[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
INCREASING THE EFFECTIVENESS OF
NON-NUCLEAR SANCTIONS AGAINST IRAN
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
AND THE
SUBCOMMITTEE ON TERRORISM
AND ILLICIT FINANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
APRIL 4, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-14
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Kirsten Sutton Mork, Staff Director
Subcommittee on Monetary Policy and Trade
ANDY BARR, Kentucky, Chairman
ROGER WILLIAMS, Texas, Vice GWEN MOORE, Wisconsin, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan BILL FOSTER, Illinois
ROBERT PITTENGER, North Carolina BRAD SHERMAN, California
MIA LOVE, Utah AL GREEN, Texas
FRENCH HILL, Arkansas DENNY HECK, Washington
TOM EMMER, Minnesota DANIEL T. KILDEE, Michigan
ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California
WARREN DAVIDSON, Ohio CHARLIE CRIST, Florida
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Subcommittee on Terrorism and Illicit Finance
STEVAN PEARCE, New Mexico Chairman
ROBERT PITTENGER, North Carolina, ED PERLMUTTER, Colorado, Ranking
Vice Chairman Member
KEITH J. ROTHFUS, Pennsylvania CAROLYN B. MALONEY, New York
LUKE MESSER, Indiana JAMES A. HIMES, Connecticut
SCOTT TIPTON, Colorado BILL FOSTER, Illinois
ROGER WILLIAMS, Texas DANIEL T. KILDEE, Michigan
BRUCE POLIQUIN, Maine JOHN K. DELANEY, Maryland
MIA LOVE, Utah KYRSTEN SINEMA, Arizona
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York RUBEN KIHUEN, Nevada
WARREN DAVIDSON, Ohio STEPHEN F. LYNCH, Massachusetts
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
C O N T E N T S
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Page
Hearing held on:
April 4, 2017................................................ 1
Appendix:
April 4, 2017................................................ 37
WITNESSES
Tuesday, April 4, 2017
Maloney, Suzanne, Deputy Director, Foreign Policy, and Senior
Fellow, Center for Middle East Policy, the Brookings
Institution.................................................... 9
McInnis, J. Matthew, Resident Fellow, the American Enterprise
Institute...................................................... 7
Ottolenghi, Emanuele, Senior Fellow, Foundation for Defense of
Democracies.................................................... 10
Taleblu, Behnam Ben, Senior Iran Analyst, Foundation for Defense
of Democracies................................................. 5
APPENDIX
Prepared statements:
Maloney, Suzanne............................................. 38
McInnis, J. Matthew.......................................... 46
Ottolenghi, Emanuele......................................... 52
Taleblu, Behnam Ben.......................................... 81
Additional Material Submitted for the Record
Hill, Hon. French:
Written responses to questions for the record submitted to
Behnam Ben Taleblu......................................... 104
Perlmutter, Hon. Ed:
Letter to FBI Director James B. Comey, Jr., Treasury
Secretary Steven T. Mnuchin, and U.S. Attorney General Jeff
Sessions from Senators Sherrod Brown, Ben Cardin, and
Dianne Feinstein, dated March 30, 2017..................... 108
Washington Post article entitled, ``Blackwater founder held
secret Seychelles meeting to establish Trump-Putin back
channel''.................................................. 110
INCREASING THE EFFECTIVENESS
OF NON-NUCLEAR SANCTIONS
AGAINST IRAN
----------
Tuesday, April 4, 2017
U.S. House of Representatives,
Subcommittee on Monetary Policy and Trade, and
Subcommittee on Terrorism and Illicit Finance,
Committee on Financial Services,
Washington, D.C.
The subcommittees met, pursuant to notice, at 2:39 p.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
[chairman of the Subcommittee on Monetary Policy and Trade] and
Hon. Stevan Pearce [chairman of the Subcommittee on Terrorism
and Illicit Finance] presiding.
Members present from the Subcommittee on Monetary Policy
and Trade: Representatives Barr, Williams, Pittenger, Huizenga,
Love, Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth;
Moore, Sherman, Foster, and Vargas.
Members present from the Subcommittee on Terrorism and
Illicit Finance: Representatives Pearce, Williams, Pittenger,
Rothfus, Messer, Tipton, Poliquin, Love, Hill, Emmer, Zeldin,
Davidson, Budd, Kustoff; Perlmutter, Maloney, Lynch, Foster,
Delaney, Sinema, Vargas, and Gottheimer.
Chairman Barr. The subcommittees will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittees at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of the Subcommittee on
Monetary Policy and Trade or the Subcommittee on Terrorism and
Illicit Finance may participate in today's hearing.
Today's hearing is entitled, ``Increasing the Effectiveness
of Non-Nuclear Sanctions Against Iran.''
I now recognize myself for 2\1/2\ minutes to give an
opening statement.
As chairman of the Monetary Policy and Trade Subcommittee,
it is a pleasure for me to join Chairman Pearce and my
colleagues on the Terrorism and Illicit Finance Subcommittee in
holding this joint hearing.
It is no secret that Washington has been deeply divided
over how to confront Iran's nuclear ambitions both before and
after implementation of the Joint Comprehensive Plan of Action
(JCPOA). This hearing, however, is not about the JCPOA per se,
and I am hopeful that we can find common ground in addressing
Iran's non-nuclear activities, including terrorism, weapons
procurements, and regional destabilization.
Since the agreement's implementation day in January of
2016, Iran has continued to sponsor Hezbollah and other
militias in the region. Its support for the Assad regime alone,
including the use of planes to airlift military supplies, has
helped claim an estimated 400,000 lives.
Last April, even President Obama suggested that the
Iranians were violating the spirit of the deal by engaging in
these activities. Rather than be deterred, Iran went on in
October to sentence three Americans to long prison terms on
bogus charges.
In January of this year, the country tested a ballistic
missile, in violation of U.N. Security Council Resolution 2231.
And this very morning, just as Boeing was announcing new sales
to Iran, we learned that dozens of Syrian civilians, including
at least 11 children, were gassed in a chemical weapons attack.
If Republicans and Democrats can agree that intensifying
non-nuclear sanctions is key for our national security, then we
should think of new ways that deepen their impact on Iranian
behavior. Iran's continued illicit activities underscore that
we must not be complacent. Non-nuclear sanctions are more than
a form of condemnation. We should expect them to undermine
Iran's capabilities and influence Iranian policies.
In closing, I want to emphasize that U.S. sanctions are
directed against an authoritarian government, not the many
ordinary Iranians who denounce terrorism and welcome closer
relations with our country. These Iranians know the regime has
failed them for decades, and they know that the only choice for
Iran is to abandon its anti-Western, anti-Semitic, violent
extremism. Our sanctions should make that choice as explicit as
possible.
The Chair now recognizes the gentlelady from Wisconsin, the
ranking member of the Monetary Policy and Trade Subcommittee,
Congresswoman Moore, for 2\1/2\ minutes for an opening
statement.
Ms. Moore. Thank you so much, Mr. Chairman.
And I thank the panel for joining us.
I have been on record in support of the Joint Comprehensive
Plan of Action, negotiated and implemented by President Obama
to derail Iran's nuclear ambitions. That being said, I am going
to use this time to discuss President Trump's ongoing and
increasingly problematic foreign and business entanglements.
PBS reports that Trump engaged in a business deal with a
money launderer with supposed ties to the notorious Iranian
Revolutionary Guard Corps, a Mr. Anar Mammadov. The project was
a hotel in Baku, Azerbaijan. Ivanka was involved, as well.
That's one example, but these political and financial
entanglements between ``bad hombres'' and Trump keep cropping
up. We have a Commerce Secretary who was former vice chair of
the Bank of Cyprus, a bank that participated in deals with
unsavory, criminal-backed individuals and the Russian state-run
bank Sberbank, which is subject to U.S. and EU sanctions.
We have jaw-dropping allegations that rise at least to a
probable cause case against Trump associates and family
members, such as Manafort, Page, Tillerson, Flynn, Stone,
Ivanka, and her husband, Jared Kushner. These are troubling
financial ties to the Kremlin, Iran, or the Chinese government,
saying nothing of his D.C. hotel or the Mar-a-Lago, which are
gross conflicts that should not be permitted to continue for
one more second.
These communities should use our subpoena power to bring
some of these people in to testify under oath to this joint
committee so we can get a better understanding of these ties,
and the American people deserve to know.
It is a Pyrrhic exercise to go over the JCPOA over and over
again when the Trump Administration has invited all of the
world's worst actors into the White House in order to enrich
him and his family, like this Third-World-like kleptocracy that
would make Ferdinand Marcos blush.
And, with that, I yield my remaining 27 seconds to Mr.
Perlmutter.
Mr. Perlmutter. I have my own time, so keep going.
Ms. Moore. Oh, you do? No, I am done. I am yielding back.
Chairman Barr. Okay. The gentlelady yields back.
And the Chair now recognizes the gentleman from New Mexico,
the chairman of the Terrorism and Illicit Finance Subcommittee,
Congressman Pearce, for 1\1/2\ minutes for an opening
statement.
Chairman Pearce. Thank you, Mr. Chairman.
New to the Financial Services Committee in the 115th
Congress, the Terrorism and Illicit Finance Subcommittee has
the direct mission of interpreting to the greatest extent
possible the financial support networks of national security
interests. Our new subcommittee is honored to join Chairman
Barr's Monetary Policy and Trade Subcommittee this afternoon to
assess the current state of Iran's non-nuclear sanctions.
First designated as a state sponsor of terrorism in 1984,
Iran has grown into the global leader in terrorist financing.
The message is clear: Despite our Nation's best efforts, Iran
continues to be the foremost sponsor of terrorism globally.
This is not anecdotal or subjective; the U.S. State
Department's annual country report on terrorism has continually
listed Iran as the top illicit financier, and the most recent
report stated that Iran remains the foremost state sponsor of
terrorism.
From its continued support and assistance to the Assad
regime in Syria, to its financial backing of Hezbollah and its
reliance on its intelligence and security arms, the Islamic
Revolutionary Guard Corps, the IRGC, and its elite Quds Force,
Iran has been near-impervious to U.S. and international
sanctions. No silver bullet exists to prevent and impede Iran's
actions. Despite the U.S. and international sanctions, combined
with a stagnant oil market in 2015, Iran continued to fund and
supply international terror groups even when it was to the
detriment of its own people and economy.
Today's hearing, therefore, begins a much-needed
conversation: Where has the United States succeeded and where
has it failed in its targeted actions against Iran? What
actions, if any, can the Financial Services Committee take?
What actions should be avoided?
I thank our witnesses for being here today, and I thank
Chairman Barr for holding this important joint hearing. I look
forward to the conversation, and I yield back.
Chairman Barr. Thank you.
The Chair now recognizes the gentleman from Colorado, the
ranking member of the Terrorism and Illicit Finance
Subcommittee, Congressman Perlmutter, for 2\1/2\ minutes.
Mr. Perlmutter. Thank you, Mr. Chairman.
I would like to introduce into the record a letter dated
March 30, 2017, from Senators Brown, Feinstein, and Cardin to
James Comey, and also an article from The Washington Post dated
April 3, 2017, concerning--both of them have as their subjects
the Islamic Revolutionary Guard Corps that Congressman Pearce
was just referring to.
Chairman Barr. Without objection, it is so ordered.
Mr. Perlmutter. I thank the gentleman from Kentucky. I also
thank my friend from New Mexico and Ms. Moore from Wisconsin.
There are several important questions before us today.
First, I assume my friends on the other side of the aisle are
going to bring forth some questions about the JCPOA, which I
call a nuclear nonproliferation agreement. And we just want to
see exactly how that has transpired or how it has worked so
far. I think it has reduced nuclear tension in the world, but,
even so, we all agree Iran and, in particular the IRGC, is a
real threat and destabilizing force in the Middle East.
The IRGC is heavily involved in just about every aspect of
the Iranian economy, including oil, construction, and banking.
