Hearing of the House Committee on Foreign Affairs Subcommittee on the Middle East and South Asia- Iran Sanctions and Regional Security

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Hearing of the House Committee on Foreign Affairs Subcommittee on the Middle East and South Asia- Iran Sanctions and Regional Security

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REP. BRAD SHERMAN (D-CA): On 9/12, 2001, Iran was a long way from a nuclear weapon. It had no sway in southern Iraq, in spite of a similar Shi'ite faith. It faced Saddam Hussein, who had killed hundreds of thousands of their soldiers, and oil was selling at $25 a barrel.

Now I'm not going to say that President Bush is the Mahdi, but I am going to say that Iran has made spectacular progress under his administration. A nuclear weapon in Iran's hands means they can block the Strait of Hormuz at any time they wish with impunity. They can carry out any terrorist attack without fear of retribution. And if some day that regime thinks it's on the way out, it could very well decide to go out with a bang.

Missile defense in Poland and the Czech Republic do not protect us or our allies since a nuclear weapon is about the size of a person and even easier to smuggle into a European country or into the United States. We have had an administration that yells and screams that Iran with a nuclear weapon is unacceptable, but they believe something far more strongly, and that is that no multinational corporation should ever be inconvenienced in an effort to prevent the spread of nuclear weapons.

And that is why they have kept our markets open to Iranian exports -- not oil, but only the stuff we don't need and they couldn't sell elsewhere. That's why members of this administration have violated the law in order to protect Tehran and its business partners from the Iran Sanctions Act. That is why we close two Iranian banks off from doing U-turn transactions with the Federal Reserve Board branch in New York while allowing all the other Iranian banks to do so.

That is why we have not offered Russia any kind of a deal on issues Russia cares about in order to secure Russian support with regard to Iran. We have had an incredibly feckless policy and we cannot say that the only alternatives are a bombing raid on the one hand or a "Kumbaya" approach to diplomacy on the other, and therefore since Bush is avoiding those two things, he's carrying out a great policy.

The fact is, American corporations are free to do business with Iran through their foreign-based subsidiaries, and again and again Iran can laugh at those who want to impose sanctions. The best example of this is their ability to show that World Bank loans, money we fight for when we fight for appropriations for foreign aid, go to Iran. What better symbol that the world is not serious; as a matter of fact, the world is sending gifts?

When -- and I wish to report to this subcommittee, we had the secretary of Treasury before Financial Services, and he stated two very important things: first, that he had worked hard to try to keep Wolfowitz's job, he had made phone calls, he'd employed the other Finance Ministry officials, but that he had not made a single phone call to prevent the disbursement of World Bank loans to Iran; and second, that the administration's position with regard to the statute that is the Iran Sanctions Act is they don't think it's good public policy, so it has no force of law or at least will not be adhered to.

So I look forward to a day when Iran is democratic.

I look forward to a day when the United States is a democracy that follows its own Constitution, an administration that actually follows statute, and I yield back.

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REP. PENCE: Thank you, Chairman.

Thank you to both of the witnesses.

I want to pursue a line of questioning on the issue of divestment. I was in Florida not long ago. I think Florida, if memory serves, became the first state legislature to effectively divest their state pension from corporations that invest actively in Iran.

On Page 5 of your testimony, Dr. Gordon, you make a very emphatic statement, if I can characterize it that way, that the United States should do more to put public pressure on the companies that are making significant investments in Iran. You refer to -- including private sector firms and public and private pension funds.

When I was in Ankara, Turkey, about a year ago, Mr. Rafsanjani, I think was his name, had just been through town. I was lunching with some members of parliament in Turkey and I asked them about this -- the looming specter of a nuclear weapons program in Iran, and after being very quiet for most of the lunch, the head of the majority party finally spoke up, looked me in the eye with a wry smile and he said, "Iranians are very good negotiators."

And I looked at him and said, "Are we in a negotiation, or is this a looming crisis?"

And so I guess in the context of divestment -- and you, Mr. Berman, said we need to harness divestment -- does this raise the cost, is this the kind of leverage in a real negotiation that can get them to walk back from the nuclear brink?

