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Chairman Shelby, Ranking Member Sarbanes, thank you for the opportunity to address you today on a very important issue that presents us with a tremendous challenge.
Iranis a state sponsor of terrorism that has demonstrated a reckless intention to support, facilitate, and direct global terrorist activity. In addition to its blatant sponsorship of global terror,Iranintends to acquire weapons of mass destruction. Exacerbating an already worrisome pattern of dangerous behavior was the election of hardline Iranian President Ahmadinejad in June 2005. His provocative comments about wipingIsraeloff of the map andIran’s continued activities to destabilize the region and pursue a nuclear weapons capability have heightened the world’s concern.
We have been working very closely with our interagency counterparts to consider these threats and develop an appropriate strategy to confront them. Both terrorism and WMD proliferation require vast support networks through which money and material flow. The Treasury Department – working with its interagency partners – has unique tools to address this potent mix of money, terror and WMD, and has been devoting considerable time and attention to addressing this Iranian threat.
We are in now in a particularly crucial moment. TheUnited States, the United Kingdom,France,Germany,Russia, andChinahave presented a package of incentives and disincentives toIranto resolve the problem posed by the Iranian nuclear weapons program.As the President and Secretary of State have said, we are dedicated to resolving this issue diplomatically and will exhaust the diplomatic channel accordingly. But if the diplomatic path is not successful, the international community has a range of options to make clear thatIran’s pursuit of nuclear weapons will come at the cost of its own isolation.
I would like to provide an overview of the various threats posed byIranand the relevant authorities we have at Treasury, both with respect to proliferation and terrorism, and with respect toIranin general.
The Threat Posed by the Iranian Regime The scope ofIran’s perilous activity is enough to warrant significant concern.Iran’s sponsorship of these activities is even more troubling because of the vast resources it has to facilitate this threatening conduct. Be it the spread of WMD, the funding of terrorist and militant groups inLebanon, the Palestinian territories, andIraq,Iranhas the resources to invest substantially in violent projects. We are working steadily with the interagency community, to target the networks that move these funds and prevent them from abusing the integrity of the world’s financial system.** Nuclear Weapons Development and Missile Technology** There is now widespread understanding that the Iranian regime is dedicated to acquiring a nuclear weapons capability, in addition to other kinds of weapons of mass destruction capabilities and the means to deliver them.
As a complimentary measure to the international diplomatic process to pressIranto end its pursuit of nuclear weapons, the Administration will continue to protect ourselves and our financial system against companies engaged in WMD proliferation, including those facilitatingIran’s pursuit of WMD technologies. In June 2005, the President issued Executive Order 13382, aimed at undercutting firms involved in proliferation of WMD and their support networks. Proliferators traffic in expensive and sophisticated technologies, and depend heavily on international trade. The President’s Executive Order authorizes us to cut off proliferators and their supporters from theU.S.financial system and to encumber their international commerce.
E.O. 13382 authorizes the imposition of strong financial sanctions against not only WMD proliferators, but also against entities and individuals providing support or services to them. Designation under this Order prohibits all transactions between the designated entities and anyU.S.person and freezes any assets the entities may have located underU.S.jurisdiction.
Since June 2005, the U.S. Department of the Treasury has designated six Iranian entities for their support of the proliferation of WMD and their missile delivery systems, includingIran’s pursuit of nuclear weapons under the guise of a peaceful nuclear energy program:
- The Atomic Energy Organization of Iran (AEOI), which reports directly to the Iranian President, is the main Iranian institute for research and development activities in the field of nuclear technology, includingIran’s centrifuge enrichment program and experimental laser enrichment of uranium program, and manages Iran’s overall nuclear program.
- The Aerospace Industries Organization (AIO), a subsidiary of the Iranian Ministry of Defense and Armed Forces Logistics, is the overall manager and coordinator ofIran’s missile program. AIO overseas all of Iran’s missile industries.
- The Shahid Hemmat Industrial Group (SHIG) is responsible forIran’s ballistic missile programs, most notably the Shahab-3 medium range ballistic missile which is based on the North Korean No Dong missile. The Shahab-3 is capable of carrying chemical, nuclear, and biological warheads and has a range of at least 1500 kilometers. SHIG has received help from China and North Korea in the development of this missile.
- The Shahid Bakeri Industrial Group (SBIG) is an affiliate ofIran’s AIO. SBIG is also involved in Iran’s missile programs. Among the weapons SBIG produces are the Fateh-110 missile, with a range of 250 kilometers, and the Fajr rocket systems, a series of North Korean-designed rockets produced under license by SBIG with ranges of between 40 and 100 kilometers. Both systems are capable of being armed with chemical and possibly other types of warheads.
The Novin Energy Company has transferred millions of dollars on behalf the AEOI to entities associated withIran’s nuclear program. Novin operates within the AEOI, and shares the same address as the AEOI; and
- The Mesbah Energy Company is a state-owned company subordinate to the AEOI. Through its role as a front for the AEOI, Mesbah has been used to procure products forIran’s heavy water project. Heavy water is essential for Iran’s heavy-water-moderated research reactor project, which when completed, could provide Iran the capability to produce plutonium for nuclear weapons.