And with vast shell corporations and commercial interests all
over the world, the IRGC strategically and conspicuously moves
money through its many front businesses, and we need to
understand the beneficial ownership of those businesses.
We also need to understand--to the degree that Russia is
supporting Iran and the IRGC, we want to see exactly how that
kind of funding exists. So the new subcommittee that we have
formed here is Terrorism and Illicit Finance, and we want to
see the connections to this potential money laundering that is
going around that is funding terrorism around the globe. And I
think, in particular, we have to see the activities of the IRGC
as well as their connection to Russia, which is using Iran as
kind of a place to advance its interests in the Middle East.
And, with that, I yield back to the Chair, and I look
forward to the testimony of our witnesses today.
Chairman Barr. Thank you.
The gentleman yields back.
The Chair now recognizes the gentleman from North Carolina,
the vice chairman of the Terrorism and Illicit Finance
Subcommittee, Congressman Pittenger, for a 1-minute opening
statement.
Is Mr. Pittenger here?
Mr. Pittenger is not here, so we will go ahead and turn to
our witness testimony.
Today, we welcome the testimony of Mr. Behnam Ben Taleblu.
He is a senior Iran analyst at the Foundation for Defense of
Democracies (FDD). Previously, Ben Taleblu served as a
nonresident Iran research fellow and Iran research analyst at
FDD. Ben Taleblu frequently briefs Washington audiences on a
host of Iran-related issues. Ben earned his master's degree in
international relations from the University of Chicago.
Mr. J. Matthew McInnis is a resident fellow at the American
Enterprise Institute, where he focuses on Iran, specifically
its intentions, strategic culture, military power, and goals.
Previously, Mr. McInnis served as a senior analyst and in other
leadership positions for the U.S. Department of Defense,
including work with U.S. Central Command, from 2006 to 2013.
Mr. McInnis has a master's degree in European studies from NYU
and a master's degree in international relations from the Johns
Hopkins School of Advanced International Studies.
Dr. Suzanne Maloney is a senior fellow at the Brookings
Institution. She is deputy director of the foreign policy
program at Brookings. Dr. Maloney previously served as an
external adviser to senior State Department officials on long-
term issues related to Iran. Before joining Brookings, she
served on the Secretary of State's policy planning staff as
Middle East adviser for ExxonMobil Corporation, and director of
the 2004 Council on Foreign Relations task force on U.S. policy
toward Iran. She holds a doctorate from the Fletcher School of
Law and Diplomacy at Tufts University.
And Dr. Emanuele Ottolenghi is a senior fellow at the
Foundation for Defense of Democracies, and an expert at its
Center on Sanctions and Illicit Finance, focused on Iran. Prior
to joining FDD, Dr. Ottolenghi headed the Transatlantic
Institute in Brussels, and taught Israel studies at St.
Anthony's College, Oxford University. Dr. Ottolenghi obtained
his Ph.D. in political theory at the Hebrew University of
Jerusalem.
Each of you will be recognized for 5 minutes to give an
oral presentation of your testimony. And without objection,
each of your written statements will be made a part of the
record.
Mr. Behnam Ben Taleblu, you are now recognized for 5
minutes.
STATEMENT OF BEHNAM BEN TALEBLU, SENIOR IRAN ANALYST,
FOUNDATION FOR DEFENSE OF DEMOCRACIES
Mr. Taleblu. Thank you very much, Chairmen Barr and Pearce,
Ranking Members Moore and Perlmutter, and distinguished members
of the Committee on Financial Services. On behalf of the
Foundation for Defense of Democracies, thank you for providing
me with this opportunity to testify, particularly alongside
such a distinguished panel.
Today, I will discuss the Islamic Republic of Iran's non-
nuclear threats and how best to counter them.
Despite being called comprehensive, the JCPOA nuclear deal
overshadowing this discussion was anything but. It does not
address delivery of vehicles for nuclear weapons like ballistic
missiles. It also does not address Tehran's illicit financial
activities, support for terrorism, regional destabilization,
and flagrant human rights abuses.
These issues constitute Iran's enduring non-nuclear
threats. They are enduring because they are the same issues
that have made and kept Iran an international pariah for over 3
decades. Worse, they are threats that the JCPOA accentuates.
According to FDD's survey of open-source English and
Persian language reporting on Iran, Iran has launched up to 14
ballistic missiles since inking the deal. Such behavior defies
the annex of UNSCR 2231 codifying the accord. These include two
upgrades to a solid-fuel, short-range ballistic missile, a new
medium-range ballistic missile that allegedly has a
maneuverable reentry vehicle, and a ballistic missile bearing a
proclamation threatening the state of Israel with genocide.
According to the former Director of National Intelligence,
Iran currently possesses the largest arsenal of ballistic
missiles in the Middle East. This arsenal of lethality is
enhanced by flight testing and domestic refinement.
Iran also continues to exemplify the ``state sponsor of
terrorism'' epithet bequeathed to it by the State Department 3
decades ago. For the past 5 years, however, Tehran has
furnished the Assad regime in Syria with money, men, and
munitions so that it can continue the war against its own
people. Iran is also creating something of a Shia
internationale, marshaling zealous Shias from around the
region, including Iraq, Pakistan, and Afghanistan, to fight and
die in Syria.
Elsewhere, Tehran relies on a tried-and-true method:
distributing low-cost weaponry, like anti-tank missiles, to
jurisdictions of weak central authority. Nowhere exemplifies
this better than Yemen. Despite a ban on arms transfers in
UNSCR 2231, weapons transfers to Yemen have been seized at
least 4 times by coalition forces.
Iran's illicit financial activities also continue
undermining the integrity of the rules-based financial order.
These activities involve the movements of money to illicitly
procure parts and technology for Iran's missile program as well
as sponsoring terrorist activities.
However, even innocuous-looking transactions may involve
illicit actors. Iran remains designated by the U.S. Treasury
Department as a ``jurisdiction of primary money-laundering
concern.'' The hesitancy exhibited by European banks towards
doing business with Iran is indicative of this status, in
addition to their concerns over institutions which lack anti-
money-laundering controls.
Fortunately, nowhere in the JCPOA is the U.S. restricted
from using diplomatic, informational, military, and economic
tools to challenge these activities. By enforcing existing
sanctions and levying conduct-based nonnuclear ones, Congress
and the Administration can signal that there is a strategy
guiding Washington's Iran policy.
Such a policy would have three goals: punishment for past
illicit activities; coercion to alter Iran's calculus to cease
its present bad behavior; and deterrence to forestall
prospective bad behavior.
In my written testimony, I have provided four likely
scenarios that would require coercive economic measures based
on Iran's existing capabilities and intentions. I also offer 10
broader recommendations, like new reporting requirements to
enhance existing sanctions; targeting Iran's IRGC pursuant to
two additional Executive Orders; using the Global Magnitsky Act
to target corrupt Iranian entities; and developing graduated,
sector-specific sanctions on Iran's domestic ballistic missile
supply chain to neatly complement the web of export controls
already in place. I can also speak to nonstatutory measures, if
asked, in the Q and A.
In my written testimony, I similarly explain and refute
Iran's claims that such actions violate the deal. They do not.
These arguments can be overcome if the U.S. adheres to three
principles: one, calling Iran's bluff and walking away from the
deal in response to such measures; two, contesting Iran's
narrative that it is a member of the international community in
good standing; and three, putting the spotlight on Iran through
sophisticated use of the bully pulpit.
Additionally, the U.S. should not fall for arguments about
a perceived lack of sanctions relief when it has already lived
by its deal requirements. To quote Adam Szubin of the Treasury
Department, ``The JCPOA is an international agreement, not a
cashier's check.''
While sanctions relief has made it harder to influence
Iranian behavior, it is still not impossible. Congress and the
Administration have the capability to push for a change in
behavior by imposing costs. However, as in most international
crises, the balance of resolve will matter just as much, if not
more, than the balance of capability.
I thank you very much for your time and attention, and I
look forward to answering your questions today.
[The prepared statement of Mr. Taleblu can be found on page
81 of the appendix.]
Chairman Barr. Thank you.
Mr. Matthew McInnis, you are now recognized for 5 minutes.
STATEMENT OF J. MATTHEW MCINNIS, RESIDENT FELLOW, THE AMERICAN
ENTERPRISE INSTITUTE
Mr. McInnis. Thank you, Chairman Barr, Chairman Pearce,
Ranking Member Moore, Ranking Member Perlmutter, and
distinguished committee members. Thank you for this opportunity
to testify today on this important issue.
Some had hoped that after the implementation of the JCPOA,
Iran would moderate its support to proxy and terrorist groups,
restrict is ballistic missile testing and cyber activities, and
refrain from risky and unprofessional actions at sea in the
Persian Gulf. However, we have seen all of these activities not
only continue but increase since the nuclear deal.
As U.S. CENTCOM Commander General Joseph Votel stated in
testimony before the House Armed Services Committee last week,
``Iran poses the greatest long-term threat to stability in this
part of the world.''
Why is Iran such a disruptive force in the region?
Since the 1979 Islamic Revolution, reshaping the Middle
East under its political and ideological image has driven
Tehran's foreign policy. The wars in Syria, Iraq, and Yemen,
along with new resources from the nuclear deal, have brought us
to an inflection point in Iran's strategy in the region. Tehran
is turning its traditional network of proxies, led by Lebanese
Hezbollah, into a transnational army that can conduct hybrid
warfare and operate from Beirut to Basra to Sana'a, with Shia
militias drawn from across South Asia and the Middle East.
These forces are led by the IRGC, with an estimated quarter-
million personnel potentially responsive to their direction.
In addition to proxies, Iran's efforts to dominate the
region extend to more traditional military forces. Tehran has
historically lacked sufficient air and land forces to project
conventional power beyond its borders. Ballistic missiles and
its asymmetric naval forces in the Persian Gulf have served as
substitutes. A critical question following the JCPOA is whether
Iran can or will use its new resources to successfully
modernize its military and permanently alter the regional
balance of power in the coming decades.
So how do we stand up to Iran's destabilizing activities
and begin to dismantle Tehran's global terror network? The
United States needs to reinvigorate a well-coordinated
political, economic, military, and intelligence campaign
against Iran's malign influence. A better sanctions strategy
should be nested at the heart of this effort, given at least 20
percent of Iran's GDP is now under the Guard's control.
The IRGC owns the state's largest construction firm,
Khatam-al Anbiya, and holds major stakes in the banking,
energy, extractive, and manufacturing sectors. The Guard also
operates most Iranian ports and is deeply involved in the
commercial shipping and aviation sectors, which are critical
elements in building and sustaining its proxy and terror
networks in the Middle East.
However, Washington needs to ask first what we want to
accomplish with our sanctions, rather than focusing solely on
the targets and means. With this in mind, any Iran sanctions
strategy must first blunt and then diminish the foundations of
the IRGC's destabilizing activities. Consequently, the United
States should aim for these five objectives:
First, we should suppress Iran's military modernization to
maintain the U.S.'s and our allies' military superiority in the
region. We should prevent Iran from making major military
breakthroughs and maintain our deterrence advantage against
Iran. We should seek to deter Russian and Chinese and other
sales of the most advanced equipment to Iran through new
sanctions and prevent any efforts to evade U.N. conventional
weapons sanctions while they remain.
Second, we should starve the IRGC's financial fuel to
weaken the Guard's ability to generate revenue from global
markets and incentivize international divestment from IRGC-
affiliated businesses.
Third, we should disrupt the IRGC's logistical abilities,
including close monitoring of potential new sanctions and
designations against Iranian commercial aircraft used by the
IRGC for the illicit transport of weapons and personnel into
Syria, Iraq, Yemen, and elsewhere.
Fourth, we should disrupt and deter Iran's ballistic
missile program. We may not be able to stop the program
entirely, but we can help push their program more in the box by
disrupting their technological acquisition through additional
sanctions.