I guess I'm trying to get at -- and I caught this a bit in the chairman's questioning -- where is the real pressure point here? And each of you had several recommendations, but one of the common one was this issue of divestment.

Is that a pressure point? What specifically could this committee or this Congress do, if it is an effective pressure point, to drive further divestment?

MR. GORDON: Here's what I think about that. I made clear in my written testimony and in my remarks here that I worry about the effect of secondary sanctions that I fear get us into tit-for-tat retaliation with the European Union and other countries.

There's a difference, though, between that and the types of divestment measures that I recommended, that Mr. Berman recommended, that I think can be very effective.

Imagine -- we talked about even the naming and shaming issue and the moral pressure. Now imagine if every member of Congress -- if we had this list of published firms around the world that are investing significantly in the Iranian energy industry or in Iran, period, and every member of Congress took that list back to their constituencies and met with fund managers and state pension fund holders and citizens and said: "These are the companies that are propping up the Iranian economy. We're not going to pass a law that leads us into trade disputes with some of our major partners -- we can debate that part of the issue -- but we think you should know that business with these companies is propping up the Iranian economy, allowing them to alleviate the vulnerabilities we've been talking about to invest in centrifuges and all the rest."

I think that kind of moral suasion and naming and shaming would have a real effect. And it would play its way out through the global economy and have an impact -- a further impact in Iran, because I think, you know, the bottom line on this is this Iranian government may well not be subject to any kind of pressure. But the Iranian people can have a say in this. And that's the greatest leverage I think we have.

REP. PENCE: Yeah, I think -- I mean, that's the real question.

I want to get Mr. Berman's response before I yield back, but it -- is it effective pressure?

I'm all for that. I'm all for every state legislature, including Indiana, passing the kind of restrictions that Florida passed.

But capital being fungible in a world economy, does -- do we cut off our nose to spite our face? Or is there in your judgment real impact on the ground?

MR. GORDON: I'll say one thing and then Ilan can take over.

Look, we don't know. The United States has sanctioned Iran for 28 years and it hasn't worked. And that's why a lot of people say this is a waste of time and it can't work.

But as, again, I made clear in my remarks, there are other cases where especially when it's multilateral and the world gets together and imposes sanctions over the long term, as they did in South Africa -- it wasn't easy for the -- (laughs) -- South African government to take decisions that effectively lead to its downfall. Libya gave up its weapons of mass destruction program and got out of the business of terrorism. Serbia conceded on a range of issues.

It can be effective. And Iran is actually a relatively good candidate, compared, say, to Iraq where we had 12 years of sanctions but you had a dictator who had no intention of giving up. Iran has a civil society and has a -- has people prepared to challenge the government. And we've seen that in Iranian politics.

So no one can guarantee that, that that would work. But it's certainly plausible that it would have an effect.

REP. PENCE: Mr. Berman, do you think that pressing global corporations that are doing business in Iran or pushing them farther out of U.S. capital markets would have an echoing effect into the Iranian economy that would create pressure?

MR. BERMAN: Oh, absolutely. I think the amount of, as you called it, yeoman's work that's been done in terms of limiting state exposure on the issue of Iran and, you know, in some cases sort of looking a little bit broader at the idea of terror-free investing generally, is fantastic. The problem that we run into -- and this is why I talked about weaponizing, about harnessing it -- is essentially one of timing.

If the timeline that I laid out is correct -- even if it's double that or triple that, we're looking at a timeline for divestment where we've been working at divestment for over a year, really working at divestment, and you only have about a dozen states in various states of play.

And so the real question becomes how can the federal government empower this and accelerate this process? How do you add an accelerant?

I think the key here is reputational risk. If you have not only the Treasury secretary, although that would be helpful, but also, for example, the SEC chairman begin talking about companies specifically naming and shaming companies -- this is a company that's doing business with Iran, with the world's leading state sponsor of terrorism and Americans shouldn't invest in it -- it would have a dramatically amplifying effect on a lot of the things that state legislators are trying to do quietly in their respective districts.

REP. PENCE: I thank you for the testimony.

Chairman.

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