensure that Iran never has the tools to make 

good on that threat. 

Israel is not Iran’s only target, however. Iranian American Mansour Arbabsiar 

pled guilty last year to plotting with members of the Qods Force to murder the 

Saudi Arabian ambassador by bombing a crowded restaurant here in Washington, 

DC. The attempt to assassinate a foreign diplomat in our Nation’s capital is an intolerable escalation of Iranian terrorist activity, and last week it was announced 

that he will serve 25 years in prison for his crimes. 

Iran has also sponsored and directed terrorist attacks against Israeli civilian and 

diplomatic targets worldwide. On February 13, 2012, a magnetic bomb was placed 

under the vehicle of an Israeli diplomat’s wife in New Delhi, India, seriously injuring her and three Indian nationals. The following day, a similar device was discovered under a vehicle belonging to the Israeli embassy in Tbilisi, Georgia, and safely 

defused. At the same time, Thai police arrested three Iranian nationals in Bangkok 

in connection with explosions at a private residence that subsequently revealed 

bomb-making materials and makeshift grenades intended for use in attacks against 

Israeli targets. 

In June 2012, Kenyan authorities arrested two Iranian members of the Qods 

Force. Armed with 33 pounds of military-grade plastic explosives, they planned 

deadly attacks on Western and Israeli targets. On May 6, a Kenyan court sentenced 

them to life imprisonment for terrorism-related offenses. 

Thwarted attacks involving Iranians and Iranian proxies like Hizballah in Cyprus, Thailand, and Kenya—to name a few examples—show a clear willingness on 

the part of our international partners to target and prosecute Iranian terrorist activity. As evidenced by these disruption and prosecution efforts across Africa, Asia, and 

Europe, we and our international partners have become increasingly effective at targeting Iranian support for terrorism. 

In Syria, Iran has made it clear that it fears losing its closest ally and fellow 

State sponsor of terrorism and will stop at no cost, borne by both the Syrian and 

Iranian people, to prop up the Asad regime. Today, Iran is training, arming, funding, aiding and abetting the Asad regime and its atrocious crackdown on its own 

people. It is coordinating its intervention in Syria with Hizballah, which is itself engaged in training pro-regime militants who attack Syrian civilians, and in direct 

fighting on behalf of the Asad regime against the Syrian people. Iran and Hizballah 

fighters are also directing the activities of Iraqi militia groups which have been enlisted to join in the Asad regime’s war against the Syrian people. Iran has shown 

that it is willing to potentially destabilize an entire region if it means keeping the 

murderous Asad regime in place. Countering such efforts remains a key priority for 

the Administration and we are focused on preventing Iran from continuing to support the Syrian regime financially, materially, and logistically. The Administration 

has used its authorities in several Executive orders to highlight the role of Iran in 

the Asad regime’s violation of human rights and hold accountable those responsible. 

Conclusion 

In sum, what we see is that the Iranian regime’s misplaced priorities, corruption, 

and mismanagement of their Government are detrimentally affecting the Iranian 

people. Instead of meeting its people’s needs, the regime has chosen to spend enormous amounts of its money and resources to support the Asad regime as well as 

its militant proxies around the world, and to pursue the development of weapons 

of mass destruction. Instead of investing in its people, Iran continues to restrain 

their vast potential through censorship, oppression, and severe limitations on their 

social, political, and even academic freedoms. 

The Administration will continue to hold the Iranian Government accountable for 

its actions and increase pressure on the regime until it chooses to become a responsible member of the international community and give the Iranian people the opportunities they deserve. As the President said, we have no illusions about the difficulty of overcoming decades of mistrust. It will take a serious and sustained effort 

to resolve the many differences between Iran and the United States. But we believe 

that meeting this challenge is vital. We welcome your ideas and look forward to 

working together to sustain and expand our efforts. Thank you. 

33 

1On May 17, 2013, Treasury removed sanctions on Elaf Islamic Bank following the bank’s 

significant and demonstrated change in behavior, including an intensive course of action to stop 

the conduct that led to the CISADA sanction, freezing the designated Iranian bank EDBI’s bank 

accounts, and reducing its overall exposure to the Iranian financial sector. 

PREPARED STATEMENT OF DAVID S. COHEN 

UNDER SECRETARY FOR TERRORISM AND FINANCIAL INTELLIGENCE, DEPARTMENT OF

THE TREASURY

JUNE 4, 2013 

Introduction 

Chairman Johnson, Ranking Member Crapo, and distinguished Members of the 

Committee, thank you for the opportunity to testify today on the Treasury Department’s application of sanctions pressure as one part of the U.S. Government’s effort, 

coordinated with counterparts around the world, to counter the threat posed by 

Iran’s nuclear and ballistic missile program. Our continued close collaboration with 

this Committee and your colleagues in Congress is essential to our success in addressing this threat. 

As this Committee will appreciate, no issue is of greater concern or urgency than 

preventing Iran from obtaining a nuclear weapon. As the President recently warned, 

an Iran in possession of such a weapon would increase the risk of nuclear terrorism, 

undermine the global nonproliferation regime, trigger an arms race in the Middle 

East, and embolden a regime that has ruthlessly repressed its citizens. 

That is why this Administration, from its first days in office, has tenaciously pursued a dual-track strategy that offers Iran a path to reclaim its place among the 

community of Nations while making clear that we, along with our partners in the 

international community, would apply and enforce increasingly powerful and sophisticated sanctions on Iran if it continues to refuse to satisfy its international obligations with respect to its nuclear program. As we have repeatedly made clear, Tehran 

faces a choice: it can address the call of the international community to give up its 

nuclear ambitions and be permitted to reintegrate itself diplomatically, economically 

and financially into the world community, or it can continue down its current path 

and face ever-growing pressure and isolation. 

Increasing Pressure on Iran 

Since my last appearance before this Committee, the scope, intensity, and impact 

of U.S. sanctions on Iran have expanded through the enactment of legislation, the 

adoption of Executive orders (E.O.s), and the energetic implementation and enforcement of the entire sanctions framework. These efforts have heightened the economic 

pressure and imposed a very significant strain on the Iranian regime. 

Designating Iranian Banks and Their Financial Partners 

When I last appeared before the Committee, I described the Administration’s extensive efforts to implement the Comprehensive Iran Sanctions, Accountability, and 

Divestment Act of 2010 (CISADA). CISADA calls for the exclusion from the U.S. financial system of any foreign financial institution that knowingly facilitates significant transactions or provides significant financial services for Iranian financial institutions designated in connection with Iran’s nuclear or missile proliferation activity, 

or its support for international terrorism. 

The mere fact that we have CISADA at our disposal has been sufficient to drive 

the overwhelming majority of banks away from business with Iran’s designated 

banks, isolating those Iranian banks from the global financial system. To date we 

have employed this authority against two foreign banks, China’s Bank of Kunlun 

and Iraq’s Elaf Islamic Bank, 1 for facilitating millions of dollars’ worth of transactions for several designated Iranian banks. Were there any question about our 

willingness to apply CISADA sanctions, these actions clearly demonstrated that we 

will target sanctionable activity, wherever it may occur. 

Targeting the Central Bank of Iran and Iran’s Oil Revenues 

Just over a year later, in December 2011, the President signed into law the National Defense Authorization Act for Fiscal Year 2012 (NDAA), which threatens 

CISADA-like consequences—that is, terminating or restricting correspondent account access to the U.S.—for foreign financial institutions that transact with the 

Central Bank of Iran (CBI) in a way not authorized by U.S. law. Significantly, the 

NDAA also marked a new phase in our sanctions campaign by targeting Iran’s economic lifeblood: its oil exports. 

The logic behind the measures in the NDAA is two-fold. First, it seeks to isolate 

the CBI from the international financial system—a process begun in November 2011 

34 

when we designated the entire jurisdiction of Iran as a ‘‘primary money laundering 

concern’’ under Section 311 of the USA PATRIOT Act. These actions undercut the 

CBI’s ability to facilitate the conduct of designated Iranian banks and to support 

Iran’s illicit activities within Iran and abroad. 

Second, because the CBI is the primary bank into which Iran receives oil payments, the NDAA intensifies economic pressure on the regime. To prevent Iran from 

benefiting from a spike in oil prices that might be caused by a rapid reduction of 

Iranian oil in the global market, the NDAA was designed to encourage Iran’s oil 

customers to undertake significant but incremental reductions in their Iranian oil 

imports, giving customers and alternative suppliers a measure of time to adjust and 

accommodate this reduction. This law—working in tandem with our efforts targeting Iran’s access to the international financial system—has had an enormous impact on Iran’s oil revenues. 

Locking Up Iran’s Oil Revenues 

The impact of the NDAA was further enhanced by a powerful measure contained 

in the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA) that entered into effect on February 6, 2013. Under Section 504 of the TRA, any country 

that has received an NDAA ‘‘significant reduction’’ exception—meaning that its 

banks can pay Iran for its significantly reduced oil imports without risk of correspondent account sanctions—must now ensure that those revenues are used only 

to facilitate bilateral trade or humanitarian trade. Iranian oil-import revenue cannot 

be repatriated to Iran, transferred to a third country, or used to facilitate thirdcountry trade, except for humanitarian purchases. This is a very powerful provision, 

as it effectively ‘‘locks up’’ Iranian revenues in the few countries that still buy Iranian oil and denies Iran the free use of its diminishing oil revenue. 

Tightening the Sanctions Regime Through Executive Orders 

To further enhance the pressure on Iran, over the last year the President has 

issued a series of Executive orders (E.O.) targeting Iranian activity—including one 

yesterday that takes aim at Iran’s currency and its automotive sector, and expands 

sanctions against those supporting the Government of Iran. 