Fifth, we should drive down Iran's internal confidence in
the regime and its policies. To the degree that we can, the
U.S. should expose, through sanctions, the regime's internal
contradictions, corruptions, massive expenses on overseas
adventures, and human rights violations.
There is an important caveat. Any new sanctions should not
conflict, at least legally, with the JCPOA. However, any such
sanctions can and likely should be part of a broader approach
to shape the negotiating environment for a successor or
supplementary agreement with Iran to address the key flaws of
the nuclear deal.
I appreciate the opportunity to speak on this important
topic and welcome your questions and comments. Thank you.
[The prepared statement of Mr. McInnis can be found on page
46 of the appendix.]
Chairman Barr. Thank you.
Dr. Maloney, you are now recognized for 5 minutes.
STATEMENT OF SUZANNE MALONEY, DEPUTY DIRECTOR, FOREIGN POLICY,
AND SENIOR FELLOW, CENTER FOR MIDDLE EAST POLICY, THE BROOKINGS
INSTITUTION
Ms. Maloney. Thank you for the opportunity to appear before
you today. I have submitted a statement for the record, noting
that Brookings does not take institutional positions on policy
issues.
In considering the non-nuclear threats posed by Iran, we
must also recognize the dividends of the nuclear agreement. The
accord addressed only one dimension of the Iranian threat, and,
in those narrow terms, it has succeeded. Amidst the turbulence
and tragedy that besets the Middle East today, the absence of
constraints on Iran's nuclear capabilities would magnify the
risks in terrible ways.
However, as my fellow panelists have stated, we can't
ignore the finite ramifications of the deal. Hopes that the
agreement would jump-start wider moderation in Iran's approach
to the world have proven unfounded. Instead, Iran has continued
to do what it has done consistently since 1979, deploying
violence and subversion to extend its influence across the
Middle East. It is consolidating a predominant position in the
region and tentatively reorienting the regional order in its
favor. As a result, the challenges posed by Tehran to U.S.
interests and allies remain as relevant and as alarming as
ever.
Understanding the motivations behind Iran's regional
ambitions and its ballistic missile program are vital.
Historical memory and years of violent challenge to the
theocracy's existence have stoked an acute, abiding sense of
insecurity amongst its leadership. Tehran prioritizes regime
survival above all else, and self-preservation has become
intertwined with a deeply ingrained conviction that the world,
led by Washington, is bent on its eradication.
The consequences of this dystopian vision can be seen in
Tehran's campaign to cultivate allies and proxies, bolster its
indigenous deterrent capabilities, expand the revolution's
strategic death, and deploy violence and subversion across the
region. Iran's regional adventurism has never enhanced the
security or prosperity of the Iranian people, but it has helped
keep the regime in power.
The experience of the past decade underscores the efficacy
of sanctions when wielded wisely. Sanctions forced Iran to make
concessions on its nuclear weapon program. However, it is not
clear that new authorities are particularly useful or necessary
for pushing back against Iran's non-nuclear threats.
The deal left intact significant restrictions on Iran's
economy. Iran's worst actors, including those associated with
the Revolutionary Guard, remain designated under existing
sanctions, tainting, by extension, any company that deals with
them. The Trump Administration can augment the list of
designated entities at any time. The primary embargo on U.S.
trade and investment in Iran criminalizes even the most
tangential involvement in the Iranian economy by U.S. firms,
except for specific exemptions.
And all of these measures benefit from a number of powerful
force multipliers, including a decade of intensifying
restrictions and rigorous enforcement that has created a
culture of compliance in the international business community.
The success of the nuclear sanctions has fostered the
perception that these measures can serve as a silver bullet.
However, there are few guarantees that new measures will
provide sufficient disincentives to alter Tehran's longstanding
patterns of regional power projection or revise the broad
calculus of opportunism and insecurity that underlines its
policies.
The long-term track record underscores the unfortunate
reality: Iran's support for terrorism has never been driven
primarily or even substantially by resource availability. In
fact, Iran's most destructive regional policies have been
undertaken and sustained even at times of epic constraints.
Sanctions and lower oil prices have provided no remedy to
Iran's efforts to extend its influence or its substantial
investment in fueling and fighting conflicts in Iraq and Syria.
These policies have a very low funding threshold for the
Islamic Republic and an existential importance to the regime.
In addition, the sanctions regime that was constructed over
the 12-year nuclear crisis benefited from an exceptional degree
of multilateral support and consensus. Compounded by concerns
beyond the nuclear file, and encouraged by a well-coordinated
campaign that highlighted the non-sanctions risks to business
with Iran, many of Iran's major trading partners gradually
committed to sever economic ties with Tehran.
Multilateralism is key to sanctions adherence and creates
an interlocking and often redundant web of pressure that proves
far stronger and more persuasive than the sum of its parts. At
this time, Washington does not have, nor can we quickly
instigate, anything close to the level of multilateral
consensus that was built slowly and through fortuitous
confluence on the nuclear issue.
We must also anticipate Iran's responses to sanctions, both
in terms of bandwagoning to try to hedge by developing further
business and diplomatic ties with Europe and the rest of the
world, as well as its retaliatory capacity against U.S. Forces
in the region.
Like most complex challenges, the problem of Iran has
resisted quick fixes for nearly 4 decades. American leadership
will remain essential.
Thank you.
[The prepared statement of Dr. Maloney can be found on page
38 of the appendix.]
Chairman Barr. Thank you.
And, Dr. Ottolenghi, you are recognized for 5 minutes.
STATEMENT OF EMANUELE OTTOLENGHI, SENIOR FELLOW, FOUNDATION FOR
DEFENSE OF DEMOCRACIES
Mr. Ottolenghi. Chairmen Barr and Pearce, Ranking Members
Moore and Perlmutter, and distinguished members of the
committee, I thank you for the opportunity to testify today.
The Joint Comprehensive Plan of Action, or JCPOA, has
emboldened Iran. In theory, under the JCPOA, the United States
can use non-nuclear sanctions to counter Iran's regional
ambitions and ongoing support for terrorism. In practice,
however, this measure has been rarely used, especially with
regards to Iran's ongoing airlifts to the Assad regime and
Hezbollah.
The JCPOA lifted U.S. sanctions against Iran's civil
aviation sector exactly at the time when the sector became
vital to Tehran's war efforts in Syria. Put simply, the JCPOA
has made it legal to sell aircraft to airlines that are
accessories to Assad's war crimes and keep Hezbollah armed to
the teeth.
The activities of Iran's aviation sector have exposed the
inadequacy of the JCPOA caveat that licensed items and services
must be used exclusively for commercial passenger aviation.
Currently, at least five Iranian and two Syrian commercial
airlines are engaged in regular military airlifts to Syria.
These carriers have been crisscrossing Iraqi airspace since
2011 but have increased their tempo since the summer of 2015
when Iran and Russia coordinated their efforts to save Assad's
regime. Flight-tracking data indicate that from implementation
day on January 16, 2016, to March 30, 2017, there were 696
flights from Iran to Syria, only 6 of which were carried out by
Iran's Air Force.
In 2011, the Department of the Treasury blacklisted Iran
Air and Mahan Air because they colluded with Iran's Islamic
Revolutionary Guard Corps, or IRGC, in these military airlifts.
It also blacklisted Syrian Arab Airlines in 2015 and Sham Wings
in 2016 for transporting weapons and fighters to Syria. These
airlines are not ferrying civilian passengers between Tehran
and Damascus.
The two primary Iranian actors in the airlifts are Iran Air
and Mahan Air, with a combined 345 out of 696 flights, almost
half of the total.
Mahan Air remains under U.S. sanctions because of its
support for terrorism. Iran Air, by contrast, is no longer
sanctioned, despite its material support to the IRGC and
Syria's internal repression, despite weapons transfers to Syria
and the use of deceptive practices to conceal its cargo. The
U.S. Government delisted Iran Air because of a political
agreement. There is no evidence that there has been a change of
behavior.
It is extremely likely that Iran Air is still an active
participant in the airlifts. This conclusion is based on the
following: There is no justification for frequent commercial
flights to Damascus. Syria is a war zone with little tourism or
commerce. Yet, it is served almost twice daily.
Iran Air flies to Damascus twice a week. The flight cannot
be purchased on Iran Air's booking website or through travel
agencies, and the booking website does not include Damascus
among its destinations from Tehran's international airport,
where the flights usually originate. And, lastly, Iran Air
flights to Damascus occasionally make unscheduled stopovers in
Abadan, an IRGC logistical hub for the Syria airlifts.
Iran Air's participation in the Syria airlifts would make
the airline eligible for renewed sanctions. Congress and the
Administration should instruct the intelligence community to
investigate this. If Iran Air's participation is confirmed, the
Administration should immediately revoke OFAC's licenses
authorizing sales of aviation industry items and services to
Iran Air, resanction the airline, and release its entire fleet.
That is why Congress should also demand transparency about
aircraft sales to Iran. The financial terms of the Boeing and
Airbus deals are surprisingly opaque. If Iran Air is found to
be ferrying weapons and fighters to Syria, the two
manufacturers would unwittingly become accessories to war
crimes. Congress should demand that Boeing and Airbus make
those details fully public.
The United States should also renew its focus on Mahan Air,
Iran's largest commercial carrier and the most active
participant in the airlift. Existing U.S. sanctions have not
stopped European and Asian companies from transacting with
Mahan. It is not that U.S. sanctions are ineffective; it is
rather that the U.S. has so far declined to impose sanctions
against those who provide material support to Mahan. It is time
to reverse that and punish Iranian and foreign providers of
material support to Syria's airlift and its participants--first
and foremost, Mahan Air.
FDD research has identified Abadan as the main IRGC
logistical hub for the airlifts to Syria. Abadan and other
airports where flights originate should also be designated.
And, finally, to conclude, the U.S. also should consider:
designating the Abadan Refining Company for selling jet fuel to
the aircraft involved in the airlifts; sanctioning the insurers
of the aircraft; and targeting the financial institutions
involved.
Thank you so much for your time, and I look forward to
questions.
[The prepared statement of Dr. Ottolenghi can be found on
page 52 of the appendix.]
Chairman Barr. Thank you.
The gentleman's time has expired.
And the Chair will now recognize himself for 5 minutes for
questions.
Mr. Taleblu, what specific non-nuclear sanctions and
additional designations do you believe would be most effective
in combating Iranian sponsorship of terrorism?
Mr. Taleblu. Thank you very much for your question,
Congressman.
The immediate one that comes to mind is to pursue sanctions
on Iran's Islamic Revolutionary Guard Corps pursuant to
Executive Order 13224. Getting that listed, I think, is key
because that is one of the major drivers of Iran's non-nuclear
threats. Iran's Islamic Revolutionary Guard Corps Aerospace
Force, for instance, is the force that oversees Iran's
ballistic missile program.
Going after the IRGC pursuant to that executive order and
then asking the intelligence community and the Administration
for additional targets that liaise with the IRGC and can be
targeted for being shells for this entity should be gone after,
both at the statutory level and at the Administration.
Chairman Barr. Mr. McInnis, on a related note, as you may
know, Senator Ted Cruz in January introduced legislation
calling on the State Department to assess IRGC's suitability
for designation as a foreign terrorist organization.
What are your thoughts about that? And do you agree with
your colleague that designation of IRGC under 13224 would be
prudent?
Mr. McInnis. Yes. I think for designation as a foreign
terrorist organization, as an FTO, there is certainly a moral
argument to make for that. I think from a practical standpoint,
designation under Executive Order 13224 is most likely
sufficient to achieve your objectives.
I think that there is a great consideration, as Dr. Maloney
pointed out, that as we look at potential retaliation from the
Iranians, not to say that should stop us from taking any of
these measures, but we need to be very much prepared for
potential repercussions insofar as how that may change rules of
engagement with the IRGC, both at sea and with our forces there
in places like Iraq and elsewhere.
