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Testimony

More than a Nuclear Threat: North Korea’s Chemical, Biological, and Conventional Weapons

Testimony for House Foreign Affairs Committee, Asia and the Pacific and Terrorism, Nonproliferation and Trade Subcommittees
17th January 2018

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Chairman Poe, Chairman Yoho, Ranking Member Sherman, Ranking Member Keating, and distinguished members of these subcommittees, thank you for the opportunity to address you today on this important issue.

My testimony will review the initial results of the president’s “maximum pressure” strategy, areas for additional sanctions measures, the inter-Korean talks, and why the U.S. should continue its maximum pressure campaign and diplomacy. I will also focus on North Korea’s nuclear, non-nuclear, and missile programs; and where I focus on one over the other, it is with the understanding that Pyongyang’s weapons systems are integrated to serve the Kim regime’s near-term goal of pressuring Seoul and Washington. Thus, we cannot separate our approaches to these issues, nor should we ignore human rights violations and other troubling aspects of the Kim regime.

Before proceeding, it is important to state plainly North Korean leader Kim Jong Un’s overarching long-term goal: namely, the reunification of the Korean peninsula under Kim family rule. While Pyongyang attempts to distract Washington and Seoul from this hostile intention, Kim always has his eyes on dominating the peninsula.

Kim repeatedly mentioned reunification in his New Year’s address and hinted at his intention to drive a wedge between the U.S. and South Korea by noting that only the Korean people can avoid war on the Korean peninsula and that a “climate favorable for national reconciliation and reunification should be established.”  Deceptively, Kim wanted to persuade South Koreans that peace depends on severing ties with the United States, when the opposite is true.

North Korea’s weapons, both nuclear and non-nuclear, are a means to an end: extorting concessions from Seoul and using nuclear weapons to limit Washington’s ability to defend South Korea from North Korea’s military provocations for fear of escalating the situation. As I note later in my testimony, that is why premature inter-Korea talks are dangerous and could feed into Kim’s long-term game plan.

Washington’s goal is, and should remain, the denuclearization of the Korean peninsula. And the good news is that the United States can still act to counter Pyongyang’s weapons programs. A combination of deterrence and coercion should be used against North Korea. The strategy would acknowledge the limits of each of these options, using them in combination to secure a denuclearization agreement or to weaken Pyongyang in order to diminish the threat it poses.

There is no excuse for a fatalistic approach to North Korea that accepts it as a nuclear weapons state. Likewise, there is no justification for pursuing a freeze deal that would put the U.S. on the path toward recognizing North Korea as a nuclear state. The United States must understand that the world – particularly its adversaries in Tehran, Beijing, and Moscow – is watching how it responds to North Korea’s challenge to the international order.

Testimony

Sanctions and Financial Pressure: Major National Security Tools

Testimony for House Foreign Affairs Committee
10th January 2018

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Chairman Royce, Ranking Member Engel, and distinguished members of the U.S. House of Representatives Committee on Foreign Affairs, I am honored to be with you today to discuss the role of sanctions and financial pressure in our national security. I want to thank Chairman Royce for his leadership of this Committee and years of diligent work on the Hill and in the foreign policy community. I am grateful for the sober work we did together on issues of national security. Your voice of reason, seriousness of purpose, and compassionate and strong vision for America’s place in the world will be missed in Southern California, Congress, and in Washington.

I have been privileged to serve in the U.S. government – at the U.S. Justice Department, the Treasury Department, and at the National Security Council – spending much of my time developing the tools, strategies, and institutions of economic statecraft since September 11th. Among other developments in this period, the establishment of the Office of Terrorism and Financial Intelligence (TFI) at the U.S. Treasury signaled the U.S. government’s recognition of the importance of Treasury’s tools and suasion, financial intelligence, and financial pressure campaigns in our national security architecture.

Since leaving government in 2009, I have continued to work with think tanks, in academia, and in the consulting worlds to develop the understanding, strategies, and capacity in this space. The publication of my book, “Treasury’s War: The Unleashing of a New Era of Financial Warfare,” in 2013, was my attempt to explain the evolution and importance of financial and economic tools in our national security – and the critical nature of these issues for the international community in the years to come. Our founding of the Financial Integrity Network (FIN) almost four years ago signaled a desire to help clients meet heightened global expectations of financial integrity, to build the capacity and design new models to address the complexities of this environment, and to make the tools that protect the international financial system more effective. The establishment of the Center on Sanctions and Illicit Finance (CSIF) at the Foundation for Defense of Democracies (FDD) in November 2014, represented our commitment to create a think tank dedicated to developing the doctrines and strategies of national economic security, especially in the face of new challenges to U.S. power.

This background and ongoing work has afforded me insights and learning that I hope will be helpful to this Committee and Congress. Thank you again for the invitation to testify.

Download the full testimony here

Testimony

Legislative Proposals to Counter Terrorism and Illicit Finance

Testimony for House Financial Services Committee, Financial Institutions and Consumer Credit and Terrorism and Illicit Finance Subcommittees
29th November 2017

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Chairmen Pearce and Luetkemeyer, Ranking Members Perlmutter and Clay, and distinguished members of the House Financial Services Subcommittees on Terrorism and Illicit Finance and Financial Institutions and Consumer Credit, I am honored by your invitation to testify before you today.

We are confronting a pivotal moment in our 48 years of combatting illicit finance under the Bank Secrecy Act (“BSA”). As our counter-illicit financing efforts have expanded and become ever more important, they are also increasingly challenged – provoking fundamental questions of effectiveness, cost, roles and responsibilities, and, ultimately, sustainability. The combination of these developments necessitates fundamental reform of the BSA and the expanded anti-money laundering / countering the financing of terrorism (“AML/CFT”) regime it supports.

This hearing marks an important and welcome opportunity to discuss how best to pursue such fundamental reform in modernizing the BSA and the U.S. AML/CFT regime. I am grateful for your leadership in addressing these issues, including through the proposed Counter Terrorism and Illicit Finance Act and the proposed End Banking for Human Traffickers Act of 2017 under consideration by your Subcommittees.

Our BSA and broader AML/CFT reform efforts require both immediate action and enduring attention by Congress. These efforts must consider:

I. The need for a strategic approach to address mounting frustrations of all AML/CFT stakeholders;

II. The modern evolution of our AML/CFT regime to understand the expanded interests, heightened complexity, unprecedented importance, and global reach that it now encompasses; and

III. Legislative action amending the BSA to establish a comprehensive framework for guiding and managing our expanded AML/CFT regime in an effective, efficient, and enduring manner.

My testimony below follows this roadmap and concludes by offering detailed recommendations for Congress to expand, amend, and strengthen the proposed Counter Terrorism and Illicit Finance Act.

Testimony

S. 1241: Modernizing AML Laws to Combat Money Laundering and Terrorist Financing

Testimony for Senate Judiciary Committee
28th November 2017

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Chairman Grassley, Ranking Member Feinstein, and members of the Senate Committee on the Judiciary, thank you for the opportunity to testify today. It is an honor for me to be here.

 “Anti-money laundering legislation is the least effective of any anti-crime measure, anywhere.”[1]

Why does Ron Pol, a respected anti-money laundering researcher, make such a stunning statement? Because the bottom-line metrics suggest that money-laundering enforcement fails 99.9 percent of the time. Or as longtime financial crime expert Raymond Baker notes, “Total failure is just a decimal point away.”[2]

This failure to successfully combat money laundering has dramatic impact. Outside crimes of passion – for example, murder committed in a jealous rage – criminals, criminal organizations, kleptocrats, and some businesses and corporations are typically motivated by greed. In today’s increasingly interconnected world, the manifestations of unfettered avarice impact all of us – politically, socially, economically, and culturally. Around the world, people see it in their communities. In the United States and elsewhere, the opioid, methamphetamine, and cocaine epidemics are devastating. Gang violence, financial fraud, government contracting fraud, corruption, internet scams and ransom-ware attacks, identity theft, and other crimes affect our daily lives.

We intrinsically know that the global range and magnitude of organized criminal activity that generates illicit proceeds is increasing. Intellectual property rights violations, human trafficking, wildlife trafficking, and environmental and natural resource degradation and exploitation are all unfortunate manifestations of greed facilitated by our increasingly interconnected and borderless world. There is also entrenched criminality that is resistant to enforcement. The trade in illicit tobacco, for example, has existed for generations. It affects every country in the world. So does customs fraud.

Financial crimes and abusive tax evasion contribute to the deterioration of social compacts. Worldwide, distrust in the privileged class has seemingly reached epidemic proportions, coupled with (if not driven by) a corresponding absence of “accountability.” Corruption is the great facilitator and is also fueled by tainted money.

Terror finance – a corollary of money laundering – and sanctions busting threaten national security.

Law enforcement, policy makers, and the media can get so distracted with the immediacy of the criminal behavior. It is easy to forget the aim of these criminal activities is not the crime itself, but the proceeds of crime. Many have questioned the efficacy of the “War on Drugs.” But why do we not acknowledge that our inability to stop the laundering and seize the proceeds fuels the greed behind the drug trade and perpetuates the narcotics trafficking we are trying to eradicate?

In other words, many of the ills we face “come back to money.” And money laundering is the essential component of transnational crime. It is part of the greed equation because it turns criminal proceeds into seemingly clean money that can be freely spent.


[1] Ron Pol cited in: Hamish Fletcher, “Dirty cash: The fight against money laundering - should NZ do more?” The New Zealand Herald, September 10, 2015. (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11510931)

[2] Raymond Baker, Capitalism’s Achilles Heel, (Hoboken, New Jersey: Wiley & Sons Publishing, 2005), page 173.

Testimony

Examining the Effectiveness of the Kingpin Designation Act in the Western Hemisphere

Testimony for House Foreign Affairs Committee, Western Hemisphere Subcommittee
8th November 2017

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Chairman Cook, allow me first to congratulate you on your recent appointment as the new chairman of this subcommittee. Mr. Chairman, Ranking Member Sires, members of the subcommittee, thank you for the opportunity to testify on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance.

In 2011, the U.S. Drug Enforcement Administration (DEA) indicted Ayman Saied Joumaa, a Lebanese-Colombian dual national whose global network of companies operating out of Latin America, West Africa, and Lebanon laundered money for Mexican and Colombian cartels to the tune of $200 million a month of drug proceeds.[1] Joumaa worked with Hezbollah as the kingpin in one of many networks Hezbollah runs globally to sustain its financial needs. When his case came to light, the New York Times quoted a DEA official as saying that Hezbollah operated like “the Gambinos on steroids.”[2]                                               

The United States cannot continue to combat a threat of such magnitude unless it leverages all its tools of statecraft in a combined, sustained, and coordinated fashion. Over the past decade, Hezbollah’s terror finance outside Lebanon has evolved from a relatively small fundraising operation involving trade-based money laundering and charitable donations into a multi-billion dollar global criminal enterprise.

Increasing quantities of Schedule 2 drugs like cocaine invade the U.S. from Latin America, adding fuel to the opioid pandemic that has already cost so many lives.[3] Cocaine consumption is as much a national epidemic as opioids, Mr. Chairman, and Hezbollah helps make it available to U.S. consumers.

This makes Hezbollah, its senior leadership, and its numerous operatives involved in running illicit drug-trafficking and money-laundering operations on a global scale the perfect candidates for Kingpin and Transnational Crime Organization designations, in addition to the terrorism and terror finance designations already in place.

The U.S. government has, over the years, developed remarkably sharp and effective tools to counteract Hezbollah’s terror finance threat, but is not using them as vigorously as it should. The Kingpin Act is one such instrument. But like all other instruments of statecraft, its impact would be much greater if used consistently and in conjunction with other tools. The challenge for Congress, the executive branch, the intelligence community, and law enforcement agencies is to leverage these tools in a manner that will outsmart Hezbollah and disrupt its cash flows enough to inflict irreparable damage to the terror group’s finances.

In pursuit of this goal, America needs to better coordinate the application and enforcement of all instruments available from the formidable toolbox created over the past two decades by legislation and executive orders, including leveraging Executive Orders 13581 and 13773 on combating transnational organized crime, Executive Order 13224 on combating sources of terror finance, the 1999 Foreign Narcotics Kingpin Designation Act, the 2015 Hezbollah International Financing Prevention Act (HIFPA), the Global Magnitsky Human Rights Accountability Act of 2016, and soon the Hezbollah International Financing Prevention Act Amendment of 2017, which is now awaiting reconciliation between its House and Senate versions and which will, once approved, expand on HIFPA.

In doing so, it should focus significantly on the Western Hemisphere, where Hezbollah’s global footprint, especially in Latin America, is most menacing.

Hezbollah’s regional operations are part of a global network of illicit financial and commercial enterprises whose goal is to fund Hezbollah’s activities in the Middle East. Where and when needed, these networks can also be activated to provide logistical support to operatives engaged in planning terror attacks. The United States therefore needs to think and act globally to disrupt Hezbollah’s illicit finance networks. Latin America is a very good place to start doing that.

In the remainder of my testimony, I will discuss evidence demonstrating the magnitude of the threat posed by Hezbollah’s terror finance to the national security of the United States. I will also provide evidence of the high-ranking nature of Hezbollah’s operatives in Latin America – a sure sign of the importance of Hezbollah’s Latin American networks to the organization’s budget. And I will discuss the impact of U.S. policy and actions on disrupting Hezbollah’s terror finance activities. The evidence I am presenting today, hopefully, will highlight both strengths and weaknesses of present U.S. policy and offer ways to improve results.


[1] U.S. Department of the Treasury, Press Release, “Treasury Targets Major Lebanese-Based Drug Trafficking and Money Laundering Network,” January 26, 2011. (https://www.treasury.gov/press-center/press-releases/Pagés/tg1035.aspx); see also: U.S. Department of the Treasury, Press Release, “U.S. Charges Alleged Lebanese Drug Kingpin with Laundering Drug Proceeds for Mexican and Colombian Drug Cartels,” December 13, 2011. (https://www.justice.gov/archive/usao/vae/news/2011/12/20111213joumaanr.html)

[2] Jo Becker, “Beirut Bank Seen as a Hub of Hezbollah’s Financing,” The New York Times, December 13, 2011. (http://www.nytimes.com/2011/12/14/world/middleeast/beirut-bank-seen-as-a-hub-of-hezbollahs-financing.html)

[3] Nick Miroff, “American cocaine use is way up. Colombia’s coca boom may be why,” The Washington Post, March 4, 2017. (https://www.washingtonpost.com/news/worldviews/wp/2017/03/04/colombias-coca-boom-is-showing-up-on-u-s-streets/?utm_term=.d370be3ebe9c

 

Testimony

The President’s Iran Decision: Next Steps

Testimony for House Foreign Affairs Committee, Middle East and North Africa Subcomittee
25th October 2017

Download the full testimony here.

The preamble to the Joint Comprehensive Plan of Action (JCPOA) asserts that the “full implementation” of the deal “will ensure the exclusively peaceful nature of Iran’s nuclear program.” In addition, the full implementation of the JCPOA “will positively contribute to regional and international peace and security.”[1] More than two years have now passed since the conclusion of the JCPOA. Therefore, it is a good time to review those aspects of the deal that require strengthening if the JCPOA hopes to deny Iran access to a nuclear weapons capability.

UN Security Council Resolution 2231 endorsed the JCPOA’s restrictions on Iran’s uranium enrichment and plutonium recovery, while adding restraints on Iran’s ballistic missile activities. These restrictions will be lifted when the JCPOA sunset clauses kick in. Six years from now, Iran will be able to start manufacturing advanced centrifuges, enabling it to gradually cut down its one-year nuclear breakout time. At the same time, if not earlier, restrictions on Iran’s missile program will be terminated.

The time to act is now, and not six years from now when the sunset clauses begin to take effect. It will be far harder to fix the deal once sunset clauses help Iran to permanently establish itself as a threshold nuclear state with the capability to manufacture and deliver nuclear warheads in a short period of time. Iran’s Foreign Minister Javad Zarif himself has stated that Iran will emerge from the deal with a stronger nuclear program.[2]

To increase the likelihood that the JCPOA ensures the peaceful nature of the Iranian nuclear program, there must be a far more robust and meaningful verification of the deal’s provisions. To that end, several measures will be necessary. First, the IAEA’s quarterly reports on the deal’s implementation must be enhanced, preferably in the manner I describe below. Next, the IAEA should complete the follow-up actions related to its investigation of the Possible Military Dimensions (PMD) of the Iranian nuclear program, including site visits and interviews with scientists.[3] Third, the JCPOA and related agreements must apply to all sites related to the Iranian nuclear program, with no exceptions for military sites or any others. Fourth, Iran should ratify the Additional Protocol well before the sunset provisions take effect and before the IAEA issues a Broader Conclusion about the peaceful nature of the Iranian nuclear program. Fifth, the UNSCR 2231 limitations on ballistic missiles should be extended to cruise missiles, while the restrictions on missile ranges and payloads should be lowered. Finally, these and other measures should extend Iran’s one-year breakout time indefinitely into the future, while enabling more effective enforcement.