With this order, the Treasury Department, in consultation with the State Department, is authorized to impose sanctions on foreign financial institutions that conduct certain significant transactions for trading in Iran’s currency, the rial, or maintaining significant rial accounts outside Iran. We have seen that the value and stability of the rial is of great importance to the regime. This new measure will limit 

the use of the rial in international transactions; places additional restrictions on 

Iran’s ability to gain access to its foreign reserves; and isolates Iran further from 

the international financial system and commercial markets. 

In addition, the Executive order targets another major sector of Iran’s economy— 

its automotive sector. Iran’s automotive industry is a significant contributor to its 

overall economic activity, generating funds that help prop up the rial and the regime. With this Executive order, we will be able to sanction persons and financial 

institutions that knowingly engage in transactions for the supply of significant 

goods or services used in connection with the automotive sector of Iran. 

This E.O. also positions us to target those who provide material support to the 

GOI. Now, subject to certain exceptions, anyone who materially assists, sponsors, 

or provides financial, material, or technological support to persons identified by 

Treasury as the GOI is exposed to potential sanctions. 

In addition to this action, I would like to highlight two Executive orders in particular that we have used to target Iran’s sanctions evasion efforts and to put further pressure on its energy exports. 

In response to Iran’s continued abuse of the financial sector, the President in February 2012 issued E.O. 13599. Among other things, E.O. 13599 blocks all property 

of the Government of Iran, including the Central Bank of Iran, and allows us to 

identify for sanctions any person—Iranian or non-Iranian—who acts for or on behalf 

of the Iranian Government, regardless of the type of activity. Under this Executive 

order we recently identified a Greek businessman, Dmitris Cambis, and a group of 

front companies for using funds supplied by the Government of Iran to purchase oil 

tankers, and then disguising the origin of the Iranian oil transported on those vessels. 

In July 2012, the President issued E.O. 13622, which enhances the NDAA by authorizing sanctions on foreign banks and persons that facilitate the activities of, or 

provide material support to, the National Iranian Oil Company (NIOC) or its energy-trading subsidiary, the Naftiran Intertrade Company (NICO), or that facilitate 

the acquisition—from any party—of Iranian petroleum, petroleum products, or petrochemicals. This authority also gives us the ability to target those who provide 

35 

material support to the Central Bank of Iran or who sell gold to the Government 

of Iran. My colleagues at the State Department imposed sanctions on two petrochemical companies last week under this order, and we have used this measure to 

important effect in our engagement with foreign partners, warning countries about 

the risk of undertaking this conduct and, we believe, deterring it. 

Expanding Energy, Shipping, and Shipbuilding Sanctions 

Last, I would like to discuss a new authority, the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA), which was enacted in January 2013 and becomes fully 

effective on July 1, 2013. IFCA expands our existing sanctions by giving us new 

tools to target Iran’s ports, energy, shipping, and shipbuilding sectors, as well as 

Iran’s supply of certain metals and industrial materials. It also provides for additional sanctions on banks that transact with any designated Iranian entity, not just 

those designated for WMD proliferation, terrorism, or human rights abuses, as well 

as entities identified as the Government of Iran. To help ensure this new legislation 

has the greatest impact possible, we have conducted extensive outreach to foreign 

Governments and companies to explain the ever-increasing risks that business, and 

financial transactions incident to that business, with Iran poses. 

Recent Administration Actions 

The pressure we have brought to bear on Iran is the result not only of the creation of additional authorities, but also the aggressive implementation and enforcement of those authorities. Since the beginning of 2012, Treasury, in consultation 

with our interagency partners, particularly the Department of State, has imposed 

sanctions on 38 individuals and 77 entities, and has added almost 200 aircraft and 

ships to the sanctions list. Within the past month alone, we have identified and 

sanctioned over 40 individuals and entities. I will briefly describe a few recent actions emblematic of our work to expose Iran’s WMD proliferation activities, its sponsorship of international terrorism, its support to the brutal Assad regime, and its 

abuse of human rights. 

WMD Proliferation 

Disrupting and disabling Iran’s WMD procurement networks and proliferation activities through the use of the counter-proliferation Executive order, E.O. 13382, remains one of our primary objectives. Over the past 8 years we have taken hundreds 

of actions under E.O. 13382. Building on this, less than 2 weeks ago, we took action 

against six individuals and entities for their roles in a support and procurement network for Iran Air, which we designated in June 2011 for providing services and support to the IRGC, Ministry of Defense and Armed Forces Logistics and Iran’s Aerospace Industries Organization. At the same time we designated an additional eight 

companies and individuals for their connections to the IRGC and NIOC or Iran’s nuclear or missile programs. Last month, we designated an Iranian financial institution—the Iranian Venezuelan Bi-National Bank—as engaging in financial transactions on behalf of a previously designated Iranian bank. That brought to 28 the 

number of Iranian financial institutions that have been designated under either 

E.O. 13382 or the counterterrorism Executive order, E.O. 13224. Notably, each of 

these designated Iranian-linked financial institutions can trigger CISADA sanctions, 

meaning that any foreign financial institution that knowingly facilitates significant 

transactions for any of these 28 financial institutions risks losing its access to the 

U.S. financial system. 

This action follows the designations of some 15 entities in November and December of last year that targeted the international procurement operations of Iran’s 

Atomic Energy Organization of Iran (AEOI), the Iran Centrifuge Technology Company (TESA), and Iran’s uranium enrichment efforts. 

Terrorism 

As we focus on Iran’s WMD programs, we remain mindful that Iran is still the 

world’s foremost State sponsor of international terrorism, in particular through its 

Islamic Revolutionary Guard Corps–Qods Force (IRGC–QF). Iran continues to provide financial and military support to several terrorist organizations, including Lebanese Hizballah, which is responsible for the bombing last summer of a tourist bus 

in Burgas, Bulgaria. 

In November 2012 we exposed a senior IRGC–QF officer and senior official of the 

Iraqi terrorist group Kata’ib Hizballah (KH), which is backed by the IRGC–QF and 

whose training has been coordinated with Lebanese Hizballah in Iran. KH is responsible for a rocket attack that killed two U.N. workers in Baghdad and for numerous other acts of violence in Iraq. Treasury also maintains vigilant watch over 

the activities of al-Qa’ida operatives working out of Iran in an effort to expose and 

isolate them. In October 2012, for example, we designated a key facilitator for alVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00039 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
36 

Qa’ida, the latest in a series of actions exposing some half a dozen members of alQa’ida operating in Iran, under an agreement between Iran and al-Qa’ida. 

Syria 

Iran’s financial, material, and logistical support for the Assad regime’s brutal 

campaign of violence against its own citizens also remains an area of intensive 

focus. Last year the President exposed the IRGC–QF for its support to the Syrian 

General Intelligence Directorate—a key instrument of Assad’s repression—in the 

Annex to E.O. 13572, which targets those responsible for human rights abuses in 

Syria. We have also taken action under this authority against the IRGC–QF’s commander Qasem Soleimani and his deputy, as well as the Iranian Ministry of Intelligence and Security, Iran’s primary intelligence organization. As part of the effort 

to expose Iran’s role in abetting Assad’s atrocities, Treasury has also targeted Iran’s 

national police, the Law Enforcement Forces, along with its chief Ismail Ahmadi 

Moghadam and his deputy, which have also aided the Syrian regime’s crackdown. 

Iran’s support to the Assad regime also is clearly reflected in Hizballah’s aid to 

the Assad regime. As we observed last year when we designated Hizballah and its 

leadership for providing support to the Government of Syria under E.O. 13582, Iran 

has long provided Hizballah with military, financial, and organizational assistance. 

Iran’s IRGC–QF has led these efforts, working with Hizballah to train Syrian Government forces and establish and equip a pro-Assad militia in Syria that has filled 

critical gaps in Syria’s military. 

We also continue to focus on Syria and Iran’s ongoing proliferation activities. Last 

year, for instance, we sanctioned Iran’s SAD Import Export Company under E.O. 

13382 for acting on behalf of Iran’s Defense Industries Organization, itself sanctioned under this authority, for shipping arms to the Syrian military and supplying 

goods for the production of mortars. 

Human Rights 

The people of Syria are only the latest to suffer from Iran’s wanton disregard for 

human rights. Its own citizens, as we have witnessed for decades, continue to bear 

the brunt of the regime’s abuses. Under E.O. 13553, Treasury and State have the 

authority to sanction Iranian officials who are responsible for or complicit in serious 

human rights abuses against the people of Iran on or after June 12, 2009. E.O. 

13606, issued in April 2012, among other things targets serious human rights 

abuses against the Iranian people by or on behalf of the Government of Iran, recognizing these abuses may be facilitated by technology. These Executive orders complement other authorities in CISADA, the TRA, and E.O. 13628 that target persons 

who transfer goods or technology likely to be used by or on behalf of the Government of Iran in serious human rights abuses or that have engaged in censorship 

activities against the people of Iran. 

Last week we employed these authorities against one individual and two entities 

that had facilitated abuses of human rights of the Iranian people, including by denying the Iranian people free access to information. These actions included sanctions 

against the Committee to Determine Instances of Criminal Content (CDICC), which 

identifies sites that carry forbidden content and reports them for blocking, and another entity that sought to interfere with outside satellite programming. We further 

took action against the Supreme Leader’s deputy chief of staff for his role in directing serious violations of human rights by the intelligence and security services. 

Under E.O. 13628, we have also sanctioned the Islamic Republic of Iran Broadcasting and its managing director, the Iranian Cyber Police, and nearly a dozen 

other entities and individuals for their involvement in abusing the human and 

democratic rights of Iran’s citizens. 

At the same time we are working to ensure that the Iranian people can exercise 

their universal human rights. Last week the Treasury Department, in consultation 

with the State Department and subsequent to a waiver under the Iran Iraq Arms 

Non Proliferation Act, issued a General License authorizing the exportation from 

the U.S. or by U.S. persons of certain hardware, software, and related services. This 

license will allow U.S. companies to provide the Iranian people with more secure 

personal communications technology to connect with each other and with the outside world. 