I think these are things that we need to be thinking
through. And so these are areas that I think designation under
EO 13224 probably gives us what we want, but I am certainly
very much drawn to the moral argument of designating under FTO.
And I also agree that that is the pathway that will give us the
most effect for pulling back on support for terrorism.
Chairman Barr. Thank you.
And, Dr. Ottolenghi, Dr. Maloney warned against downplaying
the dividends of the nuclear deal and alleviating the urgency
of Iran's nuclear ambitions. But given the forward movement of
Iran's ballistic missile program, given the tests using
missiles that are capable of carrying nuclear payloads, do you
disagree with that analysis or do you agree with that analysis?
And can you speak to whether or not these non-nuclear
activities have been emboldened as a result of lingering
questions about the reliability of the inspections regime?
Mr. Ottolenghi. Thank you for your question. Two points.
First of all, I think that when one looks at a nuclear
program, of course the question of delivery systems is
essential and a part of a nuclear program. The omission of the
ballistic missile program from the JCPOA of course indicates
that this is by no means a comprehensive arrangement, as my
colleague pointed out in his statement, but it also creates an
opportunity for the United States to target sectors of the
Iranian economy that are complicit in the Iran ballistic
missile program.
Whether it is the financial institutions that facilitate
the transactions for procurement, the companies that procure,
the extracting activities for the raw materials, or the
transport or the insurance of the vectors that carried the
technology and the procurement for the missile program, all
these are areas and opportunities for targeting.
As for whether the regime has been emboldened, I think that
that is very clear--not just emboldened but also provided
additional resources to pursue its most nefarious activity more
actively and assiduously.
Chairman Barr. Thank you.
My time has expired, so the Chair will yield back and now
recognize the gentlelady from Wisconsin for 5 minutes.
Ms. Moore. Thank you so much.
And I thank the panel again. As I expected, we have some
excellent testimony here. So much information, so little time.
Let me just start with Mr. McInnis.
You had a very well-prepared presentation. I was looking at
your recommendations for the five things we need to do, and I
was focusing in particular on starving the IRGC's financial
fuel.
And so, in that context, would you agree that there might
be some threat or some problem with the article that I believe
Mr. Perlmutter entered into the record, where it demonstrates
that there was a lot of contact between Donald Trump, in trying
to establish the Baku tower, and not only this Mammadov
family--would you see that as problematic?
Mr. McInnis. In that particular incident, even though I was
asked to comment on that particular situation earlier, I don't
know the full details of that situation--
Ms. Moore. Okay. Thank you, then.
Mr. McInnis. Yes.
Ms. Moore. Thank you.
Let me ask you about your ``disrupt and deter Iran's
ballistic missile program.'' You say that they are not going to
even give up or meaningfully limit its ballistic missiles. And
as I look through, just briefly peruse the Iran sanctions, even
though I think Mr. Taleblu mentioned some things they are
doing, they are still substantially in compliance. Is that your
understanding, as well? Even though they are kind of showing
off, because they have to show their people that they are not
caving--but they are in compliance. Would you agree?
Mr. McInnis. This has been the main point of contention.
Certainly, the issue is with the new language under U.N.
Security Council Resolution 2231 that implemented the JCPOA,
the language there insofar as what they are doing with their
ballistic missile program. That is, they are using their
ballistic missiles--from their perspective, they are not
nuclear-capable weapons. And, from their perspective, the new
language that was used to implement the deal, from their
perspective, allows them to do what they are doing.
Ms. Moore. Okay.
Mr. McInnis. And, unfortunately, not all members of the
U.N. Security Council interpret that the way we do.
Ms. Moore. Okay. Thank you for that.
Dr. Maloney, we have talked a lot about Iran's influence in
Syria, but would you say that Putin also has a stake in keeping
Assad in power? And do you think that the Russian banks can
help facilitate financial transactions to Assad in Syria?
Ms. Maloney. The Russians are clearly a major player in
Syria and in preserving and stabilizing the Assad regime. They
do have distinct interests from those of the Iranians, and,
clearly, that is an area where both Congress and the
Administration might usefully try to separate those two
parties.
Ms. Moore. Right. And so we need to continue to be vigilant
and cautious about relationships with the Russians. We are
focusing on the Iran sanctions, but a workaround could be
Russia. Would that be correct?
Ms. Maloney. Russia would be key to any solution in the
Syrian conflict, and we should be using all of the resources at
our disposal to try to force the Russians to find a political
solution rather than participating in what is effectively a war
crime.
Ms. Moore. Exactly.
Okay. I think I have one more question. I think it is for
Mr. Taleblu.
Are you concerned that Iran is on the verge of being
actively weaponizing their missile systems in the near future?
Mr. Taleblu. Thank you very much for your question.
I am actually worried about the conventional and asymmetric
threats that Iran's ballistic missiles pose. This is because I,
like most Members of Congress, read the yearly DNI statements
before the body, and I worry that they are continuously
assessed to be the largest force in the Middle East.
So, regardless of weaponization, which we should have
better access to but the Supreme Leader has not allowed
inspections of military facilities, regardless of that caveat,
which is a big one, I am concerned about the conventional and
asymmetric capabilities of this force.
Ms. Moore. Thank you.
And thank you, Mr. Chairman, for your indulgence.
Chairman Barr. The gentlelady's time has expired.
And the Chair now recognizes the chairman of the Terrorism
and Illicit Finance Subcommittee, Congressman Pearce of New
Mexico, for 5 minutes.
Chairman Pearce. Thank you, Mr. Chairman.
Mr. McInnis, your report deals more with the economic
impacts of having, I guess, the IRGC involved in economic
activities. What is the scope of that? In other words, you say
about 20 percent of the economy, but is it import/export or
domestic economy? Tell me a little bit about that. And I have
several questions, so the brief version would be better.
Mr. McInnis. Yes, I think that the IRGC--certainly their
domestic economy, it could be a minimum 20 percent from their
construction sectors, telecommunications, mining,
manufacturing. But there is certainly plenty involved in the
export/import as well, so, you have a full spectrum there.
Chairman Pearce. Who are their primary trading partners
from outside the country? And when you study it, do you see any
difficulties with that part of the economy being diverted?
Mr. McInnis. Certainly, Iran's major trading partners tend
to be India or China. On arms sales, it is obviously Russia.
And, of course, now that the sanctions are down, they are
trying to grow significantly with the Europeans.
Chairman Pearce. How about oil sales? What are they doing
in oil sales since the lifting of the embargo and the sanctions
on that?
Mr. McInnis. Oil sales are recovering up to almost pre-
sanctions level, mostly to Asia and South Asia but also
recovering with Europe quite nicely.
Chairman Pearce. About how many barrels a day?
Mr. McInnis. I don't have those right at--
Chairman Pearce. Do any of you have that information?
Ms. Maloney. They have hit 3 million barrels a day in
exports.
Chairman Pearce. Okay.
So, on page 4, Mr. McInnis, you talk about reinvigorated
economic warfare campaign against the IRGC. And what would that
look like, this reinvigorated economic warfare campaign? What
would that look like to us nonparticipants, the people who
don't study this every day? You all would see very minor
changes; we wouldn't, necessarily.
Mr. McInnis. I think that we had during the sanctions
period a fairly aggressive effort, especially prior to the
negotiations beginning in 2013, we had a fairly aggressive
effort against the IRGC on a variety of fronts, of which one
was economics. And I think that there was certainly a decision
to hold back on--partly tied to fears that provoking IRGC
reaction would potentially disrupt the diplomatic efforts tied
to the JCPOA. And I think there is still a degree of that.
There was, up until the end of the Obama Administration, a
certain fear of that continuing.
I think the current Administration is weighing those types
of policy options of how much pressure can be put against the
IRGC and weighing potential reactions and being able to
maintain the deal and what they want to do with the deal. I am
not sure where those policy debates are right now.
But I think those are all things that--what we were trying
to do prior to the negotiations beginning in 2013, I think that
can be reinvigorated and can be, frankly, made stronger. And
that can be done against Hezbollah, against the Iraqi Shia
militia groups.
Chairman Pearce. Yes, I--
Mr. McInnis. It can be quite aggressive.
Chairman Pearce. I get the idea.
Mr. Taleblu, in 2010 and 2011, Iran was financing Hezbollah
at about $100 million to $200 million. Where was that money
coming from? And has that flow increased now after the
agreement?
Mr. Taleblu. Thank you very much for your question.
The most popularly cited figure is $100 million to $200
million, as you mentioned, and that is pursuant to a 2010
military power of Iran report produced by the Department of
Defense. It is the most popularly cited because most of Iran's
Hezbollah funding, like its illicit funding of other terrorist
groups, is off the books. You can't necessarily find it as an
IRGC line item, even though a colleague of mine who did do an
assessment of ``the IRGC budget'' noted that they are receiving
a 24-percent windfall in their budget allocation this year. I
would note, however, that it would be hard to find on Iran's
official reporting.
Chairman Pearce. Okay.
Let me squeeze one more question in. Is it possible to
know, kind of, where all the streams of funding are coming
from, or is that a subject that is not easy to penetrate? I
think you just alluded to that, but go ahead and touch on that,
if you can.
Mr. Taleblu. It is challenging but not impossible. I think
we should definitely task the intelligence community with
finding these streams.
You mentioned the funding in Syria, for instance. Hezbollah
has been marshaled by Iran in Syria. Hezbollah was essential to
helping bail out the city of Qusayr in 2013 and the siege of
Aleppo in 2016. So I would assume you would get significant
funding spikes in those years.
Chairman Pearce. All right.
Thanks, Mr. Chairman. I yield back.
Chairman Barr. The Chair now recognizes the ranking member
of the Terrorism and Illicit Finance Subcommittee, Mr.
Perlmutter from Colorado.
Mr. Perlmutter. Thanks, Mr. Chairman.
Dr. Ottolenghi, you said that there were coordinated
efforts, I think were your words, to save the Assad regime
between Iran and Russia. What did you mean by that?
Mr. Ottolenghi. I mean that both governments, both regimes
in Russia and in Iran, are invested in the survival of the
Assad regime and its continuing control, if not of the whole
country, at least of part of it.
Mr. Perlmutter. So I guess one of the things that the
Terrorism and Illicit Finance Subcommittee deals with are
sanctions, whether it is North Korea, Russia, Iran, or a number
of other players.
In the coordination effort, do you see any assistance by
Russia of Iran or the IRGC financially as they participate
either with Hezbollah or Assad?
Mr. Ottolenghi. Thank you.
I have seen reports in the media, which I cannot personally
confirm, of a variety of coordinated activities of this kind,
particularly transfers of weapons from Russia.
I also, when I monitor the airlifts from Iran to Syria, I
do see frequently Russian planes crisscrossing the same air
corridors. They follow the same routes. I am not in a position
to tell you whether those planes are just supplying the Russian
forces on the ground or supporting the Russian aviation
operations inside Syria.
We do know from open sources, public reports, that the
Russians have used one airbase in Iran, so there obviously has
been some type of transaction there. And I would highly
recommend that in an intelligence review of the airlifts some
attention is paid to what Russian Air Force planes are carrying
to Syria as well.
Mr. Perlmutter. Thank you.
And I would turn to the other panelists. Coordination
between Russia and Iran, particularly with respect to Hezbollah
and Assad, are you aware of any funding streams from Russia to
the IRGC or Iran generally?
Dr. Maloney?
Ms. Maloney. The Russians play a relatively small role in
the Iranian economy overall, but they have obviously been a
long-term important supplier of weaponry to Iran.
In terms of the management of Hezbollah and of the other
Shia militias that are fighting under Iranian operational
guidance in Syria, that is primarily Iranian-run, but clearly,
there is coordination between the Iranians and the Russians on
the overall state of the campaign--the Russians primarily from
the air, and the Iranians primarily on the ground. And that
coordination extends to Hezbollah and the other Shia groups.