[1] Joint Comprehensive Plan of Action, Vienna, July 14, 2015, Preamble Section ii and Preface first paragraph. (https://medium.com/@ObamaWhiteHouse/joint-comprehensive-plan-of-action-5cdd9b320fd)

[2] Julian Borger, “Iran's foreign minister urges Europe to defy US if Trump sinks nuclear deal,” The Guardian (UK), September 29, 2017. (https://www.theguardian.com/world/2017/sep/29/iran-foreign-minister-zarif-europe-trump-nuclear)

[3] From 2002 onwards, the IAEA became increasingly concerned about the possible existence of undisclosed, nuclear-related activities in Iran involving military-related organizations, including activities related to the development of a nuclear payload for a missile. Subsequently, the IAEA identified outstanding issues related to these possible military dimensions of Iran’s nuclear program, as well as actions required by Iran to resolve these issues. The IAEA issued its PMD findings in the report: International Atomic Energy Agency, “Final Assessment on Past and Present Outstanding Issues Regarding Iran’s Nuclear Programme,” December 2, 2015. (https://www.iaea.org/sites/default/files/gov-2015-68.pdf)

 

Testimony

Empty Threat or Serious Danger: Assessing North Korea’s Risk to the Homeland

Testimony for House Homeland Security Committee, Oversight and Management Efficiency Subcommittee
12th October 2017

Download the full testimony here.

Chairman Perry, Ranking Member Correa, and distinguished members of this subcommittee, thank you for the opportunity to address you today on this important issue.

My testimony will begin with a review of North Korea’s nuclear- and missile-related proliferation activities, followed by a discussion of how Iran-style sanctions can sharply increase the amount of pressure on Pyongyang. My testimony will conclude with recommendations for how the Department of Homeland Security (DHS) should implement its mandate to monitor North Korean vessels in order to maximize the impact of sanctions.

North Korea’s nuclear weapons and missile programs are expanding after a decade of failed American policies and now pose a direct threat to the U.S. homeland. Pyongyang has threatened our close allies, South Korea and Japan, as well as the U.S. troops stationed for decades on allied territory. The progress of North Korea’s programs should not be surprising since Pyongyang conducted its first nuclear test 11 years ago; its weaponization program likely started before then. Its long-range missile program has lasted for more than 20 years and is beginning to show success.

Pyongyang twice tested an intercontinental ballistic missile (ICBM) in July. Both tests were launched in a lofted trajectory to avoid overflying Japan. But technical analysis of the second test on July 28 suggests that North Korean ICBMs could target Los Angeles, Denver, Chicago, and possibly Boston and New York.[1] While an ICBM may reach that distance, questions remain about the survivability of Pyongyang’s missiles during their reentry into Earth’s atmosphere, since the effectiveness of the heat shields protecting their warheads is unknown.[2] However, it is important not to underestimate North Korea’s ability to overcome these challenges, since Pyongyang’s progress on the ICBM program has outpaced the intelligence community’s development timelines by two years.[3]

Kim Jong Un’s regime followed its successful ICBM launches in July with a massive thermonuclear weapon test on September 3. As part of that test, North Korea likely succeeded in detonating a nuclear weapon designed to obliterate cities, which could be delivered by its long-range missiles.[4] The threat we face is acute and growing. After years of passivity justified by the mantra of “strategic patience,” the time has come for a policy of “maximum pressure” that actually stands a chance of restraining the threat without resorting to war.


[1] David Wright, “North Korean ICBM Appears Able to Reach Major US Cities,” Union of Concerned Scientists, July 28, 2017. (http://allthingsnuclear.org/dwright/new-north-korean-icbm)

[2] David Wright, “Reentry Heating from North Korea’s July 4 Missile Test,” Union of Concerned Scientists, July 7, 2017. (http://allthingsnuclear.org/dwright/july-4-reentry-heating)

[3] Ellen Nakashima, Anna Fifield, and Joby Warrick, “North Korea could cross ICBM threshold next year, U.S. officials warn in new assessment,” The Washington Post, July 25, 2017. (https://www.washingtonpost.com/world/national-security/north-korea-could-cross-icbm-threshold-next-year-us-officials-warn-in-new-assessment/2017/07/25/4107dc4a-70af-11e7-8f39-eeb7d3a2d304_story.html?nid&utm_term=.63b042018d2a)

[4] Anna Fifield, “In latest test, North Korea detonates its most powerful nuclear device yet,” The Washington Post, September 3, 2017. (https://www.washingtonpost.com/world/north-korea-apparently-conducts-another-nuclear-test-south-korea-says/2017/09/03/7bce3ff6-905b-11e7-8df5-c2e5cf46c1e2_story.html?utm_term=.17217f662896)

 

Testimony

A Legislative Proposal to Impede North Korea’s Access to Finance

Testimony for House Committee on Financial Services, Monetary Policy and Trade Subcommittee
13th September 2017

Download the full testimony here.

Introduction

Chairman Barr, Ranking Member Moore, and distinguished members of this subcommittee, thank you for the opportunity to address you today on this important issue.

My testimony will begin with an update on the nature of North Korea sanctions, provide examples of North Korea’s illicit financial activities, and propose ideas to combat those activities.

Often, U.S. policy toward North Korea gets stuck in the provocation-response cycle whereby a North Korean provocation is met with strong rhetoric and/or a token increase in sanctions, which is repeated over and over. These scattershot responses have not, to date, added up to a serious and effective sanctions policy because they are driven by the momentary need to look tough, rather than by a clear strategy for denuclearizing the Korean peninsula. In practice, the Kim regime can keep distracting the United States with its repeated provocation. We should break this cycle and ensure that the U.S. response to every North Korean provocation advances our ultimate goal.

Regrettably, many experts call for the acceptance of North Korea as a nuclear weapons state and insist that the U.S. can protect itself with a policy of deterrence. To evaluate the effectiveness of deterrence, one must be clear about such a policy’s goals. Some suggest the United States has successfully deterred Pyongyang over the last 25 years, since there has been no second Korean war. But the goal should be deterring North Korea from actions that threaten the U.S. or its allies. On that score, deterrence has had a mixed record at best. For example, Pyongyang killed over 40 South Korean sailors when it sunk the Cheonan, maintains a robust relationship with Iran, built a nuclear reactor in Syria that Israel destroyed in 2007, and launched a ballistic missile directly over Japan. Unfortunately, this is a short list of the failures of deterrence.

At some point, Washington will need to consider the Kim regime as the obstacle to achieving denuclearization of the Korean peninsula, and sanctions can decrease the threat from the regime in a way that negotiations cannot. 

Testimony

Evaluating Sanctions Enforcement and Policy Options on North Korea

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
7th September 2017

Download the full testimony here.

Introduction

Chairman Crapo, Ranking Member Brown, and distinguished members of this committee, thank you for the opportunity to address you today on this important issue.

My testimony will examine why current sanctions on North Korea are insufficient to exert meaningful pressure while also explaining how the U.S. government and its foreign partners can implement sanctions that have a much better chance of restraining Pyongyang’s brutal dictatorship. Above all, the U.S. and its partners must apply the lessons learned from its successful effort to force Iran to the negotiating table via comprehensive sanctions.

Despite the common misperception that tough sanctions on North Korea are already in place, my testimony will illustrate how the current restraints on Pyongyang pale in comparison to the ones that compelled Tehran to negotiate. Above all, the U.S. and its partners must target the Chinese firms, individuals, banks, and others who play a crucial role in enabling North Korea to evade sanctions. Again, there is a common misperception that China is immune to pressure from abroad, yet there are already strong indications that Beijing will bend when facing the right kind of pressure.

In the course of my testimony, I will offer nine specific recommendations for how Congress and the Trump administration can implement an effective sanctions regime.

Before proceeding, it is essential to underscore the urgency of the threat from Pyongyang. Kim Jong Un is a despot who murdered an American citizen; tortures, starves, and kills his own people; and will spare no expense to develop an intercontinental ballistic missile (ICBM) that can deliver a nuclear weapon to the United States. The July 4 and July 28 ICBM launches and September 3 sixth nuclear test are a wakeup call to all of us, especially those who once described Kim as a “Swiss-educated reformer” or believe North Korea has any interest in serious negotiations with the United States.[1]

Furthermore, one should not assume Kim will hold back from using his nuclear weapons on America and our allies. 

Often, U.S. policy toward North Korea gets stuck in the provocation-response cycle whereby a North Korean provocation is met with strong rhetoric and/or a token increase in sanctions, which is repeated over and over. These scattershot responses have not to date added up to a serious and effective sanctions policy because they are driven by the momentary need to look tough, rather than by a clear strategy for denuclearizing the Korean peninsula. In practice, the Kim regime can keep distracting the United States with its repeated provocation. We should break this cycle and ensure that the U.S. response to every North Korean provocation advances our ultimate goal.

Regrettably, many experts call for the acceptance of North Korea as a nuclear weapons state and insist that the U.S. can protect itself with a policy of deterrence. To evaluate the effectiveness of deterrence, one must be clear about such a policy’s goals. Some suggest the United States has successfully deterred Pyongyang over the last 25 years, since there has been no second Korean war. But the goal should be deterring North Korea from actions that threaten the U.S. or its allies. On that score, deterrence has a mixed record at best. For example, Pyongyang killed over 40 South Korean sailors when it sunk the Cheonan, maintains a robust relationship with Iran, built a nuclear reactor in Syria that Israel destroyed in 2007, and launched a ballistic missile directly over Japan. Unfortunately, this is a short list of the failures of deterrence.

Thus, the U.S. finds itself in a rapidly deteriorating situation where counterproductive policy options like a negotiated freeze of North Korea’s nuclear and missile programs or a hypothetical peace treaty are treated like real options. Advocates say North Korea is ready to accept a freeze and/or peace treaty and it will lead to denuclearization. Unfortunately, we have seen this movie before.

Not only has North Korea told us it is not interested in denuclearization, its actions reinforce it. Pyongyang showed us the “Map of Death” in 2013 suggesting its nuclear targets are Washington, DC; Hawaii, home to Pacific Command; possibly San Diego, home to the Pacific Fleet; and possibly San Antonio, home to U.S. Air Force Cyber Command.[2] Just after the July 4 ICBM test, North Korea’s state media said that the Kim regime would not negotiate its nuclear weapons or ballistic missiles or stop bolstering its nuclear force unless the United States ended its “hostile policy and nuclear threat” to North Korea.[3] Translation: When Washington abandons its allies in Tokyo and Seoul and removes all troops, North Korea might be willing to talk about its programs.

At some point, Washington will need to consider the Kim regime as the obstacle toward achieving denuclearization of the Korean peninsula, and sanctions can decrease the threat from the regime in a way that negotiations cannot.



[1] Michael Moynihan, “Kim Jong Un & The Myth of the Reformer Dictator,” The Daily Beast, December 24, 2013. (http://www.thedailybeast.com/kim-jong-un-and-the-myth-of-the-reformer-dictator)

[2] Jeffrey Lewis, “The Map of Death,” Foreign Policy, April 3, 2013. (http://foreignpolicy.com/2013/04/03/the-map-of-death/)

[3] “Kim Jong Un Supervises Test-launch of Inter-continental Ballistic Rocket Hwasong-14,” Korean Central News Agency, July 5, 2017. (https://kcnawatch.co/newstream/276945/kim-jong-un-supervises-test-launch-of-inter-continental-ballistic-rocket-hwasong-14/)

 

Testimony

Assessing the U.S.-Qatar Relationship

Testimony for House Foreign Affairs Committee, Subcommittee on Middle East and North Africa
26th July 2017

Download the full testimony here.

Chairman Ros-Lehtinen, Ranking Member Deutch, and distinguished members of the subcommittee, on behalf of the Foundation for Defense of Democracies, thank you for the opportunity to testify. My testimony today will look at the substance behind the current Gulf spat, with a focus on Qatar’s support for a range of extremist groups and the grievances that the other Arab states harbor against Qatar. At the end, I will address the question of U.S. military assets in Qatar, as well as several policies that Washington should consider.

Context

Members of the committee, as you know, FDD has been producing research and analysis on Qatar since the eruption of the Arab Spring in 2011. Our critique of Qatari foreign policy has been consistent. We have pointed to Qatari support for Hamas, the Taliban, jihadists in Syria, jihadists in Libya, and the Muslim Brotherhood. We have been critical of the Qataris for the invective that is too often broadcast on state-owned Al-Jazeera. And we have noted through the excellent work of my colleague David Andrew Weinberg that Qatar has failed to take action against numerous U.S.- and UN-designated terrorist financiers living in Qatar.[1]

We have not singled out Qatar. Indeed, we have produced work that is critical of the other Gulf states, such as Saudi Arabia and Kuwait, when it has been warranted. FDD’s David Andrew Weinberg testified about Saudi Arabia’s troubling educational curriculum before the House Foreign Affairs Committee just last week.[2] But Qatar has been an obvious area of interest in light of its incredibly brazen and open support for terrorist groups designated by the United States.

This support for terrorist groups is particularly disturbing in light of the fact that Qatar is home to the al-Udeid air base, the launch point for thousands of strikes carried out by the U.S. in the war on terrorism. When confronted over its support for extremists, Qatar’s response has been lax or dismissive, with little in the way of new commitments or follow-through. The fact is, Qatar has wielded its immense wealth and soft power to undermine U.S. interests, including America’s allies in the region.

FDD has worked hard to educate Congress, the executive, and the American public on the challenge of Qatar. We found that the previous administration was generally willing to listen, but was unwilling to redress the problem. Having failed to gain much traction for six years, we decided to hold a conference on U.S. Qatar policy with the arrival of a new administration. We held our event on May 23 here in Washington, DC.[3]

Our conference was, I believe, the first major conference to shine a light on Qatar. It featured current and former officials, figures from both sides of the aisle, who expressed deep concerns about Qatar, its support for extremist groups, and its long-term viability as a U.S. ally if that support continued. Shortly after the conference concluded, we learned that the Qatar News Agency was hacked. The Qatari response intimated that Doha saw our conference as part of a coordinated assault.[4] To be clear: We had nothing to do with it. FDD strongly condemns hacking. Now, according to the Washington Post, the U.S. intelligence agency allegedly believes that the UAE was behind the hack against Qatar, although the Emirati ambassador to Washington vehemently denies this.[5]

Several days after the Qatar News Agency hack, the Emirati ambassador was himself hacked. His emails were leaked to journalists worldwide. The U.S. intelligence community has yet to determine who was behind that attack. Several stories emerged featuring emails between my colleagues at FDD and the ambassador. The implication was that we were coordinating our efforts with the UAE or that we take Emirati money.[6] For the record, FDD took no direction from a foreign government. Nor did we take any foreign government money. Although many think tanks engage in this practice, we never have and never will.

The hack and hack-back has since yielded a full-blown spat among the Gulf states. The Gulf and other Arab states cut diplomatic ties with Qatar on June 5, blocking maritime, land, and air routes for both traffic and trade.[7] Qatar’s financial ratings have dropped,[8] and its currency has been under strain.[9]

Qatar has been defiant, insisting that its definition of terrorism differs greatly from its critics. Qatar’s alternate view of reality and morality is a poor defense. It is reminiscent of the so-called “affluenza” teen who was charged with a drunk driving crash that killed four people, but whose defense team argued that the teen’s life of privilege made it difficult for him to determine right from wrong.[10] A country of great wealth, Qatar is now effectively arguing the same thing. But the Qataris fully grasp the list of grievances against them. I will summarize them below.