We continue to keep close watch on events in Iran, especially as the upcoming 

presidential elections draw near, and will not hesitate to expose those who help the 

Iranian Government to deny Iranians their democratic and human rights. 

Sanctions Evasion 

As Iran is turned away from reputable international financial institutions and 

partners, it increasingly relies on deception and concealment to evade international 

sanctions to meet its financial needs. We have worked tirelessly to expose those who 

37 

aid these efforts. Just over 2 weeks ago, we identified for sanctions five senior leaders of NIOC and several of its overseas subsidiaries, including the head of NICO, 

Seifollah Jashnsaz. These individuals have been deeply involved in Iran’s circumvention of international sanctions on behalf of its energy sector. Earlier last 

month we designated a UAE exchange house, Al Hilal Exchange, and a trading company, Al Fida International General Trading, for providing services to Iran’s Bank 

Mellat, which we designated in 2007 for providing banking services to Iran’s nuclear 

entities. These companies conspired to provide foreign exchange to Bank Mellat in 

a manner intended to obscure Mellat’s involvement. Earlier last month the Central 

Bank of the UAE revoked the license of Al Hilal exchange for major regulatory and 

anti-money laundering compliance violations. And in April the Administration exposed a major network run by Iranian businessman Babak Zanjani, including banks 

in Malaysia and Tajikistan, that helped move billions of dollars on behalf of the Iranian regime, including tens of millions of dollars to an IRGC company. 

Impacts on Iran 

The international sanctions regime—of which our sanctions are just one, albeit 

very important, part—has had a significant effect on key sectors of the Iranian economy, as well as on the Iranian economy as a whole. More importantly, these economic effects have had an impact on Iran’s leadership. Perhaps the clearest evidence of this comes from the recent negotiating sessions in Almaty, Kazakhstan. 

During those meetings, the Iranian side sought sanctions relief in exchange for concessions on their nuclear program. They would not have done so had the impact of 

sanctions not affected their calculus. 

Petroleum Sector Impacts 

U.S. and EU sanctions on Iran’s petroleum sector have been particularly powerful. 

Of the more than 20 countries that imported oil when the NDAA went into full effect on June 30, 2012, only a handful continue to do so today. Iran’s crude oil exports have dropped by over one million barrels per day, or some 50 percent, between 

the enactment of the NDAA and early 2013. The EU’s decision to ban the import 

of oil into Europe, effective in mid-2012, contributed in no small part to this fall. 

These lost sales cost Iran between $3 billion and $5 billion a month. 

Shipping Sector Impacts 

As our authorities have expanded to encompass Iran’s petroleum sector, we have 

also used them to target Iran’s ability to export its primary commodity. Under E.O. 

13599, we identified Iran’s primary crude shipper, the National Iranian Tanker 

Company (NITC), over two dozen of its affiliates and over 60 of its vessels. Like the 

Islamic Republic of Iran Shipping Lines (IRISL), which our sanctions have largely 

driven out of business, NITC has sought to deceive the world maritime community, 

by changing the names of its vessels, turning off its transponders and engaging in 

ship-to-ship transfers to obscure the origin of Iranian oil. While these evasion efforts 

may work for a short while, they are not sustainable and are eventually detected, 

as last month’s action against the Cambis network’s Sambouk Shipping FZC clearly 

demonstrates. 

Economic Impacts 

As Iran finds it increasingly difficult to earn revenue from petroleum sales and 

to conduct international financial transactions, Iran’s economy has been severely 

weakened. Iran’s own economic mismanagement has only exacerbated these effects. 

Take, for instance, the broadest measure of Iran’s economic activity, its gross domestic product (GDP). Treasury assesses that in 2012 Iran’s GDP fell by some 5 to 

8 percent—the largest drop since 1988, the final year of the Iran–Iraq war, and the 

first contraction in 20 years. This decline has impacted the Government of Iran’s 

budget, causing it to run in 2012 its largest deficit in 14 years, which could amount 

to some 3 percent of GDP. We believe Iran’s GDP will continue to shrink in 2013 

in the face of reduced Government and consumer spending and declining oil exports, 

as well as the ramping up of additional sanctions. 

Iran’s economic contraction is manifest in its recent budget bill, which projects almost 40 percent less oil revenue than did the previous year’s budget law. To help 

make up the shortfall, Iran’s parliament is currently considering tax increases of 

some 38 percent. And in March, Iran’s Supreme Audit Court released figures showing that for the first 9 months of the Iranian year only 53 percent of projected budget revenues had been realized. 

We have also begun to see the impact of the bilateral trade restriction in Section 

504 of the TRA, which went into effect in February. This measure has limited Iran’s 

access to its foreign exchange reserves and impeded the Government of Iran’s ability 

38 

to support the rial. Supported by our extensive outreach efforts, this powerful provision is rendering Iran’s reserves increasingly inaccessible. 

Iran’s currency also has been hit hard. At the beginning of 2012, one U.S. dollar 

purchased 16,000 rials in the open market. As of April 30 of this year, one dollar 

was worth about 36,000 rials (see , Chart 1, appended). The open market value of 

the rial has lost over two-thirds of its value in the last 2 years. 

Faced with a rapidly depreciating rial, in September 2012 the Central Bank of 

Iran established a Currency Trading Center (CTC) to allocate foreign exchange for 

certain preferred imports at a preferential rate of about 24,000 rials to the dollar. 

Apparently faced with dwindling supplies of hard currency, just a few weeks ago 

the CBI substantially limited the list of imported goods that qualified for the CTC’s 

preferential rate. 

Inflation, partly due to the volatility and depreciation of the rial, is another telling 

metric. As of April 20, 2013, the official Statistics Center of Iran 12-month average 

inflation rate was approximately 30 percent, while the point-to-point inflation rate 

was nearly 39 percent. Independent analysis suggests the actual inflation rate is 

significantly higher. 

These figures become increasingly stark when we compare Iran to its neighbors 

or similarly situated countries. Compared to groupings of countries in the Middle 

East and Africa, Iran’s stock of foreign capital, as measured by the Bank of International Settlements, is down 57 percent for the 2-year period ending December 

2012, representing a reduction in lending of some $9.5 billion. This figure contrasts 

with a 13 percent increase in BIS banks’ lending exposure to all developing countries (see, Chart 2, appended). This shortage of capital is at least one reason why 

Iran’s automobile sector is now encountering significant difficulties, manufacturing 

at some 50 percent of nominal capacity and facing substantially reduced exports. 

Next Steps 

Despite our success in increasing pressure on Iran, we have yet to see the regime 

change its fundamental strategic calculus regarding its nuclear program. Nonetheless, the Administration remains convinced that sanctions pressure has an important role to play in helping to bring about a negotiated resolution. Accordingly, our 

commitment to the dual-track strategy—and to applying ever more effective and potent economic and financial pressure on Iran—has never been greater. 

We look forward to continuing to work with Congress on this endeavor. We have 

had productive discussions with this Committee on how to best proceed with respect 

to new legislation, and we support measures that will help us make meaningful 

progress toward enhancing pressure on the regime. I am confident that this Committee will remain actively engaged with the Administration in shaping a common 

approach to new legislation. As we move forward to sharpen the choice for the Iranian regime, we stand ready to work hand-in-hand with this Committee and the 

Congress. 

Let me briefly share with you some thoughts on where we go from here. 

Increasing the Government of Iran’s Isolation 

First, we will continue to identify ways to isolate Iran from the international financial system. We will do so by maintaining our aggressive campaign of applying 

sanctions against individuals and entities engaged in, or supporting, illicit Iranian 

activities and by engaging with the private sector and foreign Governments to amplify the impact of these measures. As part of this effort we will also target Iran’s 

attempts to evade international sanctions through the use of nonbank financial institutions, such as exchange houses and money services businesses. And we will explore new measures to expand our ability to target Iran’s remaining links to the 

global financial sector. 

In particular, we are looking carefully at actions that could increase pressure on 

the value of the rial. In that connection, we will continue to actively investigate any 

sale of gold to the Government of Iran, which can be used to prop up its currency 

and to compensate for the difficulty it faces in accessing its foreign reserves. We currently have authority under E.O. 13622 to target those who provide gold to the Iranian Government and, as of July 1, IFCA will expand that authority to target for 

sanctions the knowingly selling gold to or from anyone in Iran for any purpose. 

Targeting Additional Sources of Revenue 

Second, we will continue to target Iran’s primary sources of export revenue. In 

addition to oil and petroleum products, Iran exports substantial volumes of petrochemicals. Current authorities allow us to target those who purchase or acquire 

these commodities, as well as the financial institutions that facilitate these transactions. We believe targeting these actors, as well as those on the supply side of 

39 

the equation in Iran, may offer a meaningful opportunity to gain additional leverage. 

Engaging With International Partners 

Third, with State, we will maintain our robust engagement and outreach efforts 

to foreign Governments and the private sector. Treasury regularly meets with foreign officials and financial institutions to explain our sanctions, to warn them of the 

risks of doing business with Iran, and to encourage them to take complementary 

steps. In response, we have seen jurisdictions and companies the world over respond 

positively to these overtures, multiplying the force of our sanctions many times over. 

As we have for CISADA and the NDAA, we have already begun to engage with foreign countries, banks, and businesses on the implications of IFCA, and will continue 

to do so as we move forward in our implementation of this important legislation. 

Aggressive Enforcement 

The Administration campaign to target Iran’s proliferation networks, support for 

terrorism, sanctions evasion, abuse of human rights, and complicit financial institutions is without precedent. It will only continue and grow more robust as Iran’s failure to meet its international obligations persists. As I believe we have amply demonstrated, we are relentless in pursuing those who facilitate Iran’s illicit conduct or 

otherwise enable the regime. That will continue unabated. 