Mr. Perlmutter. Thanks.
Would either of you two gentlemen like to comment?
Mr. McInnis. I would just confirm what Dr. Maloney said and
also add that what has been fascinating is watching how much
Iran has learned from Russia in how to conduct and develop new
forms of warfare as they have begun to do certain levels of
integration of their campaigns there in Syria and, frankly, the
fact that the Russians are using Iranian air bases at times to
launch their air strikes into Syria, which is from an Iranian
ideological standpoint unprecedented. And it goes to the degree
of how much the Iranians have had to shift their thinking and
how they look at Russia as a potential ally.
And, of course, their long term, as they look at post-
sanctions, conventional weapons sanctions, after the nuclear
deal, the big investments they want to make in transforming
their military, they are going to be very Russian-centric on
that. And that is what I particularly worry about, is that
could transform the region if they are allowed to do major
investments with Russia.
Mr. Perlmutter. Mr. Taleblu?
Mr. Taleblu. Thank you very much.
I want to echo most of the sentiments of the panel. High-
level coordination could be seen by the visits of IRGC QF
Commander Major General Qassem Soleimani's flights to Russia. I
assume that flight to Russia actually had more of an impact on
Iranian strategy in Syria than the more public one, where
President Rouhani recently went to Russia and met with
President Putin.
To Dr. Maloney's comment, I actually think Iran and Shia
militias in general in Syria have a perverse form of what
Stephen Biddle has called the modern military system. It is a
perverse form of combined arms, non-Arab Shia militias as
cannon fodder supplementing Russian airpower. So it is odd to
watch but horrifying.
Mr. Perlmutter. Thank you.
Thanks, Mr. Chairman. I will yield back.
Chairman Barr. The gentleman yields back.
The Chair now recognizes the vice chairman of the Monetary
Policy and Trade Subcommittee, Mr. Williams from Texas.
Mr. Williams. Thank you, Chairman Barr, and thank you,
Chairman Pearce and all of our witnesses today.
Since 2011, Iran has been classified by the Treasury
Department as a jurisdiction of primary money-laundering
concern, a finding that is unaffected by the JCPOA. The
Treasury Department determined that Iran's financial system,
including the central bank, constitutes a threat to governments
or financial institutions that do business with these banks.
Iran is also labeled, alongside North Korea, as one of the
two high-risk and noncooperative jurisdictions by the Financial
Action Task Force.
Last year, in his testimony before our Monetary Policy and
Trade Subcommittee, Eric Lorber testified that, ``the nature of
the Iranian economy and the role of the government within the
economy presents serious risks related to bribery and
corruption, money laundering, and illicit financing.'' That is
a combination.
But despite these multiple financial actions by Treasury,
Hezbollah, which we know has sophisticated financial expertise,
continues to exploit the internal financial system. Their
ability to move and store illicit assets makes them dangerous
to penetrating U.S. markets.
Many of these finance schemes flow right through the United
States, and our ability to combat them remains challenging. So
some might say, despite these designations, Hezbollah's trade-
based money laundering schemes have continued to expand.
So my first question, to any of the witnesses today, is
this: The designation carried no immediate penalty, but it
imposed additional requirements on U.S. banks to ensure against
improper Iranian access to the U.S. financial system. So, in
one of your opinions, has this been an effective designation?
Any of you?
Mr. McInnis. I think the designation, especially when it
comes to--if I am understanding the question correctly--
Hezbollah, in particular, and Iran's deep, deep problems with
money laundering, this is something that, the more the U.S. can
do when it comes to exposing the problems of Iran's money
laundering and toxifying, from my perspective, from the
international community's perspective, toxifying these assets
or these financial institutions, so that they are avoided, that
does benefit long-term. Because, even as Iran finds ways around
it, it makes it harder for Iran to move money, even if Iran
still finds ways to get money and Hezbollah finds ways to get
money. But, again, I know it is extremely challenging to have
those types of effects that we want.
Mr. Williams. Okay. Thank you.
Dr. Ottolenghi?
Mr. Ottolenghi. Yes, thank you. If I may just add one
point, at least 20 percent of Hezbollah's annual budget
actually comes from trade-based money laundering outside the
region. It comes from Latin America, mainly from the tri-border
area of Argentina, Brazil, and Paraguay.
The U.S., through its Treasury designations, has targeted
entities and individuals associated with Hezbollah involved in
that type of trade-based money laundering, but those
designations are more than a decade old. And because of
collusion, complicity, or just plain negligence by local powers
in that area of the world, most of these entities and
individuals are still able to conduct business and remit
finances back to Hezbollah.
So I think that the broader point is, within the context of
the power of designations and sanctions, I think that what you
need to continue is to have monitoring, enforcement, and
updating of this information so that compliance can be updated
all the time and, as Hezbollah finds new ways to pursue its
illicit financial activities, these designations can catch up.
Thank you.
Mr. Williams. Okay.
Dr. Taleblu, should the new Administration consider any new
non-nuclear sanctions, money laundering sanctions, cyber export
controls?
Mr. Taleblu. Yes. And, unfortunately, I do not have a
Ph.D., despite my deepest academic desires for one, but thank
you.
I actually think that there are a whole host of tools--
military, economic, diplomatic, informational. But on the
economic side, statutory specifically, we can go after
ballistic missiles.
Dr. Ottolenghi mentioned that there is a whole-of-
government approach Iran is taking to develop this potent
ballistic missile threat. That means institutions that engage
in research, such as engineering and physics. That means the
companies that produce the transporter erector launchers (TELs)
that move Iran's missiles from silo to silo, from mobile
launchpad to mobile launchpad. That means also going after the
companies and entities that produce and procure solid and
liquid fuel--this is the propellant that powers Iran's
missiles--to go after the companies that produce and procure
the aluminum tubes and the carbon fiber that actually allow
Iran to develop these longer and wider-diameter and more high-
strength medium-range ballistic missiles.
So there is plenty of space. The one of choice, I think, to
deal with this threat--because Iran's 14 missile tests since
the deal I think is a blatant violation and something that
should be addressed more urgently than some of the other
threats you mentioned. This is one area I think we can do a lot
of damage.
Mr. Williams. Okay.
I yield back. Thank you.
Chairman Barr. The gentleman's time has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
Maloney.
Mrs. Maloney of New York. Thank you, so much, Mr. Chairmen
and Ranking Members, for calling this hearing, and I also thank
all of the panelists.
My first question is for Dr. Maloney. One of the key
Iranian entities targeted by U.S. sanctions is the Islamic
Revolutionary Guard. No sanctions have been lifted on the
Guard. So business with the Revolutionary Guard remains off
limits for U.S. companies. The CRS notes, however, that the
exact relationship between the Revolutionary Guard and Iranian
corporate or other entities is not always known precisely,
which means that U.S. or European companies may be
inadvertently doing business with Iranian companies that are
fronts for the Revolutionary Guard. That would obviously
undermine the effectiveness of U.S. sanctions against the
Revolutionary Guard. What can we do to improve this, and how do
we get better at identifying Iranian companies with ties to the
Revolutionary Guard?
Ms. Maloney. Thank you very much for your question,
Congresswoman Maloney. This is, I think, an inordinate
challenge for the U.S. intelligence community. What the Iranian
economy has done over the course of the past 38 years is
effectively privatized through crony capitalism. That is not
limited to the Revolutionary Guard, but the Revolutionary
Guard's expansion in the economy is very much emblematic of it.
What this means is that there are hundreds, possibly
thousands, of spinoff companies, companies that have evolved
from some part of the official government entity or parastatal
entities that are formally associated with the Revolutionary
Guard and moved into what is ostensibly the private sector of
the Iranian economy. This makes it very difficult to
distinguish between companies that are associated with the
Guard formally, companies that are run or managed or work to
the benefit of those who are former guardsmen who, in fact,
might cooperate and collude with the Guard.
We have done an enormous amount of work, and some of my
fellow panelists here work with organizations that can provide
names of dozens and possibly larger numbers of companies that
are associated with the Guard, but there is an almost infinite
capacity within the Iranian economy to proliferate economic
organizations that have some connection with the regime in
power.
Mrs. Maloney of New York. In America, law enforcement has
targeted and put a spotlight on beneficial ownership laws that
allow terrorists and others, gun runners and everyone else, to
hide their assets by buying assets, and under beneficial
ownership, they don't have to reveal who that person is.
I am wondering, is that a problem in the Middle East too
and in Iran? And is this another way that the Guard is hiding
money or able to easily access money by quickly selling real
estate for a million dollars or so and having money for
weapons? And I would ask you and any of the panelists to answer
if you would like.
Ms. Maloney. Let me just make a quick comment on that
point, which is that what we have seen during the course of the
year-plus of the implementation of the JCPOA is that the
elected government within Iran does have an interest in trying
to marginalize the role of the Revolutionary Guard and the
economy, and some of the penalties that we have imposed on the
Guard, including the FATF designation and the government's
desire to get a clean bill of health from FATF have, in fact,
assisted the government in trying to marginalize the role of
the Guard. There have been instances, in fact, with Iranian
banks reportedly refusing to lend to companies affiliated with
the Guard.
And so I think a smart strategy of trying to marginalize
the role of the Guard and particularly to penalize its economic
activities would play into what are clearly divisions within
the regime.
Mrs. Maloney of New York. Yes. And on the beneficial
ownership, sir.
Mr. Ottolenghi. If I may add a point to reinforce what my
esteemed colleague said and also provide an example which poses
a dilemma to actually a U.S. company, we at FDD have identified
an enormous number of IRGC-affiliated companies, but what we
have seen clearly is that, oftentimes, the companies manage to
keep well below the radar established by the criteria for
ownership by the IRGC created by U.S. law and by the standards
of the U.S. Treasury. In other words, oftentimes, although you
can't prove 50 percent ownership, you see that they control the
majority of the board and the chairmanship.
And here is the example that poses the great dilemma for a
great U.S. company, and that is namely Boeing. Today Boeing has
signed--or has announced a deal with Aseman Airlines to sell 30
737 MAX to the third national carrier of Iran. And here is the
problem that Boeing will face. The CEO of Aseman Airlines is
the former commander of the IRGC Navy. He was the commander of
the IRGC Navy during the Iran-Iraq war when the IRGC Navy was
trying to sink U.S. ships in the Gulf. He is the former deputy
minister of defense. He is the former CEO of the Iran Aviation
Industry Organization, a company, an entity under U.S.
sanctions still after the JCPOA. He is the former head of the
IRGC general staff. He is a professor of strategic studies at
Imam Hossein University, the university of the IRGC that is
still under U.S. sanctions. And he was Rouhani's first pick for
Ministry of Defense before Dehghan was appointed.
This obviously is a great problem. Companies will go into
the Iranian economy thinking that, because the ownership
principle is met, they can deal with them, but actually they
can't, because IRGC--
Chairman Barr. The gentlelady's time has expired.
Thank you.
Mrs. Maloney of New York. Thank you very much.
Chairman Barr. The Chair now recognizes the vice chairman
of the Terrorism and Illicit Finance Subcommittee, Mr.
Pittenger from North Carolina.
Mr. Pittenger. Thank you, Mr. Chairman, for your excellent
leadership in this important mission. And I thank each of you
for being with us today. We really appreciate your commitment
to this important work.
Addressing the issue of Section 311 and the JCPOA agreement
as well, are there any banks, recognizing that there are no
penalties involved for these--it is not very punitive of what
has occurred with 311--that are still operating under the SWIFT
authority to transfer money, that they are going about their
business as usual?
No response? Does that mean there aren't any, or we don't
know?
Mr. Ottolenghi?
Mr. Ottolenghi. I would make two points. One is we don't
know. Three points, actually. One is we don't know, at least I
don't.