[1] David Andrew Weinberg, “Qatar and Terror Finance, Part II: Funders of al-Qaeda in Syria,” Foundation for Defense of Democracies, January 2017. (http://www.defenddemocracy.org/content/uploads/documents/11717_Weinberg_Qatar_Report.pdf)

[2] David Andrew Weinberg, “Saudi Arabia’s Troubling Educational Curriculum,” Testimony before the House Committee on Foreign Affairs, July 19, 2017. (http://docs.house.gov/meetings/FA/FA18/20170719/106289/HHRG-115-FA18-Wstate-WeinbergD-20170719.pdf)

[3] “Qatar and the Muslim Brotherhood’s Global Affiliates: New U.S. Administration Considers New Policies,” Foundation for Defense of Democracies, May 23, 2017. (http://www.defenddemocracy.org/events/qatar-and-muslim-brotherhood/)

[4] “Qatar faces hostile media campaign, particularly in US: FM,” The Peninsula (Qatar), May 25, 2017, (https://www.thepeninsulaqatar.com/article/25/05/2017/Qatar-faces-hostile-media-campaign,-particularly-in-US-FM)

[5] Aya Batrawy and Fay Abuelgasim, “Qatar suggests cyberattack emanated from a Gulf neighbor,” July 20, 2017, The Washington Post, (https://www.washingtonpost.com/world/middle_east/qatar-suggests-cyberattack-emanated-from-gulf/2017/07/20/18522be6-6d64-11e7-abbc-a53480672286_story.html?utm_term=.f4908db5e65a)

[6] Akbar Shahid Ahmed, “Someone Is Using These Leaked Emails To Embarrass Washington’s Most Powerful Ambassador,” The Huffington Post, June 3, 2017, (http://www.huffingtonpost.com/entry/otaiba-ambassador-uae-leaked-emails_us_5932bf04e4b02478cb9bec1c)

[7] “Saudi Arabia, Egypt lead Arab states cutting Qatar ties, Iran blames Trump,” Reuters, June 5, 2017. (http://www.cnbc.com/2017/06/04/saudi-arabia-bahrain-and-egypt-cut-diplomatic-ties-with-qatar.html)

[8] Alec Macfarlane, “Qatar hit by ratings downgrade over blockade crisis,” CNN, June 8, 2017, (http://money.cnn.com/2017/06/08/investing/qatar-rating-downgrade/index.html)

[9] Alanna Petroff, “British banks have stopped selling Qatari cash,” CNN, June 30, 2017 (http://money.cnn.com/2017/06/30/investing/qatar-riyal-uk-currency/index.html)

[10] Lisa Maria Garza and Timothy Williams, “Teenager Who Used ‘Affluenza’ Defense Is Sentenced to Jail,” The New York Times, April 13, 2016. (https://www.nytimes.com/2016/04/14/us/teenager-who-used-affluenza-defense-is-sentenced-to-jail.html)

 

Testimony

Saudi Arabia’s Troubling Educational Curriculum

Testimony for House Committee on Foreign Affairs, Terrorism, Non-Proliferation, and Trade Subcommittee
19th July 2017

Download the full testimony here.

Chairman Poe, Ranking Member Keating, and distinguished Members of the Subcommittee, thank you on behalf of the Foundation for Defense of Democracies for the opportunity to testify before you today about incitement in Saudi Arabia’s government-published textbooks for school children. It is an honor to be back, particularly because I first engaged with Saudi Arabia on this issue as a Staff Member for this body’s full Committee.

Half a decade after 9/11, Nina Shea wrote in an outstanding Freedom House report that Saudi officials accepted their textbooks had problems but “have repeatedly pledged that reform is underway or completed.”[1] That is still the case today.[2]

Yet as the author of the most recent published study on incitement remaining in Saudi textbooks today,[3] I can vouch that over a decade later Riyadh still has not persuasively shown that this problem has been resolved.

Unfortunately, U.S. policy has not been up to the task of convincing our Saudi allies to remove this incitement with greater urgency.

For example, I exposed in a 2014 monograph that the State Department appeared to have allocated half a million dollars in taxpayer funds to commission a two-part study on Saudi textbooks that was intended for public release but was instead withheld to avoid embarrassing the Saudis or the U.S. administration.[4] Its detailed findings were hidden from public scrutiny for years[5] and only raised with the Saudis at a senior level after the textbooks it had evaluated were already out of date.[6]

In the testimony that follows, I will argue that this is particularly disturbing because incitement of this sort is not just a moral issue or a human rights issue, it is a national security issue. While Saudi textbooks are not the only significant source of incitement from the Gulf – or even in Saudi Arabia – they are an important bellwether and concern for U.S. policy.

I will then endeavor to present everything we know about incitement in the latest edition of Saudi Arabia’s official textbooks. Examples of such incitement include: (1) directives to kill people in response to their non-violent personal life choices, (2) messages that are undoubtedly anti-Semitic or anti-Christian, (3) lessons that are intolerant toward adherents of non-monotheistic religions as well as implicitly toward Shi’ite and Sufi Muslims, and (4) several other passages encouraging violence.

I will explain how Riyadh regularly oversells the success of its textbook reforms.  I will then argue for why U.S. policy in this regard needs to change urgently. Next, I will refute some common counterarguments by those who claim that U.S. pressure cannot have a positive impact on the Saudi curriculum. Finally, I will conclude by offering a list of policy recommendations for Congress which could help encourage the Saudi government to address this issue in a more effective and timely manner.


[1] Nina Shea, “Saudi Arabia’s Curriculum of Intolerance: With Excerpts from Saudi Ministry of Education Textbooks for Islamic Studies,” Freedom House’s Center for Religious Freedom, 2006, p. 11. (https://freedomhouse.org/sites/default/files/CurriculumOfIntolerance.pdf)

[2] Margherita Stancati and Ahmed Al Omran, “Saudis Ready Digital Push to Get Islamic Extremism out of Schools: Textbooks were Criticized after 9/11 for Tendentious Content Pitting Muslims against Other Religions,” Wall Street Journal, February 15, 2017. (https://www.wsj.com/articles/saudis-ready-digital-push-to-get-islamic-extremism-out-of-schools-1487154603)

[3] David Andrew Weinberg, “Trump’s Counter-Extremism Effort Should Address Saudi Textbooks: The President Will Have to Address Incitement in Riyadh’s Government-Published Textbooks,” May 20, 2017. (http://www.huffingtonpost.com/entry/turning-the-page-on-hate-trumps-counter-extremism_us_5920a45de4b0e8f558bb2719)

[4] David Andrew Weinberg, Textbook Diplomacy: Why the State Department Shelved a Study on Incitement in Saudi Education Materials (March 2014). (http://www.defenddemocracy.org/content/uploads/documents/Textbook_Diplomacy.pdf)

[5] International Center for Religion and Diplomacy, The State of Tolerance in the Curriculum of the Kingdom of Saudi Arabia, 2012, p. 104. (https://www.nytimes.com/interactive/2016/08/17/international-home/document-state-dept-study-on-saudi-textbooks.html); International Center for Religion and Diplomacy, The Global Spread of Saudi Textbooks, 2013. (https://www.nytimes.com/interactive/2016/08/17/international-home/document-state-dept-study-on-saudi-textbooks.html);

[6] David Andrew Weinberg, Textbook Diplomacy: Why the State Department Shelved a Study on Incitement in Saudi Education Materials (March 2014), pp. 4 & 8. (http://www.defenddemocracy.org/content/uploads/documents/Textbook_Diplomacy.pdf)

 

Testimony

Restricting North Korea’s Access to Finance

Testimony for House Committee on Financial Services, Monetary Policy and Trade Subcommittee
19th July 2017

Download the full testimony here.

Introduction

Chairman Barr, Ranking Member Moore, and distinguished members of this subcommittee, thank you for the opportunity to address you today on this important issue.

My testimony will examine why current sanctions on North Korea are insufficient to exert meaningful pressure while also explaining how the U.S. government and its foreign partners can implement sanctions that have a much better chance of restraining Pyongyang’s brutal dictatorship. Above all, the U.S. and its partners must apply the lessons learned from its successful effort to force Iran to the negotiating table via comprehensive sanctions.

Despite the common misperception that tough sanctions on North Korea are already in place, my testimony will illustrate how the current restraints on Pyongyang pale in comparison to the ones that compelled Tehran to negotiate. Above all, the U.S. and its partners must target the Chinese individuals, banks, and front companies who play a crucial role in enabling North Korea to evade current sanctions. Again, there is a common perception that China is immune to pressure from abroad, yet there are already strong indications that it will bend when facing the right kind of pressure.

In the course of my testimony, I will offer nine specific recommendations for how Congress and the Trump administration can implement an effective sanctions regime.

Before proceeding, it is essential to underscore the urgency of the threat from Pyongyang. Kim Jong Un is a despot who murdered an American citizen; tortures, starves, and kills his own people; and will spare no expense to achieve an intercontinental ballistic missile (ICBM) that can deliver a nuclear weapon to the United States. The July 4 ICBM test is a wakeup call to all of us, including those who once called Kim a “Swiss educated reformer” or believe North Korea has any interest in serious negotiations with the United States.[1]

Furthermore, one should not assume Kim will hold back from using his nuclear weapons on America and our allies. 

Thus, the U.S. finds itself in a rapidly deteriorating situation where counterproductive policy options like a freeze of North Korea’s nuclear and missile programs or a peace treaty are treated like real options. Advocates say North Korea is ready to accept a freeze and/or peace treaty and it will lead to denuclearization. Unfortunately, we have seen this movie before.

Not only has North Korea told us it is not interested in denuclearization, its actions reinforce it. Pyongyang showed us the “Map of Death” in 2013 suggesting its nuclear targets are Washington, DC; Hawaii, home to Pacific Command; possibly San Diego, home to the Pacific Fleet; and possibly San Antonio, home to U.S. Air Force Cyber Command.[2] Just after the July 4 ICBM test, North Korea’s state media said that the Kim regime would not negotiate its nuclear weapons or ballistic missiles or stop bolstering its nuclear force unless the United States ended its “hostile policy and nuclear threat” to North Korea.[3] Translation: When Washington abandons its allies in Tokyo and Seoul and removes all troops, North Korea might be willing to talk about its programs.


[1] Michael Moynihan, “Kim Jong Un & The Myth of the Reformer Dictator,” The Daily Beast, December 24, 2013. (http://www.thedailybeast.com/kim-jong-un-and-the-myth-of-the-reformer-dictator)

[2] Jeffrey Lewis, “The Map of Death,” Foreign Policy, April 3, 2013. (http://foreignpolicy.com/2013/04/03/the-map-of-death/)

[3] “Kim Jong Un Supervises Test-launch of Inter-continental Ballistic Rocket Hwasong-14,” Korean Central News Agency, July 5, 2017. (https://kcnawatch.co/newstream/276945/kim-jong-un-supervises-test-launch-of-inter-continental-ballistic-rocket-hwasong-14/)

 

Testimony

Managing Terrorism Financing Risk in Remittances and Money Transfers

Testimony for House Committee on Financial Services, Terrorism and Illicit Finance Subcomittee
18th July 2017

Download the full testimony here.

Chairman Pearce, Ranking Member Perlmutter and members of the House Financial Services Subcommittee on Terrorism and Illicit Finance, thank you for the opportunity to testify today.  It is an honor for me to be here. 

“Without money, there is no terrorism.”

This simple truism was recognized early on.  A few days after the deadliest terrorist attack in U.S. history, President George W. Bush stated, “Money is the lifeblood of terrorist operations. Today we are asking the world to stop payment.” 

Almost sixteen years after the September 11 attacks, we are meeting here in part to ask, “Has America met its the world stopped payment?” 

The answer is not simple, particularly when it comes to both formal and informal remittance systems.   Unfortunately, we have seen how successful terrorist and organized criminal groups diversify their funding sources and methods.  These include remittance networks.  Moreover, our adversaries are creative.  They adapt to our countermeasures. 

I am joined by colleagues with tremendous expertise in the formal remittance industry. So, I would like to primarily address my remarks to informal remittances sometimes known as informal value transfer systems (IVTS), parallel banking, underground banking, or sometimes just “hawala.” 

Long before the September 11 terrorist attacks, I was concerned about informal value transfer and remittance systems. I investigated some of these networks in Europe and the Middle East.  Through subsequent books and articles I have been trying to draw attention to them. These systems exist here in the United States and though regulated as money services businesses after 9/11, for the most part, continue to operate under the radar screen of  many U.S. law enforcement and regulatory bodies.

I would like to briefly discuss the magnitude of the problem; how hawala and similar systems operate; why they are attractive to their customer base; how hawala brokers settle accounts; the futility of our current countermeasures, worrisome links to terror finance and criminality; vulnerabilities; and some suggested steps forward.

Magnitude

There are an estimated 244 million migrant workers around the world.[ii]  Globalization, demographic shifts, regional conflicts, income disparities, and the instinctive search for a better life continue to encourage ever more workers to cross borders in search of jobs and security.

Many countries are dependent on remittances as an economic lifeline. Although estimates vary, according to the World Bank global remittances may have reached approximately $575 billion in 2016.[iii]  Western Union, Money Gram, Ria Money Transfer, Dahabshill are just a few of the well-known companies that provide official remittance services for the world’s migrants. Of course, banks and non-bank financial institutions are also used.  In 2013, some of the top recipients for officially recorded remittances were India (an estimated $71 billion), China ($60 billion), the Philippines ($26 billion), Mexico ($22 billion), Nigeria ($21 billion), and Egypt ($20 billion).  Pakistan, Bangladesh, Vietnam, and the Ukraine were other large beneficiaries of remittances. As a percentage of GDP, some of the top recipients were Tajikistan (48 percent), the Kyrgyz Republic (31 percent), Lesotho (25 percent), and Moldova (24 perc$200ent).[iv]

In 2015, approximately $133,552,000,000 in remittances was sent from the United States to other countries.  Top recipients include Mexico, China, the Philippines, and Vietnam.[v]

The above are estimates of what is officially remitted.  Unofficially, nobody knows.  However, the International Monetary Fund believes, “Unrecorded flows through informal channels are believed to be at least 50 percent larger than recorded flows.”[vi] So, using the above World Bank and IMF estimates, unofficial remittances may be greater than $850 billion per year, with a substantial portion of that originating from the United States.

Informal channels operate outside of the ironically labeled “traditional” channels. It’s ironic because for most of the migrants involved, the alternatives to Western-style or formal remittances are very traditional for them.

Informal remittances are sometimes touted as a new phenomenon and a symptom of the emerging borderless world.  They have also erroneously been labeled “a measure of success” in our efforts to combat international money laundering and terrorist finance due to our crack down on illicit money moving through formal banking channels.  Yet diasporas and remittances have existed since ancient times.  For example, the Chinese practice of fei-chien, the so called “flying money” dates back to the T’ang Dynasty (618-907 AD).[vii]

The following is a partial list of worldwide informal remittance systems.  The names vary based on a number of factors including geographical locations and ethnic groups:

·         Hawala – India, Afghanistan, Africa, the Middle East, Gulf, parts of the Americas

·         Hundi – Pakistan, Bangladesh

·         Undiyal – Sri Lanka

·         Havaleh – Iran

·         Door-to-door / padala – the Philippines

·         Black market currency exchanges – Nigeria, South America, Iran

·         Stash houses / casas de cambio – Latin America

·         Phoei kuan – Thailand (Teochew Chinese)

·         Hui kuan – China – (Mandarin Chinese)

·         Fei-chien – “flying money”  China

·         Ch’iao hui  – overseas remittances – (Mandarin Chinese)

·         Chop shop – foreigners sometimes use this term for one of the Chinese systems

·         Chiti-banking – (refers to the “chit” used for receipt or proof of claim in transactions; introduced by the British in China)

The two largest underground remittance systems are hawala (and its various sister systems such as hundi and undiyal) and the Chinese fei-chien (and its corollaries).  They are both global in scope.  While there are no reliable estimates as to the magnitude of these two informal remittance systems, both are probably responsible for hundreds of billions of dollars in unregulated (and non-taxed) money transfers a year.[viii]

Although diverse, alternative remittance systems are found throughout the world, most share a few common characteristics. The first is that they all transfer money without physically moving it. Another is that they all offer the three C’s: they are certain, convenient, and cheap.  They are all ethnic based.  They are sophisticated and efficient.  And finally, historically and culturally, most alternative remittance systems use trade as the primary mechanism to settle accounts or balance the books between brokers.

I would like to emphasize that I have the utmost respect for these systems.

The overwhelming percentage of money transfers generated by the use of these informal remittance systems is benign.  They are primarily used to remit a portion of migrants’ earned wages back to their home countries to support their families.  We, of course, do not wish to interfere with this process.