Conclusion 

Despite our efforts to isolate and pressure Iran, we know there is far more to do. 

As Secretary Lew has said, ‘‘We will exhaust all diplomatic and economic means 

we can.’’ What remains to be seen, he noted, is whether this will ‘‘change the mind 

of the regime so that it [is] ready to, in a diplomatic process, give up the pursuit 

of nuclear weapons. That is the goal.’’ 

I know this Committee shares this objective, and I look forward to working with 

you and your colleagues in the Congress to advance our efforts to achieve it. 

40 


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1The 28 countries covered by BIS ECOs are: Bahrain, China, Cyprus, Egypt, India, Indonesia, 

Iraq, Israel, Jordan, Kuwait, Lebanon, Malta, Oman, Pakistan, Qatar, Malaysia, the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Syria, Taiwan, Thailand, Turkey, the 

United Arab Emirates, Vietnam, and Yemen. 

PREPARED STATEMENT OF ERIC L. HIRSCHHORN 

UNDER SECRETARY FOR INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE

JUNE 4, 2013 

Mr. Chairman, Senator Crapo, Members of the Committee, I welcome the opportunity to appear before the Committee today to discuss the Department of Commerce’s role in administering and enforcing U.S. export control policies towards 

Iran. Commerce and its Export Administration Regulations (EAR) play an important role both in enforcing and administering U.S. export controls against Iran. We 

also work closely with our colleagues at the Departments of State, Homeland Security (DHS), Justice, and the Treasury, as well as other agencies, to implement and 

enforce the U.S. export restrictions on Iran effectively. 

Commerce investigates possible exports or re-exports to Iran in violation of the 

EAR. In most instances an export or re-export of an item subject to the EAR without Treasury authorization will constitute a violation of the EAR. 

The Bureau of Industry and Security’s (BIS) Export Enforcement (EE) unit has 

approximately 100 Federal law enforcement agents in nine field offices throughout 

the United States supported by investigative and intelligence analysts at BIS headquarters. The field offices are located in Boston, New York, Miami, Chicago, Dallas, 

Los Angeles, San Jose, Houston, and the Washington, DC, area. EE is on the front 

lines of the effort to prevent illicit transfers of U.S.-origin items which would do us 

harm if they fell into the wrong hands. EE is the only Federal law enforcement body 

solely dedicated to investigating and enforcing violations of U.S. export controls. 

In addition, BIS has seven Export Control Officers (ECOs) stationed in six foreign 

locations—Abu Dhabi, Singapore, Beijing, Hong Kong, New Delhi, and Moscow. 

These ECOs are BIS enforcement agents temporarily assigned to the U.S. & Foreign 

Commercial Service. They have regional responsibility for end-use monitoring of 

U.S. exports in 28 countries. 1 The ECOs conduct pre-license checks and post-shipment verifications to confirm that U.S.-origin items will be, or are being, lawfully 

used. The ECOs also confirm that the items have not been diverted to prohibited 

end users or end uses within the country or illegally transshipped to another country, such as Iran. In fiscal year 2012, BIS conducted 994 end-use monitoring visits 

in 53 countries based on concerns identified by Commerce and its interagency partners. The focus of these visits is to uncover unauthorized transshipments or re-exports to restricted destinations such as Iran. The end-use monitoring coverage provided by these ECOs is augmented by U.S. Embassy personnel in other overseas locations as well as targeted ‘‘Sentinel Program’’ visits led by domestically based BIS 

Special Agents. In addition, as part of the Export Control Reform effort to transfer 

less sensitive munitions items (e.g., certain parts and components of U.S. Munitions 

List (USML) end items) to the Commerce Control List (CCL), BIS and State, under 

its Blue Lantern program, are working together to coordinate end-use checks where 

USML and CCL items are colocated, so that both organizations can expand the 

number of overall end-use checks conducted by the U.S. Government. 

When a foreign party is determined to be an unreliable recipient of U.S.-origin 

commodities and technology through end-use monitoring, BIS may take a variety of 

actions, such as screening future license applications involving that party, referring 

a lead for further investigation by EE field offices, or taking an administrative action, including designation on the Entity List or Unverified List. In FY2012, BIS’s 

Office of Enforcement Analysis (OEA) issued 160 leads to Office of Export Enforcement (OEE) field offices (a 46 percent increase over FY2011) to identify suspect 

transactions and parties. More than 65 percent of these leads focused on Iranian 

procurement efforts. OEA already has exceeded this number of leads in the first 7 

months of FY2013. These leads, based on intelligence, export data, and other information available to EE, allow Special Agents to detect, prevent, interdict, and enforce illicit diversions by front companies. 

OEE agents investigate a variety of export violations and diversion of U.S.-origin 

items to Iran is a major focus. Iran continues to engage in widespread efforts to illegally acquire U.S.-origin commodities, software, and technology. In fact, 300 of the 

OEE’s 749 open cases (40 percent) involve Iran as the ultimate recipient of diverted 

items. Much of our enforcement activity and analysis is focused on stopping the diversion of such items to Iran via transshipment hubs in the Middle East and Southeast Asia. 

43 

2http://www.bis.doc.gov/news/2012/abanlairlTDOl04232012.pdf 

BIS aggressively investigates violations of the EAR involving Iran and employs 

a variety of tools to prevent and punish such violations, including criminal fines and 

imprisonment, civil penalties, temporary denial orders (TDOs), the BIS Entity List, 

and asset forfeitures. 

BIS is very concerned with the prohibited sale, export, re-export, supply, or diversion of U.S.-origin censorship and monitoring hardware to regimes such as Iran. BIS 

has launched a number of investigations related to this issue and many are still ongoing. On May 30, 2013, the U.S. Government issued a General License to authorize 

the export of a variety of personal communications equipment and software, as well 

as related services, from the United States or by U.S. persons to Iran. However, for 

activities that fall outside the purview of that General License or are contrary to 

its purpose to facilitate access to safer communication tools for Iranians, BIS has 

worked to prevent the diversion of U.S.-origin telecommunications and networking 

equipment to Iran, which may use such equipment to repress their citizens. While 

I cannot comment on any specific investigation, such investigations remain a priority for BIS. 

Another priority for BIS, and an area where my agency has effectively applied the 

full range of enforcement tools available, is the illicit diversion of U.S.-origin aircraft 

and components to Iran. For example, BIS has also made effective use of its authority to issue Temporary Denial Orders, or TDOs, to prevent diversion of U.S.-origin 

items to Iran. Temporary Denial Orders prohibit the participation of targeted parties in any export, re-export, or transfer involving items subject to Commerce’s jurisdiction, and are issued for renewable periods of 180 days to prevent imminent export violations. In addition to TDOs, BIS may deny export privileges for longer periods of time in conjunction with other civil and administrative penalties. 

In 2012, BIS issued two notable TDOs to prevent illicit diversion to Iran. In April, 

BIS issued a TDO against Sayegh Aviation Group and related parties involved in 

the acquisition of Boeing 747 aircraft for use by Iranian entities. 2 As a result of 

this action, BIS believes all aircraft involved are now located in the UAE and that 

Sayegh Aviation is complying with U.S. export regulations. In December, BIS issued 

a TDO against Delfin Group USA LLC and related parties to prevent the diversion 

to Iran of polymers and lubricating oils, including aviation engine lubricating oils. 

Another example of successful use of a TDO involved Mahan Air. In 2008 BIS 

issued a TDO against Mahan Air, an Iranian airline sanctioned by the Treasury Department, for using its commercial aircraft to funnel weapons and personnel to 

Syria. Through the use of this TDO, which remains in effect today, BIS has prevented the delivery or use of over $100 million in aircraft, engines, and spare parts. 

Additionally, in 2010 the United Kingdom-based Balli Group, which was involved 

in obtaining Boeing 747 aircraft for Mahan Air, received a $2 million criminal fine. 

Balli also entered into a civil settlement with BIS and OFAC involving a $13 million 

civil penalty, coupled with an additional $2 million suspended civil penalty. When 

Balli did not make a timely penalty payment, BIS revoked the suspension of the 

$2 million civil penalty, and the total civil penalty of $15 million—the largest civil 

penalty imposed under the EAR to date—has been collected in full. 

Another powerful tool BIS has employed to prevent the unauthorized export or 

re-export of U.S.-origin commodities and technology to Iran is the Entity List. The 

Entity List generally prohibits entities acting contrary to the national security or 

foreign policy interests of the United States from receiving items subject to the 

EAR. Because companies and banks worldwide screen against this list, publicly 

naming entities involved in illicit export activity helps prevent export violations by 

discouraging resellers and other parties from doing business with targeted entities 

and the procurement networks of which they are a part. 

Since October 2009, BIS has added 80 persons located in countries including 

Belarus, China, Germany, Hong Kong, Lebanon, Malaysia, Norway, Singapore, 

South Africa, and the United Arab Emirates to the Entity List based on evidence 

that they were involved in diversion of U.S.-origin items to Iran. For example, in 

September 2012, BIS added Seyed Mousavi and his company, Seyed Mousavi Trading, located in the UAE and Iran, to the BIS Entity List. Mousavi and his company 

knowingly acquired U.S.-origin items for transshipment to Iran through the UAE 

and Hong Kong. Further, the exports to Iran included shipments to a person on the 

Denied Persons List. 

Last year, BIS added a company to the Entity List that may be unlawfully diverting U.S.-origin items to Iran. As a result of this listing, BIS received an industry 

tip from a company that discovered through routine compliance screening that a 

proposed customer was possibly related to the listed entity. BIS is investigating this 

related company and has detained several shipments to prevent possible diversion 

44 

to Iran. This example demonstrates the power of the Entity List in enlisting industry assistance to enforce the EAR and disrupt the transshipment of U.S.-origin 

items to Iran. BIS is also working to strengthen the Unverified List to increase U.S. 