Just this past week, we designated four Chinese companies and oneU.S.representative office, which suppliedIran’s military and Iranian proliferators with missile-related and dual-use components. No reputable company or institution should be doing business with these entities.
Support for Terrorism and Violence Iranalso actively sponsors terrorism and violence across theMiddle East. The Islamic Revolutionary Guard Corps (IRGC) and Ministry of Intelligence and Security (MOIS) both Iranian government bodies are directly involved in the planning and support of terrorist acts by non-state actors and continue to sponsor and train a variety of violent groups that act as surrogates onIran’s behalf.[1]
The Administration is or will, as appropriate, draw on all instruments of national power to combat the very real threat posed byIran’s sponsorship of terrorism. At Treasury, we are focused on the support networks, trying to identify and sever the lines of support that fuel terrorist activities. Stopping the money flows is particularly challenging in this instance, asIrandraws upon a large network of state-owned banks and parastatal companies, which is difficult to penetrate and thwart. We are also hampered by the fact that many of our key allies have yet to recognize Hizballah as a terrorist organization. Nevertheless, there remain opportunities for disruption, and we continue to pursue them vigorously.
Broad Sanctions Against Iran At the Treasury Department, we have also been enforcing a set of far-reaching sanctions againstIranthat have been in place since 1995. Pursuant to the Iranian Transactions Regulations, 31 C.F.R. Part 560 (the “ITR”), Treasury’s Office of Foreign Assets Control (OFAC) administers commercial and financial sanctions against Iran that prohibit U.S. persons from engaging in a wide variety of trade and financial transactions with Iran or the Government of Iran. The termU.S. personmeans any U.S. citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person in the United States.
The ITR prohibit most trade in goods and services between the United StatesandIranor the Government of Iran.U.S.persons are also prohibited from dealing in Iranian-origin goods overseas or in goods for export toIranfrom third countries. Non-U.S. persons are prohibited by the ITR from re-exporting controlledU.S.origin goods toIran. However, the import and export of information and informational materials to and fromIranis exempt by statute. In addition, the Trade Sanctions Reform Act provides for specific licenses to be issued for the export of certain agricultural products, medicine and medical devices toIran.
Aside from the trade-related sanctions described above, the ITR prohibit any post-May 7, 1995 investments byU.S.persons inIran.U.S.persons are also prohibited from facilitating transactions by third-country persons that could not be engaged in byU.S.persons themselves. Finally, the ITR prohibitU.S.persons from evading or attempting to violate any of the prohibitions contained in the ITR.
OFAC also maintains in effect the Iranian Assets Control Regulations, 31 C.F.R. Part 535 (the “IACR”), which governed the freezing of Iranian assets at the time of the hostage crisis. Pursuant to the 1981 Algiers Accords, most Iranian assets in the United Stateswere unblocked and transferred to various escrow accounts. The IACR remain in effect to facilitate the resolution of claims before the Iran-U.S. Claims Tribunal inThe Hague. Certain assets related to claims before theIran-United States Claims Tribunal remain blocked in the United Statesand consist mainly of diplomatic and consular property.
Private Sector Reaction Perhaps as important as governmental action is the response that we are seeing from the international private sector to the Iranian regime’s destabilizing activities. As it witnesses firsthand the disturbing direction in which the Iranian regime seems to be headed, the financial sector has begun to reassess whether it is appropriate or prudent to do business withIran. The words and signals coming out ofIranhave led observers to worry aboutIranas an investment arena and have prompted reputable members of the international financial community to curtail or cut ties withIranaltogether.
- In the international banking community, UBS ceased its activities withIran. Credit Suisse announced that it would no longer establish new business relations withIran. ABN Amro and HSBC have also curbed their dealings withIran.
- Energy firms Baker Hughes, ConocoPhillips, and BP PLC have reportedly suspended dealings withIran.
- In May, the Organization for Economic Cooperation and Development (OECD) downgradedIran’s credit rating for official credits and now assessesIranat the same level of risk as countries with active insurgencies, such asColombiaandSri Lanka.
These are just the decisions that have been publicly reported. Reputable institutions around the world are making quiet decisions to cut back or sever their dealings withIran, having decided that they do not want to do business with this state sponsor of terror and proliferator. We in the government can inform this process by identifying specific threats that private firms might otherwise be unable to detect and protect against.
Conclusion We are in a critical moment withIrannow. The Treasury Department along with all members of the U.S. Government, is lending its full support to the State Department’s work to bring about a successful outcome to this recent round of multilateral efforts. In the meantime, we will continue to use our tools and leverage to dismantle networks that support terrorism and weapons proliferation, wherever they may be. We can not afford to alleviate any pressure on sponsors of terrorism and supporters of WMD proliferation, and we will continue to do everything in our power to deny these networks access to the financial system.