Two, I would make the point that that is why it is so
important to ensure full transparency in all of the large
business deals that are being negotiated and concluded with
Iranian entities. This is a country that has been under
sanctions for a decade, has engaged in some of the worst and
most opaque illicit practices in the financial world. It is a
country that is still the world's foremost sponsor of
terrorism. We do deserve to have transparency in the types of
financial arrangements characterizing the deal. The Boeing and
Airbus deal are obviously an example.
And my third point, if you allow me, is not necessarily
directed to Iran, but Hezbollah. I mentioned that Hezbollah
finances a lot of its operations from trade-based money
laundering around the world. A lot of the areas where they draw
financing from are weak financial institutions. They are
jurisdictions rife with corruption and sometimes collusion. One
place that comes to mind, of course, is the Republic of
Paraguay. I think that the U.S. Government should look into
these jurisdictions as possible 311 designations precisely for
the reason that sufficient compliance controls are not in
place. Thank you.
Mr. Pittenger. This past year, FATF accepted an action plan
from Iran to address the deficiencies that were found in 311.
Do you think this was an advisable countermeasure? Was this an
appropriate response? And do we anticipate Iran doing anything
meaningful with their action plan? Yes, sir?
Mr. Taleblu. Thank you very much. Great question. The FATF
suspension of countermeasures for 1 year, a period of 1 year of
review, I think was more political than based on economic or
Iran's desires to produce more transparency in the companies
that it owns, be they government of Iran-linked entities or
private entities. I think the best argument for that would be
the people who marshal the entities that Dr. Maloney mentioned,
namely the banks that, in the fall of 2016, decided not to
lend.
But other than that, I believe it will be highly unlikely
that you will see Iran comply with those countermeasures, and
they might have to be put back on. And I think this is
something that we should guard against and something that my
colleagues have mentioned, which is don't suspend conduct-based
sanctions and conduct-based labels and restrictions purely for
political purposes.
Mr. Pittenger. Recently, a Chinese-owned company based in
the United States, ZTE, was fined a billion dollars for selling
technology to Iran. What other countries are complicit in a
like manner that we should be wary of? Yes, sir?
Mr. Ottolenghi. I don't want to name countries necessarily,
but I do want to point out that, in my written testimony, I
submitted what I think is a very comprehensive open-source-
based list of entities and companies that are providing
material support and services to Mahan Air. Many of these
companies are based in allied countries, friendly countries to
the United States. I think that is a perfect example of where
the United States can put companies and countries to a choice
not to help a designated entity under 13224.
Mr. Pittenger. Thank you.
We are tracking the mining of diamonds in Africa going to
Dubai and then back to India to be cut and through some measure
of trade-based money laundering. What awareness do you have of
this, and what countries would be complicit in this effort?
Mr. Ottolenghi. Are you asking me specifically or--
Mr. Pittenger. I am asking the four of you. If you want to
respond, you have 20 seconds, please.
Mr. Ottolenghi. I think that, once again, as you know,
these networks are global. There is an established connection
between West Africa and illicit trade-based money laundering
activities by Hezbollah and the tri-border area and, more
broadly speaking, Latin America. I think that that is where one
should look, especially at the transport, both by ship and air
connections, that move the merchandise from point A to point B.
Mr. Pittenger. Thank you. My time has expired.
Chairman Pearce. Thank you. The gentleman's time has
expired.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Lynch, for 5 minutes.
Mr. Lynch. Thank you very much, Mr. Chairman, all the
chairmen and all the ranking members. I think this is certainly
a very deserving topic for the hearing.
As part of the JCPOA, we agreed to lift sanctions on
aviation equipment and aircraft. Specifically, it commits the
U.S. to allow for the sale of commercial passenger aircraft and
related parts and services to Iran, provided that licensed
items and services are used exclusively for commercial
passenger aviation.
One of my contacts at the IAEA, Olli Heinonen, told me that
one of the most dangerous things he did as an inspector in Iran
was to fly internally in Iran. He said because of the
sanctions, the quality of the aircraft was very, very poor. And
the inspectors, to a person, thought they were putting their
lives at risk every time they flew internally. They are okay
flying from Frankfurt into Tehran, but if they had to fly
inside Iran, very big problems.
Now, as Dr. Ottolenghi has pointed out, today, at about
4:00, Boeing has announced a $3 billion deal with Iran to
provide, as you said, 30 737 MAX airplanes.
Dr. Maloney--and I have heard--we will go back to you in a
second. This is a big deal for Boeing in its commercial
aircraft. Do you see any problems in this? I look at the assets
that Iran has in terms of C-130s and other aircraft. They are
still flying some of our F-14s that they bought under the Shah.
If it is military aircraft we are worried about, they have
that, and they have the ability to buy Russian aircraft as
well. Is this a good thing for the U.S. or a bad thing?
Ms. Maloney. I think clearly it is both. I have flown on
Iranian aircraft inside Iran, and I can share the assessments
that you shared, that it is quite hair-raising. And the sale of
passenger aircraft and airline parts was something that the
Iranian people, that Iranian leaders have talked about and
attached great importance to. I have never quite understood,
since it doesn't necessarily help their economy significantly,
but certainly for ordinary Iranians, it was quite meaningful,
given the history of commercial air disasters within Iran, but
as Dr. Ottolenghi has cited, there is clearly some diversion of
passenger aircraft for non-civilian purposes. The deal does not
provide an adequate remedy for that. I think we need to
continue to adhere to our obligations under the nuclear deal.
Violating the deal would only leave us isolated from our
diplomatic partners and make us less effective in trying to
curtail Iran's worst behavior.
The most effective way that we can respond to the sorts of
nefarious activities that Iran is undertaking and using its
commercial aircraft would be to work with our P5+1 partners to
amend the deal to find specific provisions to add to the deal
that in fact prevent Iran from undertaking these actions or
enable us to curtail our sale of passenger aircraft in response
to the specific sorts of instances that Dr. Ottolenghi has
described.
Mr. Lynch. Okay. The other aspect of this is I have always
felt that having inspectors on the ground in Iran and having a
tighter assessment of what their capacity is at a given moment
was much better than what we were doing before, which was sort
of trying to come up with a timeline, and several of those
turned out to be completely false and inaccurate. Even our
Israeli friends, the timelines they gave us turned out to be
faulty, which is unusual. They usually have excellent
intelligence. But I can't see how we are worse off by having
inspectors on the ground there and being able to make that
determination in a more precise manner. Do you agree, Dr.
Maloney?
Ms. Maloney. I do agree. At the end of the expiration of
the provisions of the nuclear deal, we will have vastly greater
information about Iran's capabilities and intentions than we
would have had without it. We are significantly advantaged by
the continuous presence of intrusive verification and
monitoring.
Mr. Lynch. Okay. Thank you. I see my time has expired. I
yield back.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentleman from Pennsylvania,
Mr. Rothfus, for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
Dr. Ottolenghi, on page 9 of your testimony, you cited a
story from The Jerusalem Post about Iran smuggling weapons to
Hezbollah on commercial flights. You also listed 67 service
providers to Mahan Air in Europe, East Asia, Central Asia, and
the Middle East. Do you have any concern about the opportunity
for Iran to smuggle weapons and technology beyond the Middle
East?
Mr. Ottolenghi. I do not have any evidence that they would
be using Mahan Air for smuggling weapons, say, to Europe or to
Asia, but certainly they have a history of suborning their
civil aviation sector to nefarious activities, wherever those
activities might be. Actually, we know it for a fact, because
that was part of the reason why so many of their airlines were
designated before the JCPOA, that Iran Air Cargo and other
operators were being used to ship illicitly procured technology
from Western destinations back into Iran. So I wouldn't rule it
out, sir.
Mr. Rothfus. Again, I would be concerned, given Hezbollah's
international presence, including Latin America. Would that be
of any concern for you?
Mr. Ottolenghi. My main concern when it comes to
Hezbollah's overseas activities is their deep, enduring
involvement in all sorts of illicit criminal activities, first
and foremost drug trafficking. There is an enormous amount of
open-source evidence, including recent arrests in the tri-
border region involving Hezbollah operatives trying to disguise
drugs before shipping them overseas to Europe--mainly European
and Middle Eastern markets. That is certainly the most pressing
concern, but where you have mechanisms to disguise the shipment
of drugs, you can also disguise weapons for sure.
Mr. Rothfus. I want to talk a little bit about the
announcement today with Boeing. Your testimony indicates that
Iran has been talking about just replacing its aging fleets,
and one might think they are arguing this is a way to increase
their commercial capacity. Do you expect Iran to expand the
number of nations it has service routes to through all these
purchases?
Mr. Ottolenghi. I do expect Iran to expand its commercial
routes.
Mr. Rothfus. Where would you expect them to be expanding
to?
Mr. Ottolenghi. Again, to go back to the point about Mahan
Air, Mahan Air has already expanded its routes into European
destinations, adding several destinations since the JCPOA was
reached, despite the fact that Mahan Air is under sanctions.
The problem I see is that a lot of these aircrafts that are
being used in innocent, benign commercial routes to ferry
civilian passengers are immediately repurposed once they come
back to Iran to carry fighters and weapons to Syria or to Yemen
or to potentially other destinations. They are used to carry
back the wounded and the fallen in combat, and then, within
hours, as the photographs showed, they are repurposed back for
civilian use. That is something that just shouldn't happen. The
Russians are conducting their own airlift into Syria. They are
strictly using military aircraft that belongs to the Russian
Air Force. They do not allow Aeroflot or other civilian
carriers to participate. That is the very least we should
expect.
Mr. Rothfus. Do we know how Iran is going to be financing
the purchases of these aircraft?
Mr. Ottolenghi. That is part of the problem. A lot of
these--by definition, the procurement by sanctioned entities
was always opaque and hard to detect, but also when it comes to
the deals that follow the JCPOA that have been based on
licensing and are seemingly in compliance with the JCPOA, there
is very limited public information available about the
structure of the financing, the financial institutions
involved, the leasing companies potentially involved, and I
think that it behooves both Boeing and Airbus and potentially
other aircraft manufacturers to actually come perhaps before
Congress and make this information public and available. Thank
you.
Mr. Rothfus. Mr. Taleblu, you mentioned Iran's
sophistication with money laundering through oil exports and
precious metals on page 9 of your testimony. Given the Islamic
Guard's past support for the Taliban in Afghanistan against the
United States, is there any evidence of Afghanistan being used
by Iran as a route for illicit trade and money laundering?
Mr. Taleblu. Thank you very much for your question. I
definitely assume so. And I definitely assume that there would
be, given the drawdown in U.S. forces. It is known that in
Afghanistan's westernmost city, Herat, where there is a
population that speaks Dari, that one of the preferred
currencies is the Iranian rial. I could totally see Iran
offloading rials into Afghanistan and Iran looking to tap into
those other networks, particularly precious metals in
Afghanistan, but it would likely come at a time when it feels
like it has the least to lose from an engagement with the U.S.
there.
Chairman Pearce. The gentleman's time has expired. The
Chair now recognizes the gentleman from California, Mr.
Sherman, for 5 minutes.
Mr. Sherman. Thank you. I would like to bring the
committee's attention to the No U.S. Financing for Iran Act. It
passed this committee overwhelmingly, and it passed the House
by a very significant margin, but it died in the Senate. It
would provide that we would not allow U.S. banks to finance
sales of airplanes to Iran. And I would ask the witnesses about
it, but I think we have even more expertise on this side of the
room in the sense of, do we really want Bank of America or
Wells Fargo or Goldman Sachs to be lobbying Congress in favor
of Iran, because otherwise, Iran may be unwilling or unable to
pay the $10 billion, the $20 billion that they owe to U.S.
banks.
There is a tendency for us to believe in our normal affairs
that if the lender has control over you--and I have had lenders
that have had control over me--but in international affairs, it
is almost the other way. The lender has to beg the borrower,
please pay. And I have enough lobbyists on the Iranian side.