Government insight into potential transactions of concern involving foreign parties 

whose bona fides (i.e., suitability and reliability as recipients of U.S. exports) BIS 

has been unable to verify. This action will provide more clarity to exporters on how 

to address ‘‘red flags’’ involving transactions with foreign parties where BIS has 

been unable to complete an end-use check. 

In addition, the EAR incorporate by reference certain persons on OFAC’s restricted parties’ lists. Examples include Weapons of Mass Destruction Proliferators 

and their Supporters, Specially Designated Terrorists, Specially Designated Global 

Terrorists and Foreign Terrorist Organizations. The EAR license requirements supplement those of the other U.S. Government agencies. 

BIS also maintains a consolidated list of persons sanctioned by the State Department and OFAC. The consolidated electronic list is free for exporters, re-exporters 

and transferors to use to ensure that transactions do not involve proscribed parties. 

The consolidated list now includes almost 27,000 entries. In 2012, the monthly average number of views on the Consolidated List Link on export.gov/ECR was 21,388. 

There were 256,600 views in CY2012. In addition, more than 12,000 companies have 

signed up for free automatic email feeds whenever the consolidated list is updated. 

The consolidated list facilitates compliance, especially for small- and mediumsized companies who may lack the resources to stay current with all the lists. Moreover, this widely used list takes advantage of the automated name screening infrastructure that exists in banks, trading companies and manufacturing enterprises 

worldwide. This approach discourages resellers and other parties from doing business with targeted entities and the procurement networks they represent. It also 

prevents resellers and other parties from doing business with the targeted entities 

unless they seek a license from BIS, which in most cases will be denied. 

Finally, asset forfeitures are an important enforcement tool. For example, in October 2012 a BIS investigation resulted in the sentencing of Mohammad Reza ‘‘Ray’’ 

Hajian to 4 years in prison, 1 year of supervised release, and the forfeiture of $10 

million. Between 2003 and 2011, Hajian conspired with others to unlawfully export 

sophisticated, enterprise-level computers and related equipment from the U.S. to 

Iran. In fiscal year 2013 to date, BIS investigations, including joint investigations 

with other Federal agencies, have resulted in monetary forfeitures totaling over 

$600 million. 

Commerce implements the ‘‘export sanction’’ when chosen in the context of imposing sanctions pursuant to the Iran Sanctions Act of 1996 (ISA), the missile sanctions 

law contained in the Arms Export Control Act (AECA) and Export Administration 

Act (EAA) of 1979, the Iran, North Korea, and Syria Nonproliferation Act 

(INKSNA), as amended, of 2006, amended. When the Secretary of State determines, 

in consultation with other agencies, that a person has engaged in sanctionable activities and decides to impose a ban on exports as a sanction, Commerce denies export license applications for items on the CCL to that person. 

Commerce also provides input to the Office of the Director of National 

Intelligence’s (ODNI) annual report on countries of diversion concern mandated by 

CISADA Title III. If the President designated a country as a destination of diversion 

concern, BIS would require a license for the export, re-export, transit or transshipment of that category of items through the designated country. Any license application would almost certainly be denied. 

Additionally, Commerce cooperates closely with the Department of State to address diversion concerns in key transshipment hubs around the globe. In addition 

to leveraging national compliance and enforcement authorities to address the diversion of U.S.-origin commodities and technology to Iran, BIS engages with international partners, including important transshipment hubs, to secure bilateral 

trade. 

I would like to conclude by briefly addressing the Administration’s efforts concerning Export Control Reform initiative, and how that will affect our Administration and enforcement of the export restrictions against Iran. As part of this initiative, the Administration has established the Information Triage Unit (ITU), which 

is housed at the Department of Commerce, with the participation of the Departments of State, Defense, Energy, Treasury, and ODNI. The ITU is responsible for 

assembling and disseminating relevant information, including classified information, 

from which licensing agencies can make informed decisions on proposed exports requiring a U.S. Government license. This multi-agency screening unit coordinates the 

review of separate processes across the Government to ensure that all departments 

and agencies have a full data set from which to make decisions on license applications. In its first year, the ITU produced more than one thousand products supVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00048 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
45 

porting the most sensitive transactions, including those undergoing higher level 

interagency review. This ensures that licensing officers and policy makers are fully 

informed about the bona fides of proposed exports in deciding whether to approve 

license applications. 

Likewise, the Export Enforcement Coordination Center (E2C2), established by the 

President under Executive Order 13558, is a central element of the Export Control 

Reform initiative. A permanent center with dedicated staff, the E2C2 is responsible 

for enhanced information sharing and coordination among law enforcement and intelligence agencies regarding possible violations of U.S. export control laws. The 

E2C2 is housed in and led by the Department of Homeland Security with the participation of 18 Federal agency partners, and it enables these agencies to better deploy their resources without duplicating or undermining each other’s efforts. The Director of the Center is from the Department of Homeland Security, and BIS and the 

Federal Bureau of Investigation (FBI) provide the E2C2’s two Deputy Directors. 

Additional resources would increase BIS’s operational effectiveness. The President’s Fiscal Year 2014 budget requests $8.3 million to augment BIS enforcement 

capabilities. These include additional analysts, Special Agents, and three new ECOs, 

two of which would be dedicated to conducting end-use checks in Turkey and the 

UAE, countries proximate to Iran. 

We stand ready to work with the Committee and the Senate to maintain an aggressive and effective export enforcement program. 

46 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO 

FROM WENDY SHERMAN 

Q.1. Some maintain that only when Iran’s economy presents unacceptable risk to the political survival of the Supreme Leader might 

he decide to make the nuclear deal that needs to be made. Round 

after round of increasing and strengthening of sanctions has occurred without yet seeing any closure on the nuclear issue. 

As a matter of policy, then, instead of another ‘‘strengthening’’ 

does the U.S. need to focus now on embargo to change the Supreme 

Leader’s behavior more quickly? 

Do you have any support that this would actually harm our allies 

more than it would change the behavior of the Iranian regime? 

Which is harder for the world to live with, in your evaluation, an 

embargoed Iran in the short term, or the Supreme Leader with a 

nuclear weapon? 

A.1. The United States will continue to increase the pressure on 

Iran as we seek a diplomatic solution to international concerns over 

Iran’s nuclear program. We have built an international coalition to 

increase the economic and diplomatic pressure on Iran, and we will 

continue to use all existing authorities and pursue new measures 

to further isolate Iran. 

We are committed to aggressively enforcing our existing authorities, and are considering additional measures that will support our 

ultimate goal of finding a peaceful solution to our concerns about 

Iran’s nuclear program. We robustly implement all sanctions legislation, and we are taking the necessary steps to implement the 

sanctions under the ‘‘Iran Freedom and Counter Proliferation Act’’ 

subtitle of NDAA 2013. These sanctions, which come into effect on 

July 1, 2013, will send a further message to Iran that sanctions 

will intensify without progress at the negotiating table. 

On February 6, 2013, amendments to section 1245 of NDAA 2012 

went into effect. One aspect of these amendments requires the few 

remaining countries that import Iranian crude oil to keep the payments for those imports in bank accounts in the importing country. 

These countries all have significant trade imbalances with Iran, 

meaning that Iran does not have access to a significant amount of 

hard currency derived from its energy sector. Iran’s mismanagement of its economy, combined with sanctions’ impact, has sparked 

severe inflation in Iran and continues to drain its foreign currency 

reserves. We continue to work with our partners around the world 

to target Iran’s access to foreign currency and continue to pursue 

reductions in Iran’s crude oil exports. 

U.S. sanctions have targeted the Iranian regime, not the Iranian 

people. It is important that we continue to show the Iranian people 

that our sanctions maintain important exceptions to benefit them. 

We want to make sure that our sanctions continue with their current approach of targeting Iran, not the partners in our international coalition. That is why we have supported measures like 

those Congress included in the Iran Freedom and Counterproliferation Act that build out sanctions on key Iranian sectors while still 

allowing some legitimate trade by private citizens and companies 

in Iran. 

47 

Q.2. The overall sanctions efforts imposed by the UN, the U.S., and 

its allies have not achieved the intended goal of reaching a sustained suspension of Iran’s uranium enrichment activities. To the 

contrary, Iran has actually been seen to accelerate its enrichment 

processes. 

From your respective agency’s perspective, why have the U.S. 

and allied economic sanctions imposed so far against Iran been less 

than successful in this respect? 

Do we need better implementation and enforcement of sanctions 

from the Administration or by our allies and partners? 

A.2. This Administration has implemented sanctions against Iran 

more actively than any of its predecessors, taking full advantage of 

the laws passed by Congress and the regulations crafted by the Executive Branch to apply the maximum possible pressure on Iran. 

Our sanctions and pressure campaign takes many different forms, 

using all available authorities. 

The measure of sanctions effectiveness is not how many targets 

are subjected to penalties, though that is a major part of it. It is 

the pressure we place on the Iranian leadership by continuing to 

economically isolate them form the world. The Iranian nuclear program is a critical strategic interest to the Iranian Government. 

That our efforts have yet to succeed should not be taken to indicate that they will not eventually succeed. The effort to increase 

pressure and build partnerships has been invested to ensure that, 

as the effects of sanctions increase, so does international frustration with the Iranian regime. 

Q.3. Ambassador Daniel Fried recently was named to a newly established position as ‘‘sanctions coordinator’’ at the State Department as an enforcement partner to Under Secretary Cohen. 

What set of issues contributed to creating the position and can 

you provide specific examples of how the coordinator is expected to 

improve or already has improved enforcement? 