However, because these systems are opaque and based on trust, they avoid our primary anti-money laundering and counter-terrorist finance (AML/CFT) countermeasures.  As Osama bin Laden once said, jihadists are aware of the “cracks” in our Western financial system.[ix]  Informal remittances are not just a crack but a Grand Canyon.  There is no doubt that in addition to remitting wages, they are also abused by criminal and terrorist organizations.

How They Operate [x]

The definition of hawala was concisely expressed during the 1998 U.S. federal trial of Iranian drug trafficker and money launderer, Jafar Pour Jelil Rayhani and his associates.  During the trial, prosecutors called hawala “money transfer without money movement.”  That is, a broker on one side of the transaction accepts money from a client who wishes to send funds to someone else.  The first broker then communicates with the second broker at the desired destination who distributes the funds to the intended recipient (less small commissions at both ends).  The money does not physically move from Point A to Point B.  The key ingredient is trust.  Most brokers are of the same ethnic group and many are members of the same family, tribe, or clan. 

To illustrate how the hawala remittance process works, we will use a typical example. Ali is an Afghan national, recent immigrant, and a construction worker in Your District. (Note: While in this example Ali is Afghan, he could just as easily be Pakistani, Iraqi, Syrian, Somali, North African, Lebanese, Indian, Chinese, etc.)   Ali emigrated to the United States years ago and earns money that helps support his family.  He periodically sends a portion of his salary back to his elderly father, Jafar, who lives in a village outside of Kandahar in southern Afghanistan. To make his monthly transfer - usually about $200 - Ali uses hawala. This is very common in Afghanistan. About 30 percent of its population is externally and internally displaced, and remittances from outside of Afghanistan are received by about 15 percent of the rural population.  Hawala has been described as the de facto national banking system of Afghanistan.

If Ali went to a bank in Your District to send the money home to his father, he would have to open an account. He doesn’t want to do that for a number of reasons. First, Ali grew up in an area of the world where banks are not common. He is not used to them and doesn’t trust them. Next, Ali has little faith in governments and wants to avoid possible scrutiny. Many immigrants believe the government is monitoring their immigration status and/or will make them pay taxes. He also doesn’t want the U.S. government to screen his money transfers to Afghanistan.  In addition, although Ali has lived in Your District for a few years, he is still a bit intimidated. His English is marginal. He is only semi-literate (the literacy rate in Afghanistan is quite low) and cannot fill out the necessary forms.  Moreover, banks charge their customers assorted transfer fees and offer unfavorable exchange rates. If Ali only earns a little money and is sending $200, bank transfer fees of 10 percent or more are quite substantial.

Generally speaking, the average cost of transferring funds through an alternative remittance system such as hawala between major international cities is about 2– 5 percent of the value transferred. (Globally, the cost of sending $200 through formal remittance companies averaged 7.45 percent in the first quarter of 2017, although this was significantly higher than the Sustainable Development Goal (SDG) target of 3 percent.[xi])  The price differential is in large part due to the fact that hawaladars (hawala brokers) generally don’t have large brick and mortar businesses.  Since they operate in the shadows, taxes and regulatory fees are minimal as well as administrative and personnel costs.  Of course, prices in both the formal and informal remittance industries are influenced by a variety of factors. Hawala networks are most competitive when they operate in areas where banking systems and overt money remittance chains find it difficult, expensive, or high risk to operate – particularly in areas where our terrorist adversaries operate.

Delivery of a bank transfer to Jafar would pose additional problems. The number of licensed banks in Afghanistan is still small. They are used by only about ten percent of the population.[xii] Particularly in a poorly secured area such as Kandahar, Jafar does not want to leave his village home and travel a far distance to a bank.

In light of these problems and concerns, Ali uses a hawaladar in Your District who is a member of his extended clan and family. He feels comfortable dealing with him. The hawaladar also owns and operates an “import/export” company in Your District. The hawaladar completes the transaction for a lower commission than banks or money service businesses charge. In addition, he obtains a much better exchange rate.  Delivery direct to Jafar’s home in the Kandahar area village is also included in the price. In fact, in certain areas of the world, hawala is advertised as “door-to-door” money remitting.

Ali gives the $200 to the hawaladar in Your District that he wants to transfer. The hawaladar takes his small commission. Ali is not given a receipt because the entire relationship is based on trust. This is a different kind of “know your customer” (KYC) procedure.  For purposes of illustration, particularly if this is a first-time transfer, Ali may be given a numerical or other code, which he can then forward to Jafar. The code is used to authenticate the transaction. But in the nature of hawala networks, codes are not always necessary. As opposed to the often-lengthy formal operating requirements of bank-to-bank transfers, this informal transaction can be completed in the time it takes for the hawaladar in Your District to make a few telephone calls or send a fax or e-mail to the corresponding hawaladar in his network that handles Kandahar.

Hawaladars maintain very few records, offering customers near anonymity. They only keep simple accounting records, and even these are often discarded after they settle-up with one another. This means the paper trail is limited or nonexistent, making transactions very difficult to track for law enforcement. Even when records are kept, they are often in a foreign language or code, making them very challenging for Western authorities to decipher.[xiii]

Although some transactions are arranged directly between the two hawaladars involved, many are cleared or pass through regional hawala hubs such as Dubai, Mumbai, Karachi, and Kabul. So generally speaking, money can be delivered directly to Jafar’s home within 24 hours and the transaction will not be scrutinized by either U.S. or Afghan authorities.

The above scenario with Ali in Your District could just as easily take place in Minneapolis with its large Somali community, northern Virginia with its large Indian community, or Detroit with its large Arab community.

Similarly, hawala transfers are very common in London, Frankfurt, Dubai, Damascus, Baghdad, Tehran, Karachi, Zanzibar, Durban, the Colon Free Trade Zone in Panama, the Tri-Border region of South America, and many other locations around the world. For example, according to the U.S. State Department 2015 INCSR report in the West African country of Gabon, “There is a large expatriate community engaged in the oil and gas sector, the timber industry, construction, and general trade. Money and value transfer services, such as hawala, and trade-based commodity transfers are often used by these expatriates, particularly the large Lebanese community, to avoid strict controls on the repatriation of corporate profits.”[xiv]

Settling Accounts

Hawaladars eventually have to settle their accounts with each other.  Frequently, the close relationships between the brokers help facilitate the settlement.  Remember, the key ingredient in hawala is trust.  So kinship, family and clannish ties often enable the settlement process.  For example, in Afghanistan, intermarriages between the families of hawaladars are common because they help cement confidence between the parties.  Brothers, cousins, or other relations often operate in the same hawala network.  Lebanese family members that operate in the same hawala networks can be found in Beirut, Dubai, the Colon Free Trade Zone, and various locations in Africa. Yet even though they may have familial or other ties, they are still in business to make money.  Somebody is running a surplus and somebody a deficit. Payments go in both directions.  For example, remittances may flow into South Asia from the United States and Europe but money and various goods flow back as well.  Periodically, accounts must be settled. Generally, money transfers between hawaladars are not settled on a one-to-one basis but are bundled over a period of time after a series of transactions.  A variety of methods are used to make payments and settle the accounts.   

Trade: From the earliest times - before modern banking and before modern monetary instruments – trade based value transfer was used between hawala brokers to settle accounts and balance their books.  The use of trade remains widespread.   Settling accounts through import/export clearing is somewhat similar to bilateral clearing using bank transfers, but it uses the import/export of trade goods.  That is why many import/export concerns are associated directly or indirectly with hawaladars.  If a debt needs to be settled, hawaladar A could simply send goods to hawaladar B such as gold, electronics, or a myriad of other trade items.  Or at the end of a reporting period, if an outstanding balance exists between hawaladar A in Somalia and hawaladar B in Dubai, B can use, for example, a Japanese bank account to purchase cars for export to Somalia. Once the cars arrive, they would be transferred to A to settle the debt and/or sell them for profit. The transaction would clear the debt between the two hawaladars.

Invoice fraud and manipulation is also widespread.  To move money/value out of a country, a hawaladar or his agent will import goods at overvalued prices or export goods at undervalued prices.  To move money/value in, a hawaladar or his agent will import goods at undervalued prices or export goods at overvalued prices. This type of procedure is called counter-valuation. Most other worldwide alternative remittance systems or informal value transfer networks are similarly based on trade.  Historically and culturally, trade is still the preferred method of account settlement. [xv]

Banks: Most major hawala networks have access to financial institutions either directly or indirectly.  A majority of international hawaladars have at least one or more accounts with formal financial institutions.    Bi-lateral wire transfers between brokers to settle accounts are sometimes used.  If a direct wire transfer is made between international brokers, hawaladar A would have to wire money directly to hawaladar B’s account to clear a debt.  This could be problematical because the banks’ foreign exchange rate procedures would be triggered.  So in this case, hawaladar A might choose to deposit the funds into B’s foreign account. 

Cash couriers:  Direct cash payments are also used to settle debts.  This is particularly true in areas of the world that have cash based economies.  Sometimes overlooked is that hawala networks also operate domestically between states and provinces.  For example, in Afghanistan, hawala networks are found in each of the 34 provinces.  Periodically, the brokers settle accounts and often use cash.  Hawala couriers have been identified transporting money within Afghanistan and across the border into Pakistan.  Cash couriers representing hawala networks also frequently travel from Karachi to Dubai to settle accounts.

Other methods:  Over the last few years, there are indications that new payment products and services (NPPS)[xvi] are being added to the mix: virtual currencies and transfers, mobile payments, and other forms of person to person (P2P) money transfers.

Although open source reporting is very sparse, there is reason to believe that some underground remittance networks are now using virtual currencies, including bitcoins.  Recently, Indian police raided a money exchanger/hawaladar that allegedly used bitcoins.[xvii]   Over time, the use of virtual currencies could potentially have a great impact on the hawala settlement process.  Moreover, I can envision how an enterprising hawaladar will acquire bitcoins and use them not only to settle accounts between fellow brokers, but also use them as cash-out service for their clients. Cross border mobile payments network for emerging markets are currently processing air-time top ups and money transfers in multiple currencies in real-time for duly licensed financial institutions, organizations, and merchants.   And since most hawaladars have side businesses, bitcoins could also be used to purchase his product – for example, mobile phone credits. 

In many areas of the world, mobile payments or M-Payments – particularly via the use of cell phones - are an increasingly popular vehicle for the remittance of wages.  It is also quite possible for M-Payments to be used in the settling of accounts between underground money remitters including hawaladars.[xviii]  M-Payments are recognized as a growing money laundering threat – particularly in areas of the world where our terrorist adversaries operate.[xix]

Etisalat Afghanistan, the Afghan telecommunications company, is now offering “M-Hawala.”  From its website, Etisalat Afghanistan boasts that “M-Hawala is an innovative mobile financial services solution that will enable Etisalat Afghanistan’s customers to purchase airtime directly from their handsets, send money from their mobile phones to family and friends, pay their bills via their mobile phones, purchase goods and services from shops and or retail outlets and deposit or withdraw cash from Etisalat authorized M-Hawala distributors or Etisalat partner banks.” [xx]

Over the last few years P2P money transfers have grown exponentially.  There are many domestic and global services (some are interoperable) that make it easy to transfer money from one party to another via a phone number or email.  Parties can send cash from an attached digital wallet account, or a linked debit card, bank account, or credit card. It is also easy to receive money; some services offer payments in brick-and-mortar stores as well. 

In many respects, the growing use of P2P could mitigate the widespread use of hawala for traditional remittance purposes.  I am not aware if P2P transfers are being used in the hawala settlement process.  If it is occurring, I suspect it is happening overseas and is linked to other forms of M-Payments (see above).

Consequently, one of the challenges to law enforcement is where regulatory regimes have not kept pace with the rapidly evolving business models and payments schemes.

Worrisome Links

Unfortunately, hawala is abused by terrorists.  Hawala networks are used by ISIS in war-torn Syria and Iraq.[xxi]  Hawala is used in Europe to support terror groups.  For example,  a network of 250 to 300 shops - such as butchers, supermarkets and phone call centers - run by mostly Pakistani brokers across Spain have supported ISIS and the al-Qaeda-affiliated Nusra Front through their hawala operations.[xxii]  There are reports that hawala was used to help finance the 2015 ISIS attacks in Paris.[xxiii]

Hawala is widespread in South Asia and is heavily used by drug warlords and both the Afghan and Pakistani Taliban.   Hawala networks exist in other troublesome spots where our adversaries operate such as the Horn of Africa.[xxiv]  Hawala is “central” to Libya’s underground economy.[xxv]

Boko Haram’s funding is likely to withstand most restrictions on accessing the banking sector, as it uses hawala and cash couriers to move funds, some of which originates from supporters outside Nigeria.[xxvi]

Media reports indicate a surge in hawala funding from charity organizations in the Persian Gulf to madrassas and seminaries in the Kashmir Valley used to indoctrinate local youth.[xxvii]

Iran, a U.S. designated state sponsor of terror, also uses hawala —locally known as havaleh.   The underground money transfer system has also been used to circumvent sanctions. [xxviii]   Reportedly some financial exchanges between Iran and Pakistan are routed through hawala instead of the legal channels of the Asian Clearing Union. [xxix]

Iran’s merchant community makes active use of money and value transfer systems, including hawala and moneylenders. Many hawaladars and traditional bazaari are linked directly to the regional hawala hub in Dubai. Over 300,000 Iranians reside in Dubai, with approximately 8,200 Iranian-owned companies based there. The trading companies are instrumental in settling accounts between hawaladars (see above).   There are reports that billions of dollars in Iranian capital have been invested in the United Arab Emirates, particularly in Dubai real estate. Iran’s real estate market is also used to launder money. [xxx]

The United States is not immune. Hawala has repeatedly been used to finance terror attacks against the U.S., including the 1998 bombing against our embassy in Nairobi, attacks against our troops in Afghanistan and Iraq, and the 2010 Times Square bombing in New York City. [xxxi] In 2013, a federal judge in San Diego sentenced three Somali immigrants for providing financial support to al-Shabaab—a designated terrorist organization.  Evidence presented during trial showed that the defendants conspired to transfer funds to Somalia via hawala to wage jihad.[xxxii]   

Hawala is often used in other criminal activity.  For example, in 2013 a naturalized U.S. citizen and his wife were indicted for medical billing fraud in Texas, and for sending the illicit proceeds to Iran via hawala.[xxxiii] In November, 2015, authorities in Los Angeles announced they had broken up an international hawala network with ties between Canada, India, the United States and other locations that moved millions of dollars for the Sinaloa drug cartel and other criminal groups.[xxxiv] And international criminal organizations from sex traffickers in Nigeria, fraudsters in Eastern Europe, to drug traffickers in Southeast Asia use hawala.  Many of these criminal networks impact the U.S.

Countermeasures and Steps Forward

Registration

Similar to Western Union, Pay-Pal, casas de cambio, and “Mom and Pop” check cashing services, Treasury’s Financial Crimes Enforcement Network (FinCEN) classifies hawala as a money services business or MSB.

As a result, hawala and similar money transfer systems systems  are legal as long as the operation is registered with FinCEN and meets individual state licensing requirements.  Unfortunately, the regulatory response hasn’t worked.  According to the 2007 National Money Laundering Strategy, “While the exact number of money service providers in the United States is difficult to determine, estimates suggest that fewer than 20 percent of MSBs are registered with FinCEN. It is not known what percentage of unregistered MSBs are exempt from registration, due for example to their low business volumes or agent status. Regardless, the result is that the vast majority of MSBs operate without direct Federal regulatory supervision.”[xxxv]   

Hawaladars are also supposed to file Suspicious Activity Reports (SARs).  I believe very few do.  Should we be surprised?  Hawala is based on trust.  Why would a hawaladar file a suspicious activity report on an extended family, tribe, clan, or ethnic group member?

The IRS/Criminal Investigation Division has the law enforcement mandate to ensure MSB compliance.  Unfortunately, due to budget cuts and manpower constraints the IRS has been unable to conduct necessary assessments or compel MSBs to register.  Mandated “outreach” programs that are designed to advise informal remittance networks of their registration and reporting responsibilities have also fallen short. 

Before a strategy for enhanced MSB registration can be formulated I suggest this committee request the following information from FinCEN:

1.      Over the last five years, how many hawaladars, fei-chien brokers, and other similar informal remittance operators have actually registered with FinCEN?  Please ask that the registration totals be listed by year.

2.      Of those that have registered, how many SARs have been filed?  Per year?

3.      A FinCEN request should be made to the Egmont Group of Financial Intelligence Units (FIUs) to poll its international members regarding questions 1 and 2 above. For the Egmont FIUs, a precursor question will be whether or not registration is required for hawala in their jurisdiction and, if so, under what authority.