I will ask each of our witnesses, is there any reason we
wouldn't designate the Iran Revolutionary Guard Corps as a
terrorist organization? And does it make sense to say the Quds
Force is a terrorist organization, but its parent company, the
Revolutionary Guard Corps, is not? Does that make any more
sense than saying Osama bin Laden's right hand is a terrorist
hand, but his left hand was not? Should we designate? Does it
make any sense to designate one without the other? We will go
to the first witness.
Mr. Taleblu. Thank you very much for your excellent
question. The United States Government actually had a similar
debate in 2007, and they were worried about designating the
IRGC versus the Quds Force, so they took a risk-averse approach
and only designated the Quds Force. I think that was a mistake
then, given the role of the IRGC, and I think it remains a
mistake now. IRGC non-Quds Force assets, such as its ground
forces, are active in Syria. I think Executive Order 13224
designation for the IRGC is crucial more now than ever before.
Mr. Sherman. Thank you for mentioning Syria because the
face of this regime--or the face it would like the world to see
is that of smiling, debonair Foreign Minister Zarif. The real
face of this regime is Aylan Kurdi, that 3-year-old boy on the
beach of the Mediterranean, who died along with nearly 500,000
other people as a result of Assad, but Assad would not be there
today if it was not for Iran.
Let's go on to Mr. McInnis.
Mr. McInnis. Yes. As I had stated previously, for moral
reasons, I support a Foreign Terrorist Organization designation
for the IRGC, but I recognize, given some of the potential
repercussions of that at this point in time, an Executive Order
13224 designation for the IRGC is probably the most appropriate
route as we assess potential repercussions.
Mr. Sherman. Dr. Maloney?
Ms. Maloney. Iran is the leading state sponsor of
terrorism. It is clear that its military is directly involved
and complicit in those actions. It doesn't seem obvious to me
what the designation of the Revolutionary Guard does in terms
of deterring Iran's involvement in terrorism or deterring the
IRGC from continuing the actions that it takes. I think that
the Pentagon has greater influence over Iran's regional
activities than a designation would have.
Mr. Sherman. I am a bit confused by the answer, but I will
go on to the last witness.
Mr. Ottolenghi. If I may address the question, and thank
you for your point. I completely agree with the notion that
sanctioning the Quds Force without sanctioning the IRGC is
basically making a distinction without a difference. They are
one and the same. They are part of the same structure. And I
would make the further argument that sanctioning the IRGC under
Executive Order 13224, which goes after the terror finance and
providers of material support to terrorism, would enable and
open up the possibility of sanctioning hundreds of IRGC
companies inside Iran. This would be beneficial to the business
community as it looks into trying to identify legitimate
interlocutors inside the Iranian economy while staying away
from illegitimate interlocutors, the ability to designate--
Mr. Sherman. Let me try to sneak in one more question.
Dr. Ottolenghi, your testimony includes an annex supplying
names of service providers that do business with Mahan Air. The
U.S. has urged countries in Europe and Asia to disallow the
airline to serve their airports and has applied some secondary
sanctions to firms involved in aircraft transactions. Yet the
airlines still operate in countries that are friendly to the
United States, including Germany, France, and Japan. Is the
Treasury doing enough, and should we be sanctioning those
companies that service Air Mahan planes when they do land in
Germany, France, or Japan?
Mr. Ottolenghi. With your permission, very briefly, first
of all, I think it is a very important question to ask Treasury
what they have done so far to persuade these companies from
stopping this type of service.
Second of all, I think that the answer as to the
effectiveness of these sanctions is very clear. When the United
States imposed heavy fines on financial institutions that were
allowing illicit transactions, the financial world got the
message and stopped Iran from conducting illicit financing--or
at least introduced very strict compliance standards. I think
that a similar type of action with fines and penalties imposed
on some of these companies would send a message across-the-
board. Thank you.
Mr. Sherman. I yield back.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentlelady from Utah, Mrs.
Love.
Mrs. Love. Thank you, Mr. Chairman.
And thank you all for being here today. I am going to just
jump into these questions as quickly as I can.
Mr. McInnis, this is for you. Under the Obama
Administration's watch, Russia sold and transferred to Iran the
S-300 advanced anti-aircraft system. Why do you think that the
Obama Administration refused to sanction those Russian entities
under the U.S. law?
Mr. McInnis. The S-300, those particular entities, in
essence--and I am trying to remember the history here. I may
need some help with this, but--
Mrs. Love. One of the most advanced anti-aircraft systems
in the world.
Mr. McInnis. No, no. I am familiar with the S-300. I am
trying to remember the specific--the companies involved in this
from the Russian perspective, because this is part of where I
think our sanctions policies need to be going in the future, in
particular when it comes to the Russian companies as they look
toward potentially trying to work around the current existing
U.N. Convention on Weapons Sanctions, that I worry that we are
going to need to take very aggressive actions in the future to
prevent such major advanced technology transfers in the future.
But I do think that was a particular leverage that we were able
to use with the Russians during that timeframe to prevent the
transfer of something that was going to--
Mrs. Love. Did we miss the opportunity to use efforts to
actually sanction?
Mr. McInnis. The thing is that was something that the
Russians could do at that point in time, and we--
Mrs. Love. So they weren't--you don't believe that they
were in violation of the Iran Sanctions Act or the Iran-Iraq
Arms Nonproliferation Act?
Mr. McInnis. At that point in time, I think that they
were--their authority--and correct me if I am wrong here on the
panel--the Russians were allowed to sell those particular
conventional weapons at that point in time.
Mrs. Love. Did you have a--you nodded your head at one
point--
Mr. McInnis. I mean, am I off on that?
Mrs. Love. --Mr. Taleblu. Go ahead.
Mr. Taleblu. Yes. He is correct. Unfortunately, the Russian
counterargument to those proposals was they cited the U.N.
Conventional Registrar of Arms, which, in category 7 omits,
``ground-to-air missiles,'' of which the S-300 SAM is one.
Mrs. Love. Okay. And if we are going to--I just want to ask
one more question, Mr. McInnis. In your testimony, you said
that one way we can suppress the Iranian military modernization
and growth is by deterring Russian and Chinese equipment sales
to Iran. What would those sanctions or efforts look like, in
your opinion?
Mr. McInnis. And this is what I was referring to as we move
forward, is that I am worried that we are going to need, as the
JCPOA continue--under the implementation, that we are going to
need to look at sanctioning and targeted sanctions against
Rosneft and other subsidiaries that the IRGC--or that works
with the IRGC or firms connected to the IRGC and the Iranian
defense industry. That is where we need to focus and begin to
look at secondary sanctions that affect the Russian defense
industry to prevent Iran from gaining significant advanced
equipment like that. That is what I am particularly worried
about. And I think that those are things that we could
construct here in the U.S.
Mrs. Love. Mr. Taleblu, since the JCPOA was agreed to, how
have Iran's efforts to export terrorism changed, in your
opinion?
Mr. Taleblu. Thank you very much for the question. I think,
unfortunately, they have significantly been enhanced. The
Iranian role, at least in Iraq and Syria and its ``near
abroad'' has deepened. Iran now uses the argument in Iraq that,
``You need us more than you need the U.S.,'' which clearly
isn't true. The U.S. is the one leading most of the strikes
against ISIS. Shia militias often unfortunately engage in
sectarian slaughter on the back ends of the cities that U.S.
Forces combined with the Iraqi Army actually liberate. So there
actually needs to be a way to keep Iran out of this equation,
but Iran is able to marshal these arguments and say, ``No, you
need us; we are in the region longer,'' and they will cite--you
know, there is a quote from Qasem Soleimani that says, ``We are
not like the Americans; we don't abandon our friends.''
So I think now is the time to actually come to the aid of
states like Iraq, the provincial government of Iraq in
particular, to deny Iran this argument.
Mrs. Love. Do you believe that there is a difference
between conventional ballistic missiles and those which are
designed to be nuclear-capable, a phrase which exists in the
UNSCR?
Mr. Taleblu. Thank you for this question too. This is
unfortunately complex. The Iranians have used the word
``designed'' in the resolution to kind of pooh-pooh any
attempts by the U.S. and the international community to go
after its ballistic missile testing. I think when we look at
the word ``nuclear-capable,'' that is a word that comes from a
specific metric in this international regime--
Mrs. Love. Right.
Mr. Taleblu. --the MTCRs, 300 kilometers over 500
kilograms. So it is range over payload. Most of the missiles
that Iran has tested since the deal actually meet and far
exceed that, but I think it is kind of an artificial metric to
add, because there are many ballistic missiles that can carry a
nuclear weapon, such as the Lance, which the U.S. sold to
Israel; such as the Pakistani HATF IX; such as the French
Pluton, which was deployed during the Cold War. These are
important munitions that actually can carry a nuclear warhead
that fall short of that metric, and I think limiting ourselves
to that metric only concedes the argument to Iran.
Mrs. Love. Thank you.
Mr. Chairman, my time has expired. Thank you, Mr. Chairman.
Chairman Pearce. The gentlelady's time has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. Budd, for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman.
Mr. Taleblu, one of Iran's advantages, as you allude to in
your testimony, is to provide weapons that acquire costly
countermeasures from traditional forces in low-intensity
conflicts. The U.S., while its allies are often disadvantaged
by these tactics, has the ability to exert diplomatic leverage
through additional sanctions in a way that Iran, which is a
weak economy, does not. The question is, is it fair to think
about a strengthened, more effective sanctions regime that
includes additional measures to deny Iran access to the payment
network as utilizing a primary U.S. advantage? Is that a
primary U.S. advantage?
Mr. Taleblu. Thank you very much. That absolutely is a
primary U.S. advantage, and it is absolutely fair to seek those
measures, but it is also absolutely fair to seek diplomacy with
our partners' help to interdict the sales and transfers of
these weapons too.
Mr. Budd. So that is a soft power way that we could
leverage Iran--I guess you could elaborate on that a little
more how we could go about that?
Mr. Taleblu. Sure. That it is soft power, I think, hits the
nail on the head. We could target the entities that actually
engage in the production or transfer of these weapons. There is
another Executive Order we have been talking about, Executive
Order 13224, all of today. There is another one, 13611, I
believe, which came into force May 2012, and that blocks the
property and assets of those threatening the peace and
stability of Yemen. Iranian arms transfers to Yemen have been
intercepted at least 4 times. There are Iranian antitank
missiles, copies of Iranian antitank missiles being used in
Yemen. So we could investigate, does the IRGC or any Iranian
private entity which facilitates the transfer of weapons to the
Yemeni theater deserve to be targeted pursuant to sanctions as
defined in this new executive order?
Mr. Budd. Sure. So are the benefits the Iranians get as a
result of this Iran deal strong enough to keep them in the
agreement if the U.S. dials up pressure in other areas?
Mr. Taleblu. While it is important to look at both the
costs and the incentives of Iran for it to keep the nuclear
deal, I think it is also important to be aware of the domestic
debates in Iran. Here I have an article from March 10, 2017, in
a major Iranian newspaper, Kayhan, and the headline is a quote
from Iran's Deputy Foreign Minister. And I am just translating
it as I am reading it now, and it says, ``The JCPOA wasn't
supposed to make Iran's economy blossom.'' So he is basically
taking the exact opposite of the argument that he is going to
international banks and to the Western world. Basically, he
is--the argument he is making to the West is, no, you have an
investment in the Iranian economy, but as Adam Szubin said,
``The JCPOA is an agreement, not a cashier's check.'' Just
because we have agreed to waive sanctions doesn't mean we need
to go actively advocate on behalf of the Iranian economy. That
is something that they need to do by fixing their AML laws, by
making their companies more transparent, and by getting the
IRGC out of the legitimate private sector.
Mr. Budd. So if they still have maneuvering room, bottom
line, because the Iran agreement is so good for the Iranians,
we could get tough on them and they would still--they wouldn't
leave?