A.3. In conducting its first Quadrennial Diplomacy and Development Review, the Department determined that sanctions are an increasingly important tool in U.S. foreign policy, with serious implications for our conduct of diplomatic relations. The Department decided, therefore, to set up an office that to harmonize U.S. sanctions policies with our broader foreign policy, as well as coordinate 

the Department’s internal work on sanctions issues. 

The Coordinator is tasked with enforcing and developing new 

sanctions, as well as ensuring that sanctions are used in a manner 

commensurate with U.S. policy interests. Working with the Department of Treasury and other offices in the Department of State, the 

Coordinator has already helped to organize our work on sanctions 

related issues around the world. The Office of the Coordinator will 

continue to consider ways to make sanctions decisions more efficient and effective. 

Q.4. Sanctions must be fully and vigorously enforced, even as part 

of any ‘‘engagement policy’’ with Iran. There is concern that State 

is not fully implementing sanctions within its purview, particularly 

with regard to the repeated, almost automatic provision of exceptions to countries still buying Iranian crude. 

48 

Are the exceptions actually working to ‘‘enable’’ the excepted 

countries’ Iranian crude imports, are they even necessary anymore 

in the face of loosening oil markets? 

In your calculations, are these incremental reductions seen to 

have any impact on Iran’s breakout capability for assembling a nuclear weapon? 

A.4. At the outset, let me underscore that exceptions granted to our 

partners are benchmarks of the success of our sanctions, not a concession to our friends. They are the quid pro quo, created in statute, and have permitted our partners to take steps to reduce their 

purchases of Iranian oil. 

Since the enactment of the NDAA, more than 20 countries have 

reduced or eliminated crude oil purchases from Iran. Today only six 

countries still purchase Iranian crude oil and at levels far below 

where they were only 18 months ago. This represents the success 

of our diplomatic efforts—to deny export revenues to Iran, to build 

a coalition of partners, and to promote stability in international 

markets. 

These reductions have sharpened the choice for Iran’s leadership 

between reintegration into the international community and increased isolation, pressure, and economic hardship. 

This administration shares your goal of maximizing pressure on 

Iran to encourage it to resolve our concerns with its nuclear program. In implementing the NDAA sanctions we have helped countries significantly reduce their crude oil purchases from Iran, and 

increase their own energy security by diversifying suppliers. We 

have made an impact here: Iran produces less oil—and exports are 

down by roughly 1 million barrels a day, shrinking revenues which 

could otherwise support Iran’s nuclear program. 

Every country, by necessity, is focused on its energy security. 

Maximizing impact on Iran requires us to sustain our coalition. Coalition partners will do more as they have the confidence that their 

energy security can be assured. 

Q.5. Under CISADA’s stricter controls on trade with Iran, the 

President is authorized to designate countries for not making sufficient efforts to control diversion of certain materials to Iran. Licenses for exports of those materials to such ‘‘Destinations of Diversion Concern’’ would be subject to a presumption of denial. 

Is there any heightened concern about possible diversion of authorized exports to unauthorized destinations or end-users raised 

by the Administration’s policy shift to put ‘‘higher fences around 

fewer items’’? 

A.5. You refer to the Administration’s Export Control Reform initiative. The reform initiative will enhance, not ease, the prohibitions on destinations like Iran. All munitions items, regardless of 

their sensitivity and regardless of which list controls them, will 

continue to be subject to U.S. arms embargoes. In addition, military items currently controlled on the Commerce Control List in 

Export Control Classification Numbers (ECCNs) ending in ‘‘-018’’ 

will also become subject to these arms embargoes as well, resulting 

in a clearer, more comprehensive application of tightened U.S. embargoes. 

49 

Q.6. The UAE and China have each presented diversion and proliferation challenges. 

Can you briefly outline the nature and seriousness of the roles 

of China and the UAE in the proliferation threat, and U.S. efforts 

to assist in strengthening the controls there? 

Has any country yet been designated as a ‘‘Possible Destination 

of Diversion Concern’’? If not, what is the standard used to make 

such a determination? 

A.6. China has improved its export control system in the past two 

decades. We continue to engage with China on the need to improve 

the enforcement and implementation of its export controls and to 

prevent Chinese entities from supplying proliferation-sensitive 

technology to programs of concern. We seek to cooperate to improve 

Chinese companies’ internal compliance with export controls, as 

well as to build the Chinese Government’s capabilities to consistently enforce its own export control laws. We engage China on a 

wide range of nonproliferation issues, from export controls and 

counterproliferation, to nuclear doctrine and strategy, to civil nuclear cooperation, to engagement in multilateral fora like the 

United Nations and control regimes like the Biological Weapons 

Convention and the Chemical Weapons Convention. 

The UAE takes seriously its international obligations to implement UN sanctions against Iran and is an active partner with the 

USG on sanctions enforcement and counterproliferation issues. To 

this end, it is active in disrupting or preventing transfers to Iran 

of items of proliferation concern and has been reporting these efforts to the UN. The UAE continues to make significant progress 

in its efforts to establish an export control system consistent with 

international standards and limit transshipments of proliferation 

concern. In August 2007 the UAE passed comprehensive strategic 

trade control legislation providing the basis for an effective and enforceable export control system. 

The President has not publicly designated any Destinations of 

Diversion Concern, a determination that would be based on a report from the Office of the Director of National Intelligence. The 

Comprehensive Iran Sanctions, Accountability, and Divestment Act 

of 2010 (CISADA), Section 302, requires a report to Congress identifying countries that are (1) allowing the diversion of items that 

are prohibited for export to Iran under an UNSCR or of U.S.-origin 

items on the Commerce Control List or U.S. Munitions List that (2) 

would make a material contribution to Iran’s development of WMD, 

ballistic missiles, advanced conventional weapons, or its support for 

international terrorism. Therefore, in order for a country to be 

named as a Destination of Diversion Concern, the President must 

determine that both elements of the reporting requirement must be 

met. These requirements have not been met to date. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY 

FROM WENDY SHERMAN 

Q.1. In order for sanctions to force the Iranian Government to 

change its nuclear policy in a positive direction, I believe the Government must be put in a position where they simply are unable 

to pay their bills. When Government workers don’t get paid, when 

50 

imports can’t be financed, when subsidies’ payments aren’t made, 

that will be the point at which Iran may decide to change course. 

As I look at our sanctions implementation, I’m concerned that our 

policy is designed to bleed Iran slowly and not cause the economic 

crisis that would force Iran’s hand. We appear to be on a path to 

cause economic collapse in Iran 2 years from now when they may 

already have a nuclear weapon. 

Despite the success of our sanctions, Iran’s oil revenues last year 

were still the fourth highest on record. Within the next 6 months 

to a year, is it possible to drive Iran into a situation in which it 

cannot pay its bills? If so, what will it take to achieve that policy 

goal? 

A.1. Sanctions are essential to changing the Iranian regime’s political calculus on its nuclear program. Iran’s leaders admit publicly 

that sanctions are hurting their economy, especially targeted sectors such as energy and finance. 

International sanctions and Iran’s own economic mismanagement 

are taking a toll on its economy, isolating Iran economically and 

politically. 

The Administration is implementing a number of measures to increase the economic pressure on Iran. On February 6, 2013, 

changes to the significant reductions required the few remaining 

countries that import Iranian crude oil to keep payments for those 

imports in bank accounts in the importing country. The funds kept 

in this restricted bank account may only be used to pay for permitted, bilateral trade between the importing country and Iran. 

Many of the remaining countries that import crude oil from Iran 

have a significant trade imbalance with Iran. This means that a 

significant amount of hard currency derived from its energy sector 

is now largely inaccessible to Iran, and may further sharpen the 

decision for Iran’s leadership. 

Q.2. In December, then-Secretary of State Clinton renewed an exemption to our Iran sanctions that targeted Chinese financial 

transactions with the Central Bank of Iran, citing a significant reduction in Beijing’s purchases of Iranian oil. But the publicly available data showed no such reduction had taken place. That renewal 

expires this week. 

Do you expect that the exemption for China will be renewed? 

What standard is the State Department using to determine what 

qualifies as a ‘‘significant reduction’’? 

Will you provide the Committee with the data that supports the 

Department’s exemption decisions? 

A.2. The Secretary of State reviews a wide variety of classified and 

unclassified sources in evaluating whether an individual country 

has met the NDAA ‘‘significant reduction’’ threshold. Determinations are made taking into consideration the totality of the relevant 

circumstances. China’s NDAA exception expires on June 5, 2013, 

and the Secretary will consider all relevant data in determining 

whether China has met the legal requirements for an extension. 

China and India are the two largest consumers of oil from Iran. 

Even a small percentage reduction from either country may result 

in a more significant reduction of Iran’s oil revenue than a large 

51 

percentage decrease from small importers, and may have a dramatic impact on Iran’s bottom line. 

In a closed session, I am happy to brief further on how significant reductions are calculated. 

Q.3. What are your expectations for the upcoming Iranian elections? Am I correct that we shouldn’t expect any change in 

Tehran’s nuclear policy as a result of these elections? 

A.3. Iran’s unelected Guardian Council, which is unaccountable to 

the Iranian people, has disqualified hundreds of potential candidates based on vague criteria in the run up to the June 14 elections. The Council narrowed the list of almost 700 potential candidates down to eight officials based solely on who the regime believes will represent its interests, rather than those of the Iranian 

people. 

The lack of transparency makes it unlikely that the slate of candidates represents the will of the Iranian people, who should be 

given every opportunity to choose a president who best embodies 

their views. We have called on authorities to abide by their international commitments and allow Iranians to exercise their universal rights and freedom of expression. 

The ultimate authority for the nuclear file rests with the Supreme Leader. 