4.      Request that FinCEN estimate the number of informal unregistered money remitting entities currently in operation in all 50 states.

5.      For the last five years, have FinCEN and the IRS detail their “outreach” programs to ethnic communities throughout the United States regarding the obligation to register and license money remitters.

6.      Ask IRS/CI what it would need in additional budget and personnel to launch an aggressive campaign that targets unregistered and unlicensed money remitters.

7.      Ask the FinCEN Intelligence Group to provide, on a classified basis as required, information related to the instance of emerging payments such as bitcoin and other virtual currencies used as hawala systems or financing.

8.      Request that FinCEN provide any statistics or case examples related to its 314 program regarding inquiries related to hawala and terrorist financing, on a classified bases, as required.

Accountability

The U.S. government’s 2007 Inter-Departmental National Money Laundering Strategy report’s goal #2 is to “Enhance Financial Transparency in Money Service Businesses.” The laudable goal contains eight “action items;” most are pertinent to this hearing.  I urge Congress to exercise its oversight responsibilities and determine whether or not the action items were fulfilled and hold the departments, offices, and bureaus involved responsible if they have not.

Examine the “back door” of Trade

Hawaladars are most vulnerable to law enforcement, customs, and intelligence agencies when they settle accounts.  As discussed above, historically and culturally, in many parts of the world settling accounts via trade-based value transfer is the preferred technique.   One does not understand hawala and underground remittance systems unless one understands this concept. 

Particularly in areas where our adversaries operate, examining trading records for signs of “counter-valuation” or a method of settling accounts between hawala traders could be the backdoor into their operations.  Systematically cracking down on associated trade fraud could also be a boon to revenue strapped governments. (Sometimes offering the “carrot” of increased revenues to cash-strapped governments is often more effective than the “stick” of heavy handed enforcement.)

In 2003 I proposed the creation of Trade Transparency Units or TTUs to spot trade anomalies that could be indicative of customs fraud, money laundering, or even underground financial systems such as hawala.[xxxvi]  The concept is now part of our national anti-money laundering strategy.  To date there are approximately 16 international TTUs.  Many additional countries have expressed interest in joining the TTU network.  Congress should create a specific line item that funds the expansion of the U.S. TTU to include additional dedicated personnel and advanced analytics.

Over the last few years, there has been an explosion in trade and related data.   Advanced analytic programs are available.  Trade anomalies can be identified such as over-and-under invoicing by making a comparison to market norms. [xxxvii]  We could specifically risk-score the probability of informal value transfer /counter-valuation.  Analytics are available to help over worked analysts and investigators prioritize trade-based money laundering (TBML)-related investigations and help with investigative decision making. For example,  we can apply subjective logic analytics to the high levels of uncertainty inherent in hawala networks.  Potentially models could be built to help prioritize which cases of potential TBML should be pursued.   

Funds should also be provided to the U.S. TTU and the State Department’s Bureau of International and Narcotics Affairs (INL) that will assist with the creation of additional foreign TTUs.  Any funds expended will be more than made up by enhanced revenue collected by cracking down on associated customs fraud.

Examine Fei-Chien

While hawala gets attention because of its links to terror finance, the Chinese equivalent fei-chien or “flying money” is undoubtedly as large and pervasive.  As I outline in my book Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement,[xxxviii] fei-chien is ancient; it operates in the same manner as hawala; Chinese flying money is international in scope; it relies on trade to settle accounts between brokers; and while used primarily for remittances, the underground system has also been linked to criminal organizations and capital flight.

I believe flying money is used by wealthy Chinese to help purchase high-end residential real estate (including in the United States [xxxix]) in probable violation of China’s own capital controls.   FinCEN is currently studying the purchase of high-end real estate and its links with money laundering in specific geographic areas. XXXIX

Unfortunately, our law enforcement, intelligence, and regulatory communities have little knowledge or interest in fei-chien and other forms of underground Chinese remittance systems.  Open source information on fei-chien is limited and I fear there is little classified information as well.  I suggest this Committee task FinCEN to develop a strategic study on the prevalence of Chinese flying money and how it impacts the United States.

Data and Analysis

Since many hawaladars and similar underground financial networks often use financial institutions, advanced analytics should be employed to provide the transparency that the hidden systems seek to deny.   AML/CFT compliance software could be coded to provide red-flag alerts and/or risk scoring specifically for informal remittance systems such as hawala.  Diverse data sets (financial, social media, etc.) could be examined and suspicious activity indicators installed for transfers to/from suspect locations, suspect businesses, individuals on designated lists, etc.  Applicable overseas data sets could be analyzed and cross-referenced against suspect remittance service providers in the United States.

The same should be done with financial institutions that deal heavily in trade finance.  AML/CFT compliance software should be engineered to flag alerts for indications of trade-based money laundering which, per the above, could be the back door into underground remittance networks.

Inclusion

One of the primary reasons immigrants use informal remittances is cost.  As a result, the formal financial system—banks and remittance services— should improve their services and reduce charges and fees for remittances.  This will attract more customers into the formal and transparent banking and remittance sectors. Lower cost structures are currently one of the major marketing features of M-payments in emerging markets.

Training

In my opinion, a staggering amount of compliance officers and those involved with trade finance do not understand informal remittance systems and how to recognize them.  Only with specific insight into hawala and other similar systems will AML/CFT compliance staff responsible for risk monitoring be able to properly react to flagged transactions or adjust risk exposure.  Financial institutions and MSBs that are exposed to informal remittance systems and TBML should do more to provide training and assistance to staff.  Training in this area should be part of AML/CFT compliance review.

I have firsthand knowledge that law enforcement personnel at the federal, state, and local levels as well as intelligence officers, regulators, analysts, etc. similarly do not understand informal remittance systems and TBML and do not know how to recognize them in their area of operations.  

Even though I can demonstrate how informal remittances and TBML affects state and local law enforcement, most often the consensus opinion is, “This is a federal issue and doesn’t concern us.”

Yet it is precisely because law enforcement officers are on the front lines in their communities and know their operating environment well that they should notice if a local business or commercial activity does not make market or economic sense. For example, a normal business should not remain in operation for long with sporadic commercial activity or when consistently selling goods far above or below market norms. Numerous businesses in the U.S. and elsewhere are involved at the local level in TBML schemes and deal with goods that are frequently manipulated to transfer value. Underground remittance networks such as hawala and fei-chien are found in local communities throughout our country and they often depend on trade and local business networks.

Accordingly, I urge my state and local law enforcement colleagues to become more familiar with issues surrounding TBML and informal remittance schemes and how they affect the local community.  Where appropriate, trade fraud and associated crimes should be part of their financial investigations education.The State and Local Anti-Terrorism Training (SLATT) program[xl] funded by the U.S. Department of Justice, Bureau of Justice Assistance (BJA) is an excellent starting point. The SLATT program is dedicated to providing specialized multiagency antiterrorism detection, investigation, and interdiction training and related services at no cost to our nation's law enforcement officers, who face the challenges presented by the terrorist and violent criminal extremist threat – including the detection of opaque underground financial systems sometimes employed by terrorists. 

It is of paramount importance this program continues to be offered in the field.

 

John A. Cassara is a former U.S. intelligence officer and Treasury Special Agent.  More information is available at http://www.JohnCassara.com

 

 



Section 359 of the USA PATRIOT Act expanded the definition of “financial institution” to include not only a licensed sender of money but any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside the conventional financial institution system. See 31 U.S.C.5312(a)(2)(R)

[v] The World Bank; available online at http://www.pewglobal.org/interactives/remittance-map/

[vi] Dilip Ratha, “Remittances, Funds for the Folks Back Home,” International Monetary Fund; available online: http://www.imf.org/external/pubs/ft/fandd/basics/remitt.htm

[vii] Leonides Buencamino and Sergei Gorbunov, “Informal Money Transfer Systems: Opportunities and Challenges

for Development Finance,” November, 2002, United Nations; available online: http://www.un.org/esa/esa02dp26.pdf

[viii] Estimates vary as to how much money is pumped annually through the global hawala network but according to Gretchen Peters research in Seeds of Terror, St. Martins Press, 2009, p. 170, economists put the total figure at about $100 billion per year.  Others estimate hawala transfers approach $400 billion annually; see Jack Moore, Hawala, The Ancient Banking Practice Used to Finance Terror Groups, Newsweek, February 24, 2015; available online at:  http://www.newsweek.com/underground-european-hawala-network-financing-middle-eastern-terror-groups-307984.  Because the global nature of the Chinese diaspora, I believe “flying money” is at least equal to or surpasses the magnitude of hawala.

[ix] Chairman Evan Bayh, “Hearing on "Hawala and Underground Terrorist Financing Mechanism,” November 14, 2001; available online: https://www.banking.senate.gov/01_11hrg/111401/bayh.htm

[x] The information in this section is taken from John Cassara, Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement, Wiley, 2015; see chapter on Hawala: An Alternative Remittance System, pages 49 – 69 and original references.

[xii] International Narcotics Strategy Report Volume II on Money Laundering,  State Department, 2015, see Afghanistan country report; available online at: https://www.state.gov/j/inl/rls/nrcrpt/2015/supplemental/239124.htm

[xiii] Financial Crimes Enforcement Network (FinCEN) # 33, March, 2003; available online at: https://www.fincen.gov/sites/default/files/advisory/advis33.pdf

[xiv] International Narcotics Control Strategy Report, Volume II, Money Laundering, Department of State, 2015; available online at: https://www.state.gov/j/inl/rls/nrcrpt/2015/vol2/index.htm    See Gabon country report.

[xv] Trade-based money laundering being used as counter valuation for hawala and other informal value transfer systems is described in detail in my book Trade-Based Money Laundering; see ix

[xvi] See Guidance  for a Risk-Based Approach: PREPAID CARDS, MOBILE PAYMENTS AND INTERNET-BASED PAYMENT SERVICES , Financial Action Task Force (FATF), June, 2013.

[xvii] “Bitcoins May be Used by Hawala Traders: Official,” The Times of India, December 29, 2013; available online

(http://timesofindia.indiatimes.com/city/ahmedabad/Bitcoin-may-be-used-by-hawala-traders-Officials/articleshow/28067184.cms)

[xviii] For an overview of Mobile Payments see John A. Cassara , Written Statement for the Hearing On “The Next Terrorist Financiers: Stopping Them before They Start” Before the Task Force to Investigate Terrorism Financing

Of the House Financial Services Committee, June 23, 2016; available online at: https://financialservices.house.gov/uploadedfiles/hhrg-114-ba00-wstate-jcassara-20160623.pdf

[xix] Ibid

[xxi] See Yaya J. Fanusie and Alex Entz,” Islamic State - Financial Assessment,” Foundation for the Defense of Democracies, March 2017; available online at: http://www.defenddemocracy.org/content/uploads/documents/CSIF_ISIS_Finance.pdf

[xxii] Jack Moore, Hawala, The Ancient Banking Practice Used to Finance Terror Groups, Newsweek, February 24, 2015; available online at:  http://www.newsweek.com/underground-european-hawala-network-financing-middle-eastern-terror-groups-307984

[xxiii] Rukmini Callimachi, Alissa J Rubin, Laure Fouquet, Paris attacks: terrifyingly fatal layers of resources and tactics, The Irish Times, March 20, 2016; available online at: http://www.irishtimes.com/news/world/europe/paris-attacks-terrifyingly-fatal-layers-of-resources-and-tactics-1.2580749

[xxiv] See Yaya J. Fanusie and Alex Entz,” Al-Shabaab - Financial Assessment,” Foundation for the Defense of Democracies, May, 2017; available online at: http://www.defenddemocracy.org/content/uploads/documents/CSIF_TFBB_Al-Shabaab_v05_web.pdf

[xxv] Yaya Fanusie and Landon Heid, Foreign Affairs, June 17, 2016; available online at; https://www.forbes.com/sites/realspin/2016/06/17/what-isis-is-banking-on/#50fe1cc11651

[xxvi]  See Yaya J. Fanusie and Alex Entz, “Boko Haram Financial Assessment,” Foundation for the Defense of Democracies, May, 2017; available online at: http://www.defenddemocracy.org/content/uploads/documents/CSIF_Boko_Haram.pdf and Kathleen Caulderwood, “Fake Charities, Drug Cartels,Ransom and Extortion: Where Islamist Group Boko Haram Gets

Its Cash,” International Business Times, May 16, 2014; available online at: http://

http://www.ibtimes.com/fake-charities-drug-cartels-ransom-extortionwhere-islamist-group-boko-haram-gets-its-1585743

[xxvii] “Gulf funds being used to radicalize Kashmir youth”, Daily Excelsior, 24 April 2016; available online at: http://www.dailyexcelsior.com/gulf-funds-used-radicalise-kashmir-youth/

[xxviii] Rick Gladstone, “Iran Finding Some Ways to Evade Sanctions, Treasury Department Says,” New York Times, January 10, 2013; available online at: http://www.nytimes.com/2013/01/11/world/middleeast/iran-finding-ways-to-circumvent-sanctions-treasury-department-says.html

[xxix] Reschikov, Oleg, “Iran: Opposition to Western Sanctions in the Banking Sector”, New Eastern Outlook, January 30, 2015 available online at: http://journal-neo.org/2015/01/30/rus-iran-protivodejstvie-zapadny-m-sanktsiyam-v-bankovskoj-sfere/

[xxx] International Narcotics Control Strategy Report, Volume II on Money Laundering, U.S. Department of State, 2015, See Iran country report; available online: https://www.state.gov/j/inl/rls/nrcrpt/2015/supplemental/239219.htm

[xxxi] “Manhattan U.S. Attorney Charges Long Island Man with Engaging in Hawala Activity That Funded Attempted Times Square Bombing,” FBI Press Release, September 15, 2010; available online at: https://archives.fbi.gov/archives/newyork/press-releases/2010/nyfo091510a.htm

[xxxii] “Three Somali Immigrants Sentenced for Providing Support to Foreign Terrorists,” FBI Press Release, November 18, 2013; available online at: https://archives.fbi.gov/archives/sandiego/press-releases/2013/three-somali-immigrants-sentenced-for-providing-support-to-foreign-terrorists

[xxxiii] “Healthcare Fraudsters Sent $1.1 Million to Iran,” Money Jihad, March 26, 2013; available online at: https://moneyjihad.wordpress.com/2013/03/26/health-care-fraudsters-sent-1-1-million-to-iran/

[xxxiv] Joel Rubin, “Drug cartel money-laundering indictment is first major effort against hawala tactics,” Los Angeles Times, October 2, 2015, available online at: http://www.latimes.com/local/crime/la-me-hawala-drug-money-20151003-story.html

[xxxv] 2007 National Money Laundering Strategy Report; available online at: https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/nmls.pdf

[xxxvi] See my February 3, 2016 testimony before the Task Force to Investigate Terrorism Financing of the House Financial Services Committee available online at:  https://financialservices.house.gov/uploadedfiles/hhrg-114-ba00-wstate-jcassara-20160203.pdf;  Also, see John Cassara, Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement, 2016 John Wiley & Sons, Hoboken, New Jersey; see chapter 9 page 145 on “Monitoring Trade.”

[xxxvii] Ibid

[xxxviii] Ibid, Cassara TBML; see chapter 5 on “Chinese Flying Money.”

[xxxix] John Cassara, "Flying money" may land in U.S. - Is Chinese money laundering “flying” into real estate?”  February 21, 2016, Banking Exchange; available online at: http://www.bankingexchange.com/news-feed/item/6079-flying-money-may-land-in-u-s

XXXIX See https://www.fincen.gov/news/news-releases/fincen-expands-reach-real-estate-geographic-targeting-orders-beyond-manhattan  FinCEN recently expanded its Real Estate Geographic targeting orders beyond Manhattan and Miami to identify natural persons behind shell companies used to pay for high end real estate in six major metropolitan areas.

[xl] The Institute for Intergovernmental Research (IIR) serves as the technical service provider for ongoing training, research, and analysis services to the SLATT Program through the support of grant awards received from the Bureau of Justice Assistance. IIR supports the SLATT Program by providing project coordination activities, training assessment, and meeting coordination. See the IIR/SLATT website for additional information; (https://www.iir.com/WhatWeDo/Criminal_Justice_Training/SLATT/)

 

Testimony

The Terrorist Diaspora: After the Fall of the Caliphate

Testimony for House Committee on Homeland Security, Task Force on Denying Terrorist Entry into the United States
13th July 2017

Download the full testimony here.