Mr. Taleblu. To the best of my assessment, I believe that
Iran has constantly cited in their domestic press that they
feel that we need the deal, the United States needed the deal
more than they do. I believe Mohammad-Javad Larijani, who is
the brother of Iran's Parliamentary Speaker, made this point in
the fall of 2016.
Mr. Budd. The Iran deal hasn't worked. Iran remains the
world's foremost state sponsorship of terrorism. And they
capture and humiliate our soldiers. They are first-rate money
launderers, as we have heard. They test ballistic missiles
regularly. The IRG is now solidifying its place as one of the
largest quasi-criminal syndicates, and the list just keeps
going on. But the theory that Iran was a geopolitical
equivalent of a lost sheep waiting for the international
community to stop being mean to it, the theory that the Iran
deal is based on, has been proven totally false. So are the
options for additional sanctions you have laid out in your
testimony, is that an option for the United States to recover
some ground in light of the total failure of the Iran deal?
Mr. Taleblu. It is definitely one of the many ways that the
U.S. should deal with this. In fact, what is required is really
a whole-of-government approach. I think there has been a
significant informational leg in the campaign against Iran that
has been missing, such as we have all been looking at Iran for
decades now with this combined experience of this distinguished
panel, but one thing that hasn't been said today is that one of
the saddest things to see about Iran is the constant
prioritization of the regime's interest over their national
interest, over their own narrow ideological interest over the
interests of their own people. You see it with the Boeing deal.
You see it with military use of civilian airliners. This is
something that should be highlighted in that informational
campaign to supplement U.S. economic sanctions.
Mr. Budd. Thank you, Mr. Taleblu.
Mr. McInnis, in the remaining time we have, how would you--
or how do we deter Russian and Chinese arms sales to Iran
through a sanctions regime?
Mr. McInnis. Yes. As I had alluded to before, I think,
targeting increased designations of the IRGC, lowering the
thresholds, as we discussed before, perhaps down to 25 percent
and increasingly detoxify IRGC-related defense industries so
that we have an increased secondary sanctions regime so that
defense companies that want to work with the IRGC or sell to
the IRGC particular types of weapons that we designate, we can
continue to make it--financing and make those types of sales
more and more difficult for the Russians, Chinese, and others
to do.
Mr. Budd. Thank you very much.
I yield back.
Chairman Barr. The gentleman's time has expired. And the
gentleman from North Carolina will be advised that the shot
clock on the floor was almost exactly in line with his, and so
the time on the floor has run out like it ran out against
Gonzaga last night.
The Chair now recognizes the gentleman from Tennessee, Mr.
Kustoff, for 5 minutes. And be advised we are expecting votes
at any moment on the Floor. We will try to get in the
questions, but if not, we will adjourn the hearing. So, the
gentleman from Tennessee.
Mr. Kustoff. Thank you, Mr. Chairman.
Mr. McInnis, we know that last year, there was a payment
from the Obama Administration of around $400 million on the
same day or about the same time that Iran released five
American prisoners. We also know that the Obama Administration
stated a number of times that it would neither negotiate nor
pay a ransom. This payment appears to be a contradiction of the
remarks made by the Obama Administration, and people can judge
that as they like.
Specifically, though, is there any evidence that you see
that Iran used this and any other cash payments following
implementation of the JCPOA to further or worsen the conflicts
in the region, such as the civil war in Syria or the conflicts
in Yemen?
Mr. McInnis. I believe that the moneys--especially in
2016--that Iran accrued from the JCPOA, insofar as following
their budget in particular, you saw a number of these types of
allocations that particular--what ended up being $1.7 billion
in total from that settlement. Many of those moneys were
directed to be used by the IRGC for its overall military
activities.
How to discern exactly if that money went to specific
activities in Syria or Iraq or to support terrorism elsewhere
is hard to discern, but I think that it is pretty clear from
analysis of their budget that the moneys that that came out of
the JCPOA, a good portion of them was very clearly sent to the
military and to the IRGC for their activities around the
region.
Mr. Kustoff. Thank you, Mr. McInnis.
Mr. Taleblu, yesterday, there was a story that posted on
The Wall Street Journal website, and it is entitled, ``Syria's
Civil War Produces a Clear Winner: Hezbollah.'' And I don't
want to read from the entire article, but if I could:
``Hezbollah today is stronger, more independent, and in command
of a new Syrian militia that its officials say is ready to be
deployed to other conflicts in the region. Hezbollah now fights
alongside Russian troops, its first alliance with a global
power. It was Hezbollah that devised the battle plan for Aleppo
used by Syrian and Russian forces last year, according to Arab
and U.S. officials who monitor the group.''
One line that struck me: ``Thanks to money and arms from
Tehran, Hezbollah now stands almost on a par with Iran as a
protector of President Bashar al-Assad's government and as a
sponsor of Shiite forces in Syria.''
So, if we could, how specifically does Iran sponsor
terrorism and other illicit activity with groups such as Hamas
and Hezbollah, and is there any additional evidence that
suggests Iran has taken additional steps to further destabilize
the region?
Mr. Taleblu. Thank you very much for that excellent
question. I think that observation is key, because having been
tracking the issue in Iran's war in Syria for a couple of years
now, I have seen many testimonies where analysts have alleged
that actually having Hezbollah fight deeper in the Syrian civil
war could have a long-term positive effect because it would
discredit them as a Lebanese political institution or a
Lebanese political force.
Unfortunately, the exact opposite thing has happened, as
you had mentioned. In 2007, for instance, there were reports
that Hezbollah was helping Iran train Shia militias on Iranian
territory and then deploying them to Iraq. In 2013 through
2016, as you mentioned, Hezbollah was active helping Assad take
back territory. In 2015 through 2017, they were reporting that
Hezbollah allegedly is helping Iran in Yemen. So, in fact, this
force is growing its strength. It is not weak--it is not being
diminished at all.
And while the issue of exact number of payments to
Hezbollah remains to be seen, Iran has furnished that group
with everything from C-802 anti-ship missiles to a whole
variety of different rockets, 107-millimeter rockets, 106-
millimeter anti-tank shells. There is a whole slew of such
munitions that continue to be sent to groups like Hezbollah.
Mr. Kustoff. In this Wall Street Journal article from
yesterday entitled, ``Syria's Civil War Produces a Clear
Winner: Hezbollah,'' the statement that I just read to you,
``Thanks to money and arms from Tehran, Hezbollah now stands
almost on a par with Iran as a protector of President Bashar
al-Assad's government and as a sponsor of Shiite fighting
forces in Syria,'' would you agree with that statement? Are
they equal or almost equal?
Mr. Taleblu. I continue to see Hezbollah as more of an
Iranian proxy than anything else. While Hezbollah may have--
Chairman Pearce. If the Chair could interrupt, we will ask
for that in writing. Votes have been called. We are down to 10
minutes. We are going to try to squeeze at least one more
questioner in.
Mr. Davidson is recognized for 3 minutes.
Mr. Davidson. Thank you, Mr. Chairman.
And thank you all for being here. I appreciate your
testimony.
I had a question about Hezbollah's activities, and
Hezbollah's activities with the drug trade in particular. There
has been a fair bit of their involvement, and so far that ties
to Lebanon, but not directly to Iran. And, of course, there is
correlation. Has there been any successful effort to tie the
cash flows from the drug trade, particularly with the U.S. drug
trade, not just in Central and Latin America more broadly, but
at U.S. border trade? Dr. Ottolenghi?
Mr. Ottolenghi. Yes. Thank you. It is a very important
question, and I am very grateful you brought it up. The network
that deals with drugs is truly global. The cocaine, of course,
comes entirely from Latin America. It travels to its multiple
designations, Western markets mainly, but also increasingly to
the Middle East. And while I can't go into too much detail,
there is plenty of open-source evidence indicating multiple
connections between the Hezbollah people in Latin America
involved in the drug trade on the one hand, operatives and
cartels trading in criminal organizations in Europe and other
places in Latin America and potentially all the way to the
United States moving the drugs, connections with the Iranian
network in Latin America. And most troubling, the financial
links lead all the way to the United States. In other words,
while the drugs may not be moved directly by Hezbollah into the
United States, into the U.S. market, Hezbollah is using U.S.
jurisdictions in order to launder the revenues from its illicit
trade. So there is a threat to the financial integrity of the
U.S. financial system from Hezbollah's illicit activities in
Latin America that are linked to the drug trade.
Mr. Davidson. Thank you.
And, briefly, could you mention any tools that would be
helpful that aren't already in place?
Mr. Ottolenghi. Thank you. I think that one important tool
is to empower the law enforcement agencies that are chasing
these cases, especially down in Latin America, where the
willingness by local government to cooperate is somewhat
diminished by the level of collusion and complicity that some
officials in these governments have with illicit activities to
which Hezbollah is accessory.
Of course, once again, I bring to your attention the
ongoing activities of Hezbollah in the tri-border area. In the
tri-border area, there is an enormous degree of complicity,
collusion, or just benign neglect from local officials, from
law enforcement authorities that overlook these activities.
Chairman Pearce. The gentleman's time has expired.
Mr. Ottolenghi. Pressure from the United States and its
Government would be extremely helpful.
Mr. Davidson. Thank you. My time has expired.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentleman from Indiana, Mr.
Hollingsworth, for 3 minutes.
Mr. Hollingsworth. Thank you, Mr. Chairman. And thanks to
all of the witnesses for being here today. We have heard a lot
of testimony and certainly a lot of great information about
what may need to be done next, but could you walk a step
further and tell me what success looks like? If you had all the
tools at your disposal, you were able to put these sanctions
on, you were able to do these things, what would success look
like, and how would we measure whether we have been successful?
And then I will go one step further. And that really goes to
everybody if each of you wants to answer.
Mr. Taleblu. I think that is an absolutely important
question. One measure of success is no Iranian ballistic
missile testing for the duration of the deal should the deal
decide to hold. Another measure of success should be marshaling
sufficient economic pressure to erode the ability for Iran to
domestically produce some of these systems. Another measure
could be forcing Iran or coercing Iran to stop sending men,
money, and munitions to Syria. So while coercion is the primary
goal, deterrence and punishment could be secondary and tertiary
goals.
Mr. McInnis. Yes. I would add to that that certainly you
can measure that by a shrinking ability for groups like
Hezbollah and others to be able to project any type of
terrorist activity worldwide, but also I think that Iran's
ability to be able to build and increase the reach of its
proxies and their ability to project any type of weapons
against us, I think, the increasing arming and ability to move
their proxies around the region. For me, I want to be able to
shrink that capacity to move this new integrated militia army
that Iran has. If it can be broken and shrunk and slowly over
time be able to be rolled back, that, for me, is what I am
looking for most importantly.
Ms. Maloney. The definition of success would be a more
responsible government in Iran, one that is not interfering and
sowing violence throughout the region, but a broader definition
of success would include an end to the conflicts in Syria and
Yemen, and U.S. support for broader political, social, and
economic reform across the region.
Mr. Ottolenghi. I fully subscribe to what Dr. Maloney has
just said.
Mr. Hollingsworth. You have the problem I do. As a
freshman, I go last and so I get to say, ``I agree,''
frequently. But is it too much--are we asking too much of these
sanctions? Many of the answers that you put forth are very big,
very broad, admirable goals nonetheless, but maybe too far a
reach for sanctions or any political pressure that the United
States can provide? Any thoughts on that?
Mr. Taleblu. You know, I have the pleasure of working for
Mark Dubowitz at the Foundation for Defense of Democracies, and
he has coined this phrase, ``Sanctions aren't a silver bullet,
but they are silver shrapnel.'' And I definitely think there is
a lot of shrapnel that the Iranian body armor can afford to
take right now. Again, it should be coupled with a whole-of-
government approach.
Chairman Pearce. The gentleman's time has expired.
I would like to thank our witnesses for your testimony
today and for answering our questions.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is adjourned.
[Whereupon, at 4:32 p.m., the hearing was adjourned.]
A P P E N D I X
April 4, 2017
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