Therefore, we hope Iranian authorities will be ready to engage in 

serious negotiations with the P5+1 regardless of the outcome of the 

elections. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN 

FROM WENDY SHERMAN 

Q.1. Are there any unintended impacts from the Iran sanctions on 

our economic development efforts in Afghanistan, such as negative 

impact to the value of the Afghani, impacts to the development of 

Afghan businesses from competition from cheap Iranian exports, 

such as cement and bricks, or the economic impact from the decline 

in remittances and need to absorb Afghan migrant workers expelled from Iran? What is the potential for destabilization of the 

Afghan economy to reverse security gains made over the past few 

years? 

A.1. We have an ongoing dialogue with the Afghan Government on 

how it can best comply with Iran sanctions without undermining 

its economic development. While the sanctions regime shows no 

sign of destabilizing the Afghan economy as a whole, it does pose 

challenges for the Afghan business environment across a number 

of sectors, including banking, energy, the return of migrant workers, and the import of basic consumer goods via Iranian ports. The 

U.S. Government is working to help Afghanistan develop economic 

options by facilitating stronger economic and commercial relationships with other neighbors. 

The United States remains committed to our strategic partnership with Afghanistan, including the transition from a donor-driven 

to private sector-led economy. We are working to ensure the development gains of the last decade are maintained, and to support 

sustainable Afghan economic growth. 

52 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO 

FROM DAVID S. COHEN 

Q.1. Some maintain that only when Iran’s economy presents unacceptable risk to the political survival of the Supreme Leader might 

he decide to make the nuclear deal that needs to be made. Round 

after round of increasing and strengthening of sanctions has occurred without yet seeing any closure on the nuclear issue. 

As a matter of policy, then, instead of another ‘‘strengthening’’ 

does the U.S. need to focus now on embargo to change the Supreme 

Leader’s behavior more quickly? 

A.1. The United States, working with its international partners, 

has imposed the world’s most comprehensive and far-reaching set 

of sanctions on Iran. These authorities target the key pillars of 

Iran’s economy, including its financial, energy, petrochemical, shipping, and automotive sectors as well as its weapons development 

and proliferation activities. International sanctions on Iran have 

slashed its oil revenues, isolated it from the international financial 

system, and led to significant economic contraction. We believe our 

sanctions measures have been key to bringing Iran back to the negotiating table. Until Iran enters into meaningful commitments 

with respect to its nuclear program, we will continue to increase 

the pressure. 

Q.2. Do you have any support that this would actually harm our 

allies more than it would change the behavior of the Iranian regime? 

A.2. A critical element of making our sanctions on Iran effective is 

maintaining the coherence of our global partners’ efforts, which we 

believe is necessary to influence Iran’s calculus. As we regularly 

convey to countries around the world, any short term economic difficulties they may experience as a result of sanctions on Iran pales 

in comparison to the financial and security impacts of a nucleararmed Iran. 

Q.3. Which is harder for the world to live with, in your evaluation, 

an embargoed Iran in the short term, or the Supreme Leader with 

a nuclear weapon? 

A.3. This Administration has consistently maintained that it is unacceptable for Iran to have a nuclear weapon. If Iran maintains its 

current posture and refuses to meaningfully address the international community’s concerns regarding its nuclear program, we 

will pursue all available options to maximize the impact of our 

pressure strategy. 

Q.4. The overall sanctions efforts imposed by the UN, the U.S., and 

its allies have not achieved the intended goal of reaching a sustained suspension of Iran’s uranium enrichment activities. To the 

contrary, Iran has actually been seen to accelerate its enrichment 

processes. 

From your respective agency’s perspective, why have the U.S. 

and allied economic sanctions imposed so far against Iran been less 

than successful in this respect? 

A.4. Because of the efforts of the United States and our international partners, Iran today is more isolated that it has ever been 

and it is facing pressures in all directions, especially on the ecoVerDate Nov 24 2008 15:01 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00056 Fmt 6602 Sfmt 6602 L:\HEARINGS 2013\06-04 IRAN SANCTIONS -- ENSURING ROBUST ENFORCEMENT, AN
53 

nomic front. The President has made it clear that this Administration will not accept a nuclear Iran. Sanctions are an important tool 

in creating leverage for diplomacy and demonstrating to the Iranian regime that it has a clear choice—it can enjoy the benefits of 

inclusion in the international financial system that come from 

meeting its international obligations, or it will face isolation and 

increasingly powerful and painful sanctions by continuing to pursue a nuclear program. We will continue to implement economic 

sanctions on Iran as long as the Iranian regime fails to meet its 

obligations. 

Q.5. Do we need better implementation and enforcement of sanctions from the Administration or by our allies and partners? 

A.5. The implementation and enforcement of robust economic sanctions is critical to achieving our policy of denying Iran a nuclear 

weapon. The Administration takes very seriously its responsibility 

to implement and enforce U.S. sanctions on Iran and has not hesitated to act against those who violate or circumvent our sanctions. 

Q.6. Ambassador Daniel Fried recently was named to a newly established position as ‘‘sanctions coordinator’’ at the State Department as an enforcement partner to Under Secretary Cohen. 

What set of issues contributed to creating the position and can 

you provide specific examples of how the coordinator is expected to 

improve or already has improved enforcement? 

A.6. I defer to the State Department to explain the nature and genesis of this position. Treasury and State regularly confer on sanctions strategy and policy. We work closely with Ambassador Fried 

and his staff, and will continue to work collaboratively with State 

and our other interagency partners. 

Q.7. The sanction imposed against the Bank of Kunlun was an important one for Treasury, and even though the Chinese bank had 

no correspondent relationship with the U.S., it may have had some 

ripple effects in China, maybe to some extent throughout Asia. 

Did the sanction have any practical effect against its 

unsanctioned parent, the China National Petroleum Corporation, 

which in fact does business with the United States, or by implication, might any other parent company interpret this as a permissible way of conducting business? 

A.7. Bank of Kunlun was sanctioned for providing significant financial services to more than half a dozen Iranian banks that had 

been designated by the United States for ties to Iran’s weapons of 

mass destruction programs or its support for international terrorism. This action had an impact within China and elsewhere 

where Kunlun had, but lost, correspondent relationships. We cannot speculate as to how this action was viewed by the China National Petroleum Corporation, but note that the United States Government aggressively targets any entity that violates our sanctions. 

To the extent other entities engage in similar sanctionable behavior, they will be exposed to U.S. sanctions. 

Q.8. If the authority to sanction such parents were put in place, 

tomorrow, what effect would it have? 

A.8. The United States Government currently has a number of authorities in place that allow us to target a wide range of activities. 

54 

To the extent that a parent company is involved in sanctionable activity, the United States already has the ability to target and sanction that company. 

Q.9. Since July 2012, when the Administration signed an Executive 

Order with respect to gold, Iran has received more than $6 billion, 

or about 10 percent of Iran’s total oil exports for 2012, in gold. Gold 

exports to Iran, for the first quarter of this year amount to about 

1.3 billion. 

What are the primary and other uses of this gold trade, particularly with respect to Turkey and China? 

A.9. As a general matter, most gold investments serve as hedges 

against holdings of riskier assets. We suspect Iranian persons that 

have purchased gold during the past year may be looking for a 

store of value in response to the effect of sanctions, which have contributed to the significant devaluation of Iran’s currency and the 

overall lack of foreign investment in Iran. 

Treasury has watched Iran’s gold purchases very closely for any 

potential violations of Executive Order 13622, which from July 31, 

2012, makes sanctionable the purchase or acquisition of precious 

metals, including gold, by the Government of Iran (GOI). Treasury 

has made very clear to Turkey, the UAE, and others involved in 

this trade our intention to pursue the financial networks and companies involved in selling or transferring gold to the GOI. As of 

July 1, 2013, under the Iran Freedom and Counter-Proliferation 

Act of 2012, persons that knowingly sell, supply, or transfer precious metals, including gold, to or from Iran, not just to the GOI, 

are exposed to sanctions. Treasury has a strong record of implementing our sanctions against Iran, and we will continue to aggressively target individuals, entities, or banks that engage in 

sanctionable activity, wherever they may be. 

Q.10. In light of the Liberty Reserves money laundering case, is 

there any evidence of Iran, or North Korea, for that matter, using 

or having the ability to use virtual currencies to finance any of its 

trade or otherwise move money? 

A.10. Money transmitters, including exchangers of virtual currencies and other new financial instruments and payment mechanisms, can be vulnerable to abuse by illicit actors in Iran, North 

Korea, and elsewhere, if not appropriately regulated. Treasury will 

continue to aggressively use its various authorities to combat and 

dissuade persons and companies from exploiting virtual currencies 

and other new payment mechanisms to conduct financial transactions on behalf of illicit actors. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN 

FROM DAVID S. COHEN 

Q.1. As you know, last year the Government settled an enforcement action against HSBC for laundering hundreds of millions of 

dollars over at least a 6-year period, helping drug lords and helping 

people who were trying to evade our sanctions against Iran. HSBC 

paid a very big fine, over a billion dollars, but some of us wondered 

why the Government didn’t take HSBC to trial or at least look seriously at imposing stronger penalties, including closing down the 

55 

bank in the U.S. for a period of time or banning certain HSBC executives from banking. As we discussed at the hearing, last week, 

Public Citizen released some internal Treasury emails it received 

in response to a FOIA request. The documents were heavily redacted, so the amount of information publicly available is quite limited, but a couple things seem clear. First, in the fall of last year, 

Treasury officials were quite anxious to settle with HSBC. A Treasury working group was set up to scour through the violations, and 

senior Treasury officials were assured that enforcement officials 

were ‘‘moving as quickly as possible to put together administrative 

penalty actions.’’ You expressed at the hearing that officials had 

been working on the HSBC matter for some time, but it is clear 

that the pace of activities among senior officials picked up last fall. 