Chairman Gallagher, Ranking Member Watson Coleman, and other distinguished Committee Members, thank you for inviting me to testify today concerning foreign fighters and the threat some of them pose to the U.S. and Europe.

The fall of Mosul and the likely fall of Raqqa won’t be the end of the Islamic State. The group has already reverted to its insurgent roots in some of the areas that have been lost. It also still controls some territory. The Islamic State will continue to function as a guerrilla army, despite suffering significant losses. In May, the Office of the Director of National Intelligence (ODNI) assessed that even though it was losing significant ground, the Islamic State “will likely have enough resources and fighters to sustain insurgency operations and plan terrorists [sic] attacks in the region and internationally” going forward.[1] Unfortunately, I think ODNI’s assessment is accurate for a number of reasons, some of which I outline below. I also discuss some hypothetical scenarios, especially with respect to returning foreign fighters or other supporters already living in Europe or the U.S.

Recent history. The Islamic State’s predecessor quickly recovered from its losses during the American-led “surge,” capitalizing on the war in Syria and a politically poisonous environment in Iraq to rebound. Indeed, Abu Bakr al Baghdadi’s organization grew into an international phenomenon by the end of 2014, just three years after the U.S. withdrawal from Iraq was completed. Baghdadi’s men did this while defying al Qaeda’s leaders and competing with rival jihadist groups. This recent history should give us pause any time we hear rhetoric that sounds too optimistic about the end of the Islamic State’s caliphate. The enterprise has had enough resources at its disposal to challenge multiple actors for more than three years. There is no question that the Islamic State’s finances, senior personnel, and other assets have been hit hard. But it is premature to say its losses amount to a deathblow.

Uncertainty regarding size of total membership. While it is no longer at the peak of its power, the Islamic State likely still has thousands of dedicated members. We don’t even really know how many members it has in Iraq and Syria, let alone around the globe. Previous U.S. estimates almost certainly undercounted the group’s ranks. In September 2014, at the beginning of the US-led air campaign, the CIA reportedly estimated that the Islamic State could “muster” between 20,000 and 31,500 fighters.[2] This figure was “more than three times the previous estimates,” CNN noted. [3] By December 2016, the U.S. military was estimating that 50,000 Islamic State fighters had been killed.[4] By February 2017, U.S. Special Operations command concluded that more than 60,000 jihadists had perished.[5] Two months later, in April 2017, the Pentagon reportedly estimated that 70,000 Islamic State fighters had been killed.[6]

Taken at face value, these figures (beginning with the September 2014 approximation) would suggest that Abu Bakr al Baghdadi’s enterprise was able to replace its entire force structure more than two times over, while fighting multiple enemies on numerous fronts. This is, of course, highly unlikely. Even with its prolific recruiting campaign, it would be impossible for any cohesive fighting organization, let alone one under the sustained pressure faced by the Islamic State, to train, equip and deploy fighters this quickly. It is far more likely that the U.S. never had a good handle on how many jihadists are in its ranks and the casualty figures are guesstimates. The purpose of citing these figures is not to re-litigate the past, but instead to sound a cautionary alarm regarding the near-future: We likely do not even know how many members the Islamic State has in Iraq and Syria today.

The Islamic State is an international organization. Since November 2014, when Abu Bakr al Baghdadi first announced the establishment of “provinces” around the globe, the Islamic State’s membership grew outside of Iraq and Syria. This further complicates any effort to estimate its overall size. Some of these “provinces” were nothing more than small terror networks, while others evolved into capable insurgency organizations in their own right. The Libyan branch of the caliphate temporarily controlled the city of Sirte. Although the jihadists were ejected from their Mediterranean abode by the end of 2016, they still have some forces inside the country. Similarly, Wilayah Khorasan (or Khorasan province), which represents the “caliphate” in Afghanistan and Pakistan, seized upwards of ten districts in Afghanistan as of early 2016, but has since lost ground. More recently, jihadists in the Philippines seized much of Marawi, hoisting the Islamic State’s black banner over the city. Wilayah Sinai controls at least some turf, and is able launch spectacular attacks on security forces. It was responsible for downing a Russian airliner in October 2015. Other “provinces” exist in East Africa, West Africa, Yemen and elsewhere.

In May, the Office of the Director of National Intelligence (ODNI) reported that the so-called caliphate “is seeking to foster interconnectedness among its global branches and networks, align their efforts to ISIS’s strategy, and withstand counter-ISIS efforts.”[7] Gen. John Nicholson, the commander of U.S. Forces-Afghanistan, has said that Wilayah Khorasan went through an “application process” and the Islamic State mothership provided it with “advice,” “publicity,” and “some financial support.”[8] Although it is impossible to judge the extent of the Islamic State’s cohesion, as much of the data is not available, there is at least some connectivity between the group’s leadership and its “provinces” elsewhere. This is best seen on the media side, as the organization is particularly adept at disseminating messages from around the globe in multiple languages, despite some recent hiccups in this regard.

While their fortunes may rise or fall at any given time, this global network of Islamic State “provinces” will remain a formidable problem for the foreseeable future. Not only are they capable of killing large numbers of people in the countries they operate in, this structure also makes tracking international terrorist travel more difficult. For instance, counterterrorism officials have tied plots in Europe to operatives in Libya.[9] This indicates that some of the Islamic State’s “external plotters,” who are responsible for targeting the West, are not stationed in Iraq and Syria. The U.S.-led air campaign has disrupted the Islamic State’s “external operations” capacity by killing a number of jihadists in this wing of the organization. But others live.

The cult of martyrdom has grown. A disturbingly large number of people are willing to kill themselves for the Islamic State’s cause. The number of suicide bombings claimed by the so-called caliphate dwarfs all other jihadist groups, including al Qaeda. In 2016, for instance, the Islamic State claimed 1,112 “martyrdom operations” in Iraq and Syria alone.[10] Through the first six months of 2017, the organization claimed another 527 such bombings (nearly three-fourths of them using vehicle-borne improvised explosive devices, or VBIEDs) in those two countries. These figures do not include suicide attacks in other nations where Abu Bakr al Baghdadi’s loyalists are known to operate.

To put the Islamic State’s current “martyrdom operations” in perspective, consider data published by the Washington Post in 2008.[11] According to the Post, there were just 54 suicide attacks in all of 2001, when al Qaeda’s “martyrs” launched the most devastating terrorist airline hijackings in history. The Islamic State currently eclipses that figure every month in Iraq and Syria, averaging 93 suicide bombings per month in 2016 and 88 per month so far in 2017. Many of these operations are carried out by foreign fighters.

These suicide bombers have been mainly used to defend Islamic State positions, including the city of Mosul, which was one of the self-declared caliphate’s two capitals. For instance, half of the “martyrdom operations” carried out in Iraq and Syria this year (265 of the 527 claimed) took place in Nineveh province, which is home to Mosul. The “martyrs” were dispatched with increasing frequency after the campaign to retake the city began in October 2016, with 501 claimed suicide bombings in and around Mosul between then and the end of June 2017.

Some caveats are in order. It is impossible to verify the Islamic State’s figures with any precision. The fog of war makes all reporting spotty and not every suicide bombing attempt is recorded in published accounts. Some of the claimed “martyrdom operations” likely failed to hit their targets, but were counted by the Islamic State as attacks anyway. The U.S.-led coalition and Iraqi forces have routinely taken out VBIEDs before drivers could reach their mark. Not all “martyrs” are truly willing recruits. For instance, the Islamic State’s figures include numerous children who were pressed into service by Baghdadi’s goons.

Still, even taking into account these caveats, it is reasonable to conclude that the number of people willing to die for the sake of the so-called caliphate is disturbingly high – much higher than the number of willing martyrs in 2001 or even much more recently. Even though most of these people have been deployed in war zones, it is possible that more will be used outside of Iraq and Syria if they survive the fight and are able to travel to other countries. The Islamic State has already had some success in instigating would-be recruits to die for its cause in the West after they failed to emigrate to the lands of the caliphate. It is certainly possible that more will be sent into Europe or the U.S. in the future. 

Children used in suicide attacks, executions and other operations. The Islamic State has a robust program, named “Cubs of the Caliphate,” for indoctrinating children. It is one of the most disturbing aspects of the organization’s operations. Not only does the Islamic State’s propaganda frequently feature children attending classes, its videos have proudly displayed the jihadists’ use of children as executioners.

Earlier this month, for instance, the group’s Wilayah Jazirah disseminated a video entitled, “They Left Their Beds Empty.” Four children are shown beheading Islamic State captives. The same production is laced with footage of the terrorists responsible for the November 2015 Paris attacks, as well as other plots in Europe. Indeed, the children are made to reenact some of the same execution scenes that the Paris attackers carried out before being deployed. The Islamic State’s message is clear: A new generation of jihadists is being raised to replace those who have fallen, including those who have already struck inside Europe.

The “Cubs of the Caliphate” program is not confined to Iraq and Syria, but also operates in Afghanistan and elsewhere. This means that numerous children who have been indoctrinated in the Islamic State’s ways will pose a disturbing challenge for authorities going forward. As I noted above, some have already been used in “martyrdom operations” in Iraq and Syria. It is possible that others could be used in a similar fashion outside of the group’s battlefields, in Europe or the U.S. One purpose behind making children or adults commit heinous acts is to shock their conscience into thinking there is no way back, that they have crossed a threshold and there is no return. There are no easy answers for how to best deal with this problem.

Diversity of terrorist plots. There are legitimate concerns about the possibility of well-trained fighters leaving Iraq and Syria for the West now that the Islamic State is losing its grip on some of its most important locales. We saw the damage that a team of Islamic State operatives can do in November 2015, when multiple locations in Paris were assaulted. Trained operatives have had a hand in other plots as well. This concern was succinctly expressed by EUROPOL in a recent report. “The number of returnees is expected to rise, if IS [Islamic State], as seems likely, is defeated militarily or collapses. An increasing number of returnees will likely strengthen domestic jihadist movements and consequently magnify the threat they pose to the EU.”[12] While a true military defeat will be elusive, the central point stated here has merit, even though the number of arrests of returnees across Europe has recently declined. According to EUROPOL, “[a]rrests for travelling to conflict zones for terrorist purposes…decreased: from 141 in 2015 to 77 in 2016.” And there was a similar “decrease in numbers of arrests of people returning from the conflict zones in Syria and Iraq: from 41 in 2015 to 22 in 2016.” [13]

However, the overall number of arrests “related to jihadist terrorism” rose from 687 in 2015 to 718 in 2015, meaning that most of these terror-related arrests do not involve returnees.[14]

Still, returnees and the logistical support networks that facilitate travel to Iraq and Syria were prominently represented in court cases tried by EUROPOL member states. “As evidenced in the past couple of years, the majority of the verdicts for jihadist terrorism concerned offences related to the conflict in Syria and Iraq,” EUROPOL reported in its statistical review for 2016. “They involved persons who had prepared to leave for or have returned from the conflict zone, as well as persons who have recruited, indoctrinated, financed or facilitated others to travel to Syria and/or Iraq to join the terrorist groups fighting there.” In addition, “ndividuals and cells preparing attacks in Europe and beyond were also brought before courts.”[15]

These data show that while the threat posed by returnees is real, it is just one part of the overall threat picture. The Islamic State has encouraged supporters in the West to lash out in their home countries instead of traveling abroad, directed plots via “remote-control” guides, and otherwise inspired individuals to act on their own. These tactics often don’t require professional terrorists to be dispatched from abroad. The Islamic State has also lowered the bar for what is considered a successful attack, amplifying concepts first espoused by others, especially al Qaeda. A crude knife or machete attack that kills few people is trumpeted as the work of an Islamic State “soldier” or “fighter.” On Bastille Day in Nice, France last year, an Islamic State supporter killed more than 80 people simply by running them over with a lorry. Other Islamic State supporters have utilized this simple technique, repeatedly advocated by Abu Bakr al Baghdadi’s propagandists, as well.

However, I would urge caution. While the amateurs or individual actors have become more lethal over time, the risk of professionally-trained jihadists carrying out a mass casualty attack remains distinct. On average, the professionals can still do more damage than their amateur counterparts – if they are not stopped beforehand. The threat to aviation demonstrates the point. In October 2015, the Islamic State’s Wilayah Sinai downed a Russian airliner, killing all 224 people on board. Although the jihadists claim to have used a crude improvised explosive device, the plot required that well-placed personnel implant it at an optimal location within the aircraft. U.S. officials are attempting to stop even more sophisticated devices, built by either the Islamic State or al Qaeda, from being placed on board flights bound for Europe or America. Other professionally-planned attacks could involve bombing commuter trains, Mumbai-style sieges, or multi-pronged assaults. Therefore, if the professionals are able to evade security measures, they could easily kill more people than the average amateur.

Counterterrorism services in Europe and the U.S. have stopped a number of professional plots through the years. Some of those foiled in the past year may have been more serious than realized at the time. However, there is a risk that as counterterrorism authorities deal with a large number of individual or amateur plots, the professional terrorists will be able to find another window of opportunity. The various threats posed by the Islamic State have placed great strains on our defenses.

The Islamic State could seek to exploit refugee flows once again. “The influx of refugees and migrants to Europe from existing and new conflict zones is expected to continue,” EUROPOL reported in its review of 2016. The Islamic State “has already exploited the flow of refugees and migrants to send individuals to Europe to commit acts of terrorism, which became evident in the 2015 Paris attacks.” The so-called caliphate and “possibly other jihadist terrorist organizations may continue to do so.”[16] While the overwhelming majority of migrants are seeking to better their lives, some will continue to pose a terrorist threat. European nations are dealing with this, in part, by deploying more “investigators” to “migration hotspots in Greece and soon also to Italy.”[17] These “guest officers” will rotate “at key points on the external borders of the EU to strengthen security checks on the inward flows of migrants, in order to identify suspected terrorists and criminals, establishing a second line of defense.”[18]

This makes it imperative that U.S. authorities share intelligence with their European counterparts and receive information in return to better track potential threats. The U.S. has led efforts to disrupt the Islamic State’s “external attack” arm and probably has the best intelligence available on its activities. But European nations have vital intelligence as well, and only by combining data can officials get a better sense of the overall picture. Recent setbacks with respect to this intelligence sharing, after details of British investigations were leaked in the American press, are troubling. But we can hope that these relationships have been repaired, or will be soon.

It should be noted that would-be jihadists who are already citizens of European countries could have an easier route into the U.S. than migrants fleeing the battlefields. It is much easier for a British citizen to get on a plane headed for the U.S. than for an Islamic State operative posing as a Syrian refugee to enter the U.S. clandestinely through Europe. Given recent events in the UK, and the overall scale of the jihadist threat inside Britain, this makes intelligence sharing on potential terrorists all the more crucial. British officials have said that they are investigating 500 possible plots involving 3,000 people on the “top list” of suspects at any given time. In addition, 20,000 people have been on the counterterrorism radar for one reason or another and are still considered potentially problematic.[19]  

Exporting terror know-how. It is possible that more of the Islamic State’s terrorist inventions will be exported from abroad into Europe or the U.S. As the self-declared caliphate sought to defend its lands, it devised all sorts of new means for waging war. It modified drones with small explosives and built its own small arms, rockets, bombs and the like. Al Qaeda first started to publish ideas for backpack bombs and other IEDs in its online manuals. The Islamic State has done this as well, but we shouldn’t be surprised if some of its other inventions migrate out of the war zones. The group could do this by publishing technical details in its propaganda, or in-person, with experienced operatives carrying this knowledge with them.


[1] Daniel R. Coats, Director of National Intelligence, Statement for the Record, “Worldwide Threat Assessment of the US Intelligence Community,” Senate Select Committee on Intelligence, May 11, 2017, p. 21. (https://www.intelligence.senate.gov/sites/default/files/documents/os-coats-051117.pdf)

[2] Jim Sciutto, Jamie Crawford and Chelsea J. Carter, “ISIS can 'muster' between 20,000 and 31,500 fighters, CIA says,” CNN.com, September 12, 2014. (http://www.cnn.com/2014/09/11/world/meast/isis-syria-iraq/index.html)

[3] Ibid.