The second thing that is clear from the documents is that, at the 

same time, State officials in New York were starting to press forward with charges of their own against HSBC. The emails also 

show that reporters began to contact Treasury about rumors that 

its senior officials had discouraged the Justice Department from 

leveling any criminal charges, and the emails show that Treasury 

officials were suddenly talking about, in their words, ‘‘atmospherics.’’ 

Why was Treasury motivated to quickly settle the HSBC case in 

the fall of 2012? 

A.1. I testified at the hearing that the timing for Treasury’s settlement of the HSBC matter was driven by the completion of our 

careful consideration of the facts and circumstances, in coordination with the appropriate Federal and local agencies involved in the 

case. 

Q.2. Was it because of what Ben Lawsky, New York’s Superintendent of Banks, referred to last week as a ‘‘a dose of healthy 

competition among regulators’’? Or was the urgency related to efforts to head off more aggressive actions by other regulators? 

A.2. The New York Department of Financial Services was not involved in the HSBC case and had no bearing or impact on Treasury’s investigation. Throughout the investigation of the HSBC case, 

Treasury worked cooperatively with the numerous Government entities involved in the case to reach a joint resolution. 

Q.3. Treasury was clearly worried about ‘‘atmospherics,’’ but Treasury redacted a whole lot of material about what that meant. What 

atmospherics was Treasury worried about? I don’t think Treasury 

officials should ever base their determinations relating to enforcement strategy on politics or so-called ‘‘atmospherics.’’ Treasury lawyers should focus on enforcing the law and making sure that even 

the biggest and most powerful financial institutions are held accountable when they engage in money laundering—nothing more. 

So I am hoping to have a better sense of the context of the emails 

that were so heavily redacted. 

A.3. As I testified at the hearing, the email you quote was neither 

written by me nor sent to me. Nonetheless, I agree that ‘‘atmospherics’’ or politics should not drive enforcement decisions, and in 

my decision making at Treasury, they never have—and that includes the enforcement action against HSBC. 

56 

More broadly, the Treasury Department supports vigorous enforcement of the law and believes that no individual or institution 

is above the law regardless of size or any other characteristic. Although Treasury does not have statutory authority to impose criminal penalties—the authority to seek Federal criminal charges rests 

exclusively with the Department of Justice—Treasury does have 

authority to investigate potential violations of U.S. economic sanctions, as well as certain anti-money laundering laws and regulations, and to impose civil penalties. Treasury has a clear record of 

aggressively pursuing investigations and enforcement actions 

against both U.S. and foreign financial institutions that violate 

those laws and regulations. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN 

FROM DAVID S. COHEN 

Q.1. What are the unintended consequences of driving Iran away 

from the official banking system to ‘‘underground’’ or non-State actors, such as Hawalas or Hizbollah networks? Can we ever completely stop the flow of funds through these underground networks? 

A.1. While nonbank financial institutions, including hawalas and 

exchange houses, are legitimate and accepted types of remitters, 

their exploitation by illicit actors, including Iran, is of continuing 

concern. Supervisory challenges in some jurisdictions can exacerbate this concern as nonbank financial institutions, absent effective 

supervision, may lack the robust controls necessary to detect and 

deter money laundering and terrorist financing. Treasury regularly 

engages with foreign jurisdictions to encourage them to enhance 

supervision of nonbanks and with foreign financial institutions to 

help them better understand the risks of exposure to Iranian finance. 

To confront the use of nonbank financial institutions by Iran, 

Treasury issued guidance to the financial sector on Iran’s deceptive 

use of exchange houses in January 2013. Then in May 2013, Treasury imposed sanctions on two money transfer businesses in the 

UAE for providing financial services to previously designated Iranian banks. Treasury remains alert to Iran’s attempts to circumvent sanctions and will continue to target individuals and entities that facilitate such activity. 

Treasury has also targeted Hizballah’s abuse of exchange houses. 

In April 2013, Treasury identified two Lebanese exchange houses 

as financial institutions of ‘‘primary money laundering concern’’ 

under Section 311 of the USA PATRIOT Act, in part for providing 

financial services to Hizballah. Treasury will continue to employ its 

authorities to protect the integrity of the U.S. and international financial system from terrorist abuse. 

Q.2. Does a further lack of transparency of cash flows pose longterm risks that should be taken into consideration? 

A.2. As Iran is forced to resort to more deceptive means to gain access to much needed financial services, it will naturally face higher 

transaction costs, a diminished ability to finance trade, and may 

also be pushed to less transparent financial channels. For that reason, Treasury issued the guidance on Iran’s abuse of exchange 

57 

houses in January 2013. In May 2013, Treasury imposed sanctions 

on two money transfer businesses, UAE-based Al Hilal Exchange 

and Al Fida International General Trading, for providing financial 

services to previously designated Iranian banks. Treasury remains 

alert against any attempts by Iran to circumvent sanctions and will 

continue to target individuals and entities that facilitate such activity. 

Q.3. How can we impact the increased use of barter trade, such as 

the potential for Iran to trade oil for North Korean nuclear technology or Indian agricultural products? 

A.3. The U.S. Government has a number of tools in its arsenal to 

target those involved in facilitating sanctionable trade with Iran, 

regardless of the form of exchange. Many of our sanctions apply to 

the supply of certain goods to Iran, such as gold, or to goods intended for its energy, shipping, and auto sectors, whether Iran barters for or buys them. Treasury will robustly enforce these new sectoral sanctions, which came into effect July 1, 2013. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO 

FROM ERIC L. HIRSCHHORN 

Q.1. Under CISADA’s stricter controls on trade with Iran, the 

President is authorized to designate countries for not making sufficient efforts to control diversion of certain materials to Iran. Licenses for exports of those materials to such ‘‘Destinations of Diversion Concern’’ would be subject to a presumption of denial. 

Is there any heightened concern about possible diversion of authorized exports to unauthorized destinations or end-users raised 

by the Administration’s policy shift to put ‘‘higher fences around 

fewer items’’? 

A.1. Export control reform is meant to deal directly with diversion 

efforts by focusing U.S. Government resources on higher risk transactions. This is accomplished by increasing the number of dedicated 

enforcement officials that monitor dual use and munitions exports. 

These include the addition of Export Enforcement Special Agents, 

analysts, and Export Control Officers to the existing cadre of Department of Homeland Security and Federal Bureau of Investigation officials that have complementary enforcement authorities. In 

addition, the Department of Commerce brings unique administrative authorities that address diversion (e.g., fines, temporary denial 

orders, Entity List, and Unverified List designations). Moreover, 

where items are permitted to be exported to close allies and partners under License Exception Strategic Trade Authorization, new 

chain of custody safeguards have been established along with reexport controls to provide Commerce with the ability to effectively 

monitor and enforce compliance. 

Q.2. The UAE and China have each presented diversion and proliferation challenges. 

Can you briefly outline the nature and seriousness of the roles 

of China and the UAE in the proliferation threat, and U.S. efforts 

to assist in strengthening the controls there? 

Has any country yet been designated as a ‘‘Possible Destination 

of Diversion Concern’’? If not, what is the standard used to make 

such a determination? 

58 

A.2. [Pursuant to §§302 and 303 of P.L. 111-195 (CISADA), the Office of the Director for National Intelligence and the Department 

of State are the appropriate agencies to respond.] 

To date, the Secretary of State has not announced any designations of countries as destinations of diversion concern. 

Title III, Section 303 of CISADA requires the President to submit 

to Congress a report that designates as destinations of diversion 

concern countries whose Governments the President has determined have allowed substantial diversion of certain enumerated 

goods, services, or technologies to Iranian end-users or Iranian 

intermediaries. The President has delegated this designation-making authority to the Secretary of State. In determining whether to 

make such designations, the Secretary of State may draw on a report provided by the Director of National Intelligence (DNI) to the 

President, the Secretaries of Commerce, Defense, and Treasury, 

and the appropriate congressional committees pursuant to Title III, 

§302 of CISADA on an annual basis. We defer to the DNI to describe its report and to State to provide information on how it utilizes the report and any other sources in making designations. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN 

FROM ERIC L. HIRSCHHORN 

Q.1. How effective were the end-use monitoring visits conducted by 

your agency in 2012? What percentage of total export licenses 

granted does the 994 reported visits represent, and how many of 

these visits uncovered unauthorized transshipments or reexports to 

Iran? 

A.1. BIS considers its end-use check (EUC) program to be a key 

part of an effective enforcement strategy to safeguard U.S. exports 

from unauthorized diversion. This strategy, in addition to end-use 

checks, includes outreach and education, including visits to exporters by Export Enforcement (EE) Special Agents, EE review of license applications, including Information Triage Unit development 

and review of bona fides reports on foreign transaction parties utilizing intelligence information, audits of exporters, evaluation of export transactions, and investigations. Unfavorable outcomes from 

the EUC program result in enforcement and other actions (e.g., 

criminal and administrative penalties, including Unverified List 

designations, heightened scrutiny of transaction parties, detentions). In FY12, approximately 75 checks uncovered unauthorized 

reexports to Iran. The checks, however, are purposely not all 

geared toward licensed exports given the amount of scrutiny that 

license applications undergo through the interagency process, and 

therefore, BIS does not utilize a ratio of checks to licenses as an 

enforcement metric. In FY12, approximately 50 percent of end-use 

checks were conducted on U.S. items exported without a license to 

identify diversion to countries like Iran, to which almost all controlled and uncontrolled items are prohibited for export or reexport. 

When taken as part of its broad enforcement strategy, BIS considers the end-use check program to be an effective inhibitor and 

identifier of unauthorized exports as it allows the U.S. Government 

to identify unreliable recipients of U.S. exports and take enforcement and other actions, including, where warranted, publicizing 

bad actors (e.g., via the Entity List) to inform the exporting public.