[4] Reuters, “U.S. estimates 50,000 Islamic State fighters killed so far: U.S. official,” December 8, 2016. (http://mobile.reuters.com/article/worldNews/idUSKBN13X28N) See also: Ryan Browne, “US Special Ops chief: More than 60,000 ISIS fighters killed,” CNN.com, February 15, 2017. (http://www.cnn.com/2017/02/14/politics/isis-60000-fighters-killed/index.html)

[5] Ryan Browne, “US Special Ops chief: More than 60,000 ISIS fighters killed,” CNN.com, February 15, 2017. (http://www.cnn.com/2017/02/14/politics/isis-60000-fighters-killed/index.html)

[6] Molly Hennessy-Fiske and W. J. Hennigan, “Civilian casualties from airstrikes grow in Iraq and Syria. But few are ever investigated,” Los Angeles Times, April 21, 2017. (http://www.latimes.com/projects/la-fg-iraq-airstrikes/)

[7] Daniel R. Coats, Director of National Intelligence, Statement for the Record, “Worldwide Threat Assessment of the US Intelligence Community,” Senate Select Committee on Intelligence, May 11, 2017, p. 5. (https://www.intelligence.senate.gov/sites/default/files/documents/os-coats-051117.pdf)

[8] Department of Defense Press Briefing by General Nicholson in the Pentagon Briefing Room, December 2, 2016. (https://www.defense.gov/News/Transcripts/Transcript-View/Article/1019029/department-of-defense-press-briefing-by-general-nicholson-in-the-pentagon-brief/)

[9] Thomas Joscelyn, “Pentagon: Bombs struck Islamic State’s ‘external plotters’ in Libya,” FDD’s Long War Journal, January 21, 2017. (http://www.longwarjournal.org/archives/2017/01/pentagon-bombs-struck-islamic-states-external-plotters-in-libya.php)

[10] All of the figures cited in this section are derived from infographics produced by the Islamic State’s Amaq News Agency. As discussed, there are some important caveats to keep in mind when evaluating these statistics.

[14] Ibid.

[15] EUROPOL, “EU Terrorism Situation and Trend Report 2017,” p. 18.

[16] EUROPOL, “EU Terrorism Situation and Trend Report 2017,” p. 6.

[17] EUROPOL, “EU Terrorism Situation and Trend Report 2017,” p. 61.

[18] Ibid.

[19] BBC, “General election 2017: Extremist exclusion orders ‘used’,” May 28, 2017. (http://www.bbc.com/news/election-2017-40072251).

 

Testimony

State-Sponsored Cyberspace Threats: Recent Incidents and U.S. Policy Response

Testimony for Senate Foreign Relations Committee, Subcommittee on East Asia, the Pacific, and International Cybersecurity
13th June 2017

Download the full testimony here. 

Both traditional economic warfare and, more recently, cyber warfare have been extensively studied. What is much less understood, however, is the intersection between these two subjects: The contemporary evolution of economic warfare within the new realities of cyberspace has not received the focused, comprehensive scrutiny and policy attention that it warrants. The questions we must be asking and answering are: Within the escalating cyber attacks on U.S. public and private organizations, is there lurking a new type of action – some form of concerted adversarial strategy – to undermine the U.S. economically? Are some adversaries’ strategies designed to cause economic harm that would weaken or significantly debilitate U.S. security capabilities? To what extent, and when, are they sponsoring proxies to achieve these nefarious goals? Is the U.S. prepared to identify and address such hostile strategies effectively? Does the U.S. government need new collection and analysis platforms to perform this critical function?

It is my contention that the threats are real, the warfare is ongoing, and that the U.S. government is inadequately structured to properly and comprehensively detect, evaluate, and address cyber-enabled economic threats. The U.S. government has made great strides in organizing itself to protect and defend the .gov and .mil realms.[1] But our nation’s greatest vulnerability may lie with adversarial attacks on the U.S. private sector. And in this regard, the private sector believes it is on its own, a position that is untenable when the adversary is a state actor such as China or North Korea.

Background of the Evolving Battlespace

As we think through our ability as a nation to protect ourselves and our allies, and advance our core interests overseas, the greatest strength we have is our economy. It is our free market, with its ability to efficiently move capital, protect intellectual property, distribute goods, and provide the running room for new ideas and technology to flourish, that creates the most powerful and fearsome military the world has ever known. It is the confidence of the American people that our $18.5-trillion GDP will continue to thrive that provides our leaders the confidence to fund our defense budget. And it is not just the defense industrial base but the broader national security industrial base that underpins it all. Specifically, it is not just the big defense contractors and the big telecommunication companies but everything from the technology startups; to the banks and investment houses that supply capital; to the cars, trucks, trains, and planes that move men and materiel; to the pharmaceuticals and food supplies that care and feed those who protect the free world. Moreover, an April report from the Defense Science Board Task Force on the Cyber Supply Chain warned that the Pentagon can be crippled through maliciously inserted vulnerabilities into the weapons and goods that power the U.S. military through entry points in private sector companies.[2]

It is true that the business of America is business. And the business of America is at risk of being hollowed out from the inside by everything from theft of intellectual property to the malicious infection of the supply chain to the degradation of confidence in our commerce, banking, and transportation sectors. The papers are filled with articles about cyber attacks against the private sector to gain profit. No doubt, this is a serious and growing problem. British insurance company Lloyds estimated that cyber attacks cost global businesses as much as $400 billion per year.[3] The internet and its related networked systems provide overwhelming advantages that help an economy to learn, share, and grow, but as we increase our reliance on the electronic movement of data, money, goods, and services, we also increase our vulnerability.[4]

What the $400 billion amount, large as it seems, ignores is the corrosive effect cyber attacks against the private sector can have on a country’s military readiness or political sovereignty. The theft of defense-related intellectual property and the corruption of the defense supply chain has been widely reported, and the possible damage these hostile actions could inflict upon our weapons systems has raised alarms throughout the Pentagon and on Capitol Hill.[5] The more pernicious, and less recognized, effect is the degrading of the entrepreneurial motivation that occurs with the systematic and wholesale theft of intellectual property from its creators and owners. As a result of sustained cyber attacks, startups may not get financing because their IP is stolen and established companies may be forced to shut down for days because of malware incidents, projects may get cancelled, and people may get laid off. And it is the small- and medium-sized enterprises – the very companies where the most innovative work is being done that eventually finds its way into our military – that are often hit hardest by cyber attacks.[6] A 2012 U.S. Patent and Trademark Office report aptly summed it up this way: “Every job in some way produces, supplies, consumes, or relies on innovation, creativity, and commercial distinctiveness. Protecting our ideas and intellectual property (IP) promotes innovative, open, and competitive markets.”[7] With estimates of the annual costs of trade secret theft in the U.S. ranging from $180 billion to $540 billion, the long-tailed drag on the economy must be recognized for the crisis it is, with a disproportionate burden falling on the very startups and innovation leaders that the U.S. and other developed nations credit with building the future economy, enhancing military readiness, and safeguarding sovereignty.[8] As the U.S. government better develops systems to cooperate with and defend the private sector, protecting these types of startups and innovative companies should be a priority given the disproportionate role they play in determining future national power.

The very well-researched IP Commission Report from the National Bureau of Asian Research discusses at length the follow-on effects from IP theft, including advantaging our adversaries both in the market and on the battlefield as well as chilling the innovative spirit that creates the technological breakthroughs upon which our economy and military rely.[9] Therefore, it is not the pure cyber criminal that should keep this committee up at night. Rather, it is the hostile state actor who recognizes that while it may not be able to compete directly with America’s strength of arms, it holds a significant asymmetric advantage in attacking our economic wherewithal and, by so doing, weaken us militarily or politically.

We call this purposeful strategy Cyber-Enabled Economic Warfare (CEEW).



[1] Vicki Michetti, “DoD’s Defense Industrial Base Cybersecurity (DIB CS) Program,” U.S. Department of Defense, August 24, 2016. (https://www.fbcinc.com/e/cybertexas/presentations/Room_302_Wed_1-145PM_Vicki_Michetti_DIB_101_Cyber_Texas_Aug15.pdf)

[2] U.S. Department of Defense, Defense Science Board, “Cyber Supply Chain,” April 2017. (http://www.acq.osd.mil/dsb/reports/2010s/DSBCyberSupplyChain_ExecSummary_Distribution_A.PDF)

[3] Stephen Gandel, “Lloyd’s CEO: Cyber attacks cost companies $400 billion every year,” Fortune, January 23, 2015. (http://fortune.com/2015/01/23/cyber-attack-insurance-lloyds/)

[4] Steve Morgan, “IBM's CEO On Hackers: ‘Cyber Crime Is The Greatest Threat To Every Company In The World,’” Forbes, November 24, 2015. (https://www.forbes.com/sites/stevemorgan/2015/11/24/ibms-ceo-on-hackers-cyber-crime-is-the-greatest-threat-to-every-company-in-the-world/#1db8a3473f07)

[5] Ellen Nakashima, “Confidential report lists U.S. weapons system designs compromised by Chinese cyberspies,” The Washington Post, May 27, 2013. (https://www.washingtonpost.com/world/national-security/confidential-report-lists-us-weapons-system-designs-compromised-by-chinese-cyberspies/2013/05/27/a42c3e1c-c2dd-11e2-8c3b-0b5e9247e8ca_story.html?utm_term=.afe441d46dc3)

[6] According to the 2012 Verizon Breach report, 71 percent of companies with less than 100 employees have suffered a cyber attack. “2012 Data Breach Investigations Report,” Verizon, 2012, page 11. (http://www.verizonenterprise.com/resources/reports/rp_data-breach-investigations-report-2012_en_xg.pdf)

[7] “Economics and Statistics Administration and U.S. Patent and Trademark Office, “Intellectual Property and the U.S. Economy: Industries in Focus,” March 2012. (https://www.uspto.gov/sites/default/files/news/publications/IP_Report_March_2012.pdf)

[8] “Update to the IP Commission Report: the Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy,” National Bureau of Asian Research on behalf of the Commission on the Theft of American Intellectual Property, 2017. (http://www.ipcommission.org/report/IP_Commission_Report_Update_2017.pdf); “Economic Impact of Trade Secret Theft: A Framework for Companies to Safeguard Trade Secrets and Mitigate Potential Threats,” Center for Responsible Enterprise and Trade and PricewaterhouseCoopers, 2014. (https://create.org/resource/economic-impact-oftrade-secret-theft)

[9] “Update to the IP Commission Report: the Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy,” National Bureau of Asian Research on behalf of the Commission on the Theft of American Intellectual Property, 2017. (http://www.ipcommission.org/report/IP_Commission_Report_Update_2017.pdf

 

Testimony

Attacking Hezbollah’s Financial Network: Policy Options

Testimony for House Foreign Affairs Committee
8th June 2017

Download the full testimony here. 

I will be brief about the challenge we face, touch on the strategy I helped the previous administration develop against Hizballah’s illicit activities and finances, and then propose where we need to go next to achieve a long sought, but so far unattained, strategic effect against this pernicious, but highly capable, criminal resistance and terrorist organization and its state sponsors and partners.

  • Over the last decade, Lebanese Hizballah has morphed from being a terrorist organization and politico-military (pol-mil) resistance movement to becoming a transnational criminal terrorist resistance organization fueled by a large and global illicit financial and business apparatus.
  • Hizballah’s drugs-for-intelligence program has evolved into a massive drugs-forprofit initiative.
  • Hizballah, partnered with Latin American cartels and paramilitary partners, is now one of the largest exporters of narcotics from South and Central America to West Africa into Europe and is perhaps the world’s largest money laundering organization.
  • Organized crime—ranging from cocaine and heroin trafficking to selling counterfeit currency and cigarettes, along with massive money laundering via the Lebanese banking system—has become a much larger source of funding for Hizballah than support from Iran.
  • Hizballah’s External Security Organization (i.e. its terrorist wing) uses crime forexporting its influence, increasing followers around the world, and generating income.
  • Defending against, attacking, and defeating Hizballah’s growing military capacity requires defending against, attacking, and defeating its global financial and facilitation network.
  • We built the means to do this but for reasons that remain mysterious, elusive, and hard to comprehend, much of what we built was willfully scrapped toward the end of the previous administration.
  • Rebuilding this capacity and strategy will require significant resourcing, prioritization, and oversight by this Committee.
Beginning in the summer of 2008, I had the honor of advising the Drug Enforcement Administration, Department of the Treasury, Special Operations Command, Department of State, and Customs and Border Protection on developing and spearheading the implementation of a strategy to pursue Hizballah’s web of illicit activities and finances, focusing on Hizballah’s rapidly expanding involvement in cocaine trafficking and money laundering of the proceeds.

 

Testimony

Secondary Sanctions Against Chinese Institutions: Assessing their Utility for Constraining N. Korea

Testimony for Senate Banking, Housing, and Urban Affairs
10th May 2017

Download the full testimony here. 

Chairman Sasse, Ranking Member Donnelly, and distinguished members of the Senate Banking, Housing, and Urban Affairs Subcommittee on National Security and International Trade and Finance, I am honored to be with you today to discuss the urgent need to pressure North Korea and the utility of secondary sanctions against Chinese institutions in such a strategy.

This is a timely and important hearing.  The international security challenge from North Korea has grown more dangerous and direct for the United States. The regime in Pyongyang remains intent on developing ballistic missile and nuclear capabilities that will allow it to reach and threaten the United States directly.  In defiance of international sanctions and pressure, North Korea has quickened the pace of missile and nuclear tests, demonstrating ever-expanding capabilities and claiming to have the ability to place a nuclear warhead on the tip of an intercontinental ballistic missile.  Despite recent missile launch failures, the regime continues its march toward these capabilities.

What was once seen solely as a threat to peace and stability on the Korean Peninsula and our regional allies has now become a looming, direct threat to the U.S. homeland.

All the while, North Korea proliferates its technology for profit, engages in illicit financial and commercial activity, exploits forced labor to make money for the regime, and has deployed cyber tools to attack adversaries and the private sector, including U.S. companies and the banking system.  North Korea remains a threat to international security and to the integrity and stability of the financial system.

The threats from North Korea require a sober, more comprehensive, and urgent response, including the use of financial and economic tools and pressure.  This in turn requires a more aggressive and imaginative approach leveraging new tools and mechanisms, including secondary sanctions against Chinese and other businesses, entities, and networks still doing business with North Korea.

China is North Korea’s economic and diplomatic lifeline, and its principal interest is ensuring the stability of the North Korean government and avoiding regime collapse.  As a result, China has maintained ties with North Korea and been unwilling to bring overbearing pressure on its ally in Pyongyang.  Over the years, North Korea has found outlets and connectivity to the financial and commercial system through Chinese banks, companies, and agents – to circumvent sanctions, serve their economy, and enrich the regime. 

Because China remains the regime’s backstop, the United States needs Chinese cooperation and support to slow and stop North Korea’s missile and nuclear programs.  The Chinese calculus has not changed in the past and will not change unless its own interests are fundamentally threatened or affected.  Chinese and American interests do not yet align with respect to North Korea.

This is a moment for China to assume its role as a great power and to influence its North Korean ally to stop its nuclear and missile programs and contain the threats from proliferation.  This Administration and Congress will need to grapple with how best to obtain, coerce, and sustain Chinese cooperation in order to maximize pressure on North Korea.  Ultimately, the United States must find a way to change Pyongyang’s calculus and the trajectory of their nuclear program.  This testimony addresses how to leverage financial and economic pressure, including secondary sanctions, to increase the chances of changing the calculus in North Korea and China and avoiding conflict.

My testimony has benefited directly from the ongoing work and contributions of Anthony Ruggiero at the Foundation for Defense of Democracies, along with the scholarship of Victor Cha and Bonnie Glaser at the Center for Strategic and International Studies, John Park at the Harvard Kennedy School of Government, and the Council on Foreign Relations’ Task Force on North Korea led by Chairman Mike Mullen and Senator Sam Nunn, on which I served.

Testimony

Emerging External Influences in the Western Hemisphere

Testimony for Senate Foreign Relations Committee
10th May 2017

Download the full testimony here. 

INTRODUCTION

Chairman Rubio, Ranking Member Menendez, members of the Subcommittee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to testify.

Across the Western Hemisphere, Islamic terror networks are expanding their influence by increasingly cooperating with violent drug cartels, often with the assistance of corrupt political elites. This toxic nexus is fueling both the rising threat of global jihadism and the collapse of law and order across Latin America that is helping drive drugs and people northward into the United States. Developing a strategy to combat this growing risk to the American homeland needs to be a U.S. policy priority. One of its primary targets should be Iran’s most deadly proxy, the Lebanese terrorist group Hezbollah.

Thanks to a vast network of support in key areas of Latin America, Hezbollah plays a central role in a new landscape where drug and human trafficking, gun running, illicit cigarette trade, trade-based money laundering, and terror financing can no longer be treated as distinct phenomena. Terror organizations like Hezbollah help criminal cartels and local mafias move merchandise to their markets. They then launder revenues through sales of consumer goods. Finally, those profits fund terrorist activities.

Hezbollah’s enduring success in the region is the result of a deadly combination: the purchase of political influence and impunity through corrupt political elites in key Latin American countries, and the reliance on a network of expatriates who collude in illicit and highly profitable schemes, motivated by a varying mix of familial loyalties, greed, religious zeal, and opportunism.

Behind Hezbollah stands Iran, which seeks to leverage the group’s networks to gain political influence, while helping it expand its base of supporters and protect their illicit activities. Although Iran’s quest for regional influence and Hezbollah’s infrastructure of organized crime and terror finance may superficially appear to be separate endeavors, in fact Hezbollah’s Latin American operation is an integral part of Tehran’s strategy, as it relies on Iran’s support while in turn provides assistance to Iranian operations when needed.

Iran’s and Hezbollah’s operations in Latin America thus intersect and mutually reinforce one another. Both pursue goals that are not only diametrically opposed to U.S. interests but also clearly pose a direct threat to American national security.

In my testimony, I will outline their separate but intertwined operations, identify key trends, and characterize the nature and reach of its operations. I will then offer policy suggestions for Congress and the administration.

Testimony

Afghanistan’s Terrorist Resurgence: Al-Qaeda, ISIS, and Beyond

Testimony for House Foreign Affairs Committee, Subcommittee on Terrorism, Nonproliferation, and Trade
27th April 2017

Download the full testimony here. 

More than 15 years after the U.S. military invaded Afghanistan to destroy al-Qaeda, the group maintains a persistent and significant presence in the country. Despite the Obama administration’s surge of U.S. forces in Afghanistan from 2010 to 2012, the Taliban, which has maintained its close alliance with al-Qaeda, is resurgent and today holds more ground in the country since the U.S. ousted the jihadists in early 2002.

And the threat posed by jihadist groups in Afghanistan has expanded. The Islamic State has established a small, but significant, foothold in the country. Pakistani jihadist groups that are hostile to the U.S. – such as the Movement of the Taliban in Pakistan, Lashkar-e-Taiba, and Harakat-ul-Muhajideen – operate bases inside Afghanistan as well.

U.S. Estimates on al-Qaeda in Afghanistan Were Incorrect

For nearly seven years, the Obama administration wrote off al-Qaeda as a spent force. The group has been described as “decimated.”[1] After Osama bin Laden was killed in Pakistan, President Obama said the “core of al-Qaeda in Pakistan and Afghanistan is on a path to defeat.”[2] The Obama administration pushed this narrative hard, with many counterterrorism analysts adopting the line that al-Qaeda was either defeated or close to it.[3]

Between 2010 and 2016, Obama administration officials, including CIA Director Leon Panetta, as well as other U.S. military and intelligence officials, characterized al-Qaeda’s presence in Afghanistan as minimal and consistently told the American public that the group has a presence of just 50 to 100 fighters. “I think at most, we’re looking at maybe 50 to 100, maybe less. It’s in that vicinity. There’s no question that the main location of al-Qaeda is in tribal areas of Pakistan,” Panetta said on ABC News This Week.[4]

This assessment, which contradicted the U.S. military’s own press releases announcing raids against al-Qaeda in Afghanistan,[5] was consistently repeated by U.S. intelligence and military officials. In June 2015, the U.S. military claimed in its biannual Enhancing Security and Stability in Afghanistan report that al-Qaeda “has a sustained presence in Afghanistan of probably fewer than 100 operatives concentrated largely in Kunar and Nuristan Provinces, where they remain year-round.”[6] The December 2015 report claimed that al-Qaeda is “primarily concentrated in the east and northeast.”[7]

This estimate of al-Qaeda’s strength, which consistently downplayed al-Qaeda’s presence in Afghanistan, came crashing down in mid-October 2015, when the U.S. military and Afghan forces orchestrated a large-scale operation against two al-Qaeda camps in the Shorabak district in the southern Afghan province of Kandahar.[8]

The scale of al-Qaeda’s presence at the two camps in Shorabak quickly disproved the longstanding 50 to 100 estimate. A U.S. military statement, quoting spokesman Brigadier General Wilson Shoffner, described the raid as “one of the largest joint ground-assault operations we have ever conducted in Afghanistan.”[9] It took U.S. and Afghan forces more than four days to clear the two camps, with the aid of 63 airstrikes.

Shoffner’s description of the al-Qaeda facilities indicated that they had been built long ago. “The first site, a well-established training camp, spanned approximately one square mile. The second site covered nearly 30 square miles,” Shoffner said. “We struck a major al-Qaeda sanctuary in the center of the Taliban’s historic heartland,” he added.[10]

Weeks later, General John F. Campbell, then the commander of U.S. Forces - Afghanistan and NATO’s Resolute Support mission, described one of the camps, which was run by al-Qaeda in the Indian Subcontinent (AQIS), al-Qaeda’s branch in South Asia, as “probably the largest training camp-type facility that we have seen in 14 years of war.”[11]

It has been estimated that at least 150 al-Qaeda fighters were killed during the raids on the two camps in Shorabak. This is 50 more al-Qaeda fighters than the upper end of the Obama administration’s estimate of al-Qaeda’s strength throughout all of Afghanistan. And the al-Qaeda members were killed in southern Afghanistan, not in the northeastern provinces of Kunar and Nuristan, where we have been told they were concentrated.[12]

The U.S. military was ultimately forced to concede its estimate of al-Qaeda’s strength in Afghanistan was wrong. In mid-December 2016, General Nicholson admitted that the U.S. military killed or captured 50 al-Qaeda leaders and an additional 200 operatives during calendar year 2016 in Afghanistan.[13]

In April 2016, Major General Jeff Buchanan, Resolute Support’s deputy chief of staff, told CNN that the 50 to 100 estimate was incorrect based on the results of the Shorabak raid. “If you go back to last year, there were a lot of intel estimates that said within Afghanistan al-Qaeda probably has 50 to 100 members, but in this one camp we found more than 150,” he said. The estimate of al-Qaeda operatives in Afghanistan was revised upwards to about 300.[14]

However, well before the Shorabak raids, it was evident to those of us closely watching the war in Afghanistan that al-Qaeda was stronger in Afghanistan than the official estimates, and was not confined to small areas in the northeast. Al-Qaeda consistently reported on its operations throughout Afghanistan, and the U.S. military, up until the summer of 2013, reported on raids against al-Qaeda cells in multiple provinces.

Surely, there was something seriously wrong with the CIA and the U.S. military’s ability to properly report on al-Qaeda’s presence in Afghanistan.

Al-Qaeda’s footprint inside Afghanistan remains a direct threat to U.S. national security and, with the resurgence of the Taliban, it is a threat that is only growing stronger.


[1] Joseph Straw, “Most of Al Qaeda's big names have been either captured or killed, but some remain,” NY Daily News, July 21, 2013. (http://www.nydailynews.com/news/world/al-qaeda-decimated-not-obliterated-article-1.1405185)

[2] Susan Crabtree, “FLASHBACK: Obama: Al Qaeda is on ‘a path to defeat’; calls for resetting terror policy,” The Washington Times, May 23, 2013. (http://www.washingtontimes.com/news/2013/may/23/obama-al-qaeda-is-on-a-path-to-defeat/)

[3] For example: Peter Bergen, “Time to declare victory: al Qaeda is defeated,” CNN’s Security Clearance, June 27, 2012. (http://security.blogs.cnn.com/2012/06/27/time-to-declare-victory-al-qaeda-is-defeated-opinion/)

[4] Felicia Sonmez and Matt DeLong, “Panetta: 50-100 al-Qaeda remain in Afghanistan,” The Washington Post, June 27, 2010. (http://voices.washingtonpost.com/44/2010/06/panetta-50-100-al-qaeda-remain.html?wprss=44)

[5] Bill Roggio and Patrick Megahan, “ISAF raids against al Qaeda and allies in Afghanistan 2007-2013,” FDD’s Long War Journal, May 30, 2014. (http://www.longwarjournal.org/archives/2014/05/al_qaeda_and_allies.php)

[6] Department of Defense, “Report on Enhancing Security and Stability in Afghanistan,” June 2015. (https://news.usni.org/wp-content/uploads/2015/06/June_1225_Report_Final1.pdf)

[7] Department of Defense, “Enhancing Security and Stability in Afghanistan,” December 2015. (https://www.defense.gov/Portals/1/Documents/pubs/1225_Report_Dec_2015_-_Final_20151210.pdf)

[8] Thomas Joscelyn and Bill Roggio, “US military strikes large al Qaeda training camps in southern Afghanistan,” FDD’s Long War Journal, October 13, 2015. (http://www.longwarjournal.org/archives/2015/10/us-military-strikes-large-al-qaeda-training-camps-in-southern-afghanistan.php)

[9] Ibid.

[10] Nick Paton Walsh, Jason Hanna, and Mark Morgenstein, “Al Qaeda sites in Afghanistan dismantled in joint operation, U.S. military says,” CNN, October 13, 2015. (http://www.cnn.com/2015/10/13/asia/afghanistan-al-qaeda-us/index.html)

[11] Dan Lamothe, “‘Probably the largest’ al-Qaeda training camp ever destroyed in Afghanistan,” The Washington Post, October 30, 2015. (https://www.washingtonpost.com/news/checkpoint/wp/2015/10/30/probably-the-largest-al-qaeda-training-camp-ever-destroyed-in-afghanistan/?utm_term=.ad1c23e34fd1)

[12] Bill Roggio, “US military insists al Qaeda is ‘concentrated’ in Afghan east and northeast,” FDD’s Long War Journal, December 16, 2015. (http://www.longwarjournal.org/archives/2015/12/us-military-insists-al-qaeda-is-concentrated-in-afghan-east-and-northeast.php)

[13] Thomas Joscelyn and Bill Roggio, “US military: 250 al Qaeda operatives killed or captured in Afghanistan this year,” FDD’s Long War Journal, December 14, 2016. (http://www.longwarjournal.org/archives/2016/12/us-military-250-al-qaeda-operatives-killed-or-captured-in-afghanistan-this-year.php)

[14] Nick Patton Walsh, “Al Qaeda ‘very active’ in Afghanistan: U.S. Commander,” CNN, April 13, 2016. (http://www.cnn.com/2016/04/13/middleeast/afghanistan-al-qaeda/

 

Testimony

Countering Russia: Further Assessing Options for Sanctions

Testimony for Senate Committee on Banking, Housing and Urban Affairs
27th April 2017

Download the full testimony here. 

This is the Committee’s second hearing in the past several weeks on assessing next steps and further options for U.S. sanctions on Russia. I commend your attention to this issue of growing urgency to our national security and to the collective security of the international order that the United States has led since the founding of the United Nations over 70 years ago.

I am also grateful for the substantial contribution of the expert witnesses who testified before you on this topic last month. Their prior testimony and ongoing work, together with the contributions of other dedicated experts studying this topic, continue to inform our thinking at the Financial Integrity Network and the testimony that I will deliver to you today.

The primary basis of my testimony, however, is the experience that I have gained in helping to shape and implement sanctions policy over the past fifteen years, in the U.S. Government, the international community, and in the private sector. Based on this experience and as explained in greater detail below, I believe there are important steps that Congress should take to protect our national and collective security by clarifying and strengthening sanctions on Russia, summarized as follows:

1) Prioritize targeted sanctions against Russian leadership engaged in illicit conduct. Congress should target sanctions against Russian leadership engaged in illicit conduct by:

(i) Calling for the establishment of a Russian Counter-Illicit Financing Task Force dedicated to tracing, mapping, sanctioning, and prosecuting illicit Russian financial flows that intersect with the U.S. financial system, and for working with allied governments to similarly track, trace, and combat illicit Russian financial flows, largely as proposed in the Countering Russian Hostilities Act Bill;

(ii) Providing specific funding for the Russian Counter-Illicit Financing Task Force, to be managed by Treasury and the Department of Justice to ensure interagency participation and support as needed across law enforcement, intelligence, regulatory, and financial authorities;

(iii) Codifying and consolidating existing sanctions authority to specifically target Russian leadership engaged in illicit conduct, largely as proposed in the Countering Russian Hostilities Act Bill;

(iv) Expanding existing sanctions authority to specifically target Russian leadership engaged in illicit conduct that, with respect to any foreign state: (a) undermines democratic processes or institutions; (b) threatens the peace, security, territorial integrity or sovereignty; or (c) misappropriates state assets;

(v) Prioritizing and expanding derivative sanctions against persons and entities owned or controlled by; acting for or on behalf of; or materially, financially, or technologically assisting Russian leadership engaged in illicit conduct, including by calling upon Treasury to lower the ownership threshold for derivative designations from 50 percent to 25 percent, consistent with Treasury’s final rule on customer due diligence for U.S. financial institutions;

(vi) Creating a Europe and Eurasia Democracy and Anti-Corruption Fund as proposed in the Countering Russian Hostilities Act, and further creating specific funding for publication of studies and research on corruption of Russian leadership.

Prioritizing targeted sanctions against illicit conduct by Russian leadership will expose, contain, disrupt, and potentially deter such conduct. Efforts that can expose corruption of Russian leadership may be particularly powerful in raising opposition to such conduct in Russia. Prioritizing derivative designations in particular will give much greater economic impact to primary designations against Russian leadership by going after the networks that support and benefit from illicit conduct engaged in by such leadership.

2) Call upon Treasury to consider designating under Section 311 of the USA PATRIOT Act any Russian financial institutions engaging in substantial transactions associated with any illicit conduct by Russian leadership;

3) Heighten controlled pressure on the Russian economy. Congress should consider building upon Treasury’s sectoral sanctions program to heighten controlled economic pressure on Russia, including by:

(i) Calling upon Treasury to expanding designations of Russian financial institutions, defense firms, and energy companies under the sectoral sanctions program;

(ii) Applying new sanctions against any persons with respect to purchase, subscription to, or facilitation of the issuance of sovereign debt of Russia, as proposed in the Countering Russian Hostilities Act Bill;

(iii) Applying new sanctions against any persons with respect to investments in the Russian energy sector, as proposed in the Countering Russian Hostilities Act Bill;

(iv) Considering new sanctions against any persons with respect to investments in the Russian financial or defense sectors;

(v) Calling upon Treasury and the intelligence community to produce a study of key Russian sectors exposed to economic sanctions and U.S. and allied countries’ exposure to potential counter-sanctions by Russia; and

(vi) Based on such a study, considering new sectors for possible designations under the sectoral sanctions program.

4) Strengthen the effectiveness of U.S. sanctions in general. Congress should strengthen the operational effectiveness of U.S. sanctions by:

(i) Providing funding for Treasury to expand its sanctions targeting, compliance, and enforcement resources and capabilities, particularly with respect to derivative designations of key node primary sanctions targets;

(ii) Considering requiring Treasury to issue regulations specifying sanctions program and training requirements for global financial institutions operating in the United States and for other sectors vulnerable to sanctions busting and sanctions evasion;

(iii) Calling upon FinCEN to issue final anti-money laundering (“AML”) rules on the reporting of cross-border wire transfers and on AML program, SAR reporting, and customer due diligence (“CDD”) requirements for investment advisors to heighten the transparency of the U.S. financial system in accordance with international standards;

(iv) Calling upon FinCEN to consider rulemaking extending AML requirements to title insurance companies and/or others involved in the sale of high-end real estate as necessary to close proven sanctions evasion and money laundering vulnerabilities in the U.S. real estate market;

(v) Calling upon Treasury to issue a report offering recommendations for expanding information sharing under Section 314 of the USA PATRIOT Act to enhance the effectiveness and reduce the costs associated with counter-illicit financing analysis by U.S. authorities and across the U.S. financial system.

5) Facilitate operational sanctions capability in allied countries. Congress should enhance foreign partner capacity in key allied countries by providing funding to Treasury to launch a Foreign Partner Training Program across sanctions administration, implementation, and enforcement.

These recommendations are based in large part upon key developments, conditions, and challenges evident in the recent evolution of sanctions policy and implementation, as discussed in greater detail below.

Testimony

Assessing the Iran Deal

Testimony for Committee on Oversight and Government Reform, National Security Subcommittee
5th April 2017

Download the full testimony here. 

President Donald Trump promised to “rigorously enforce” the JCPOA, which he has also called “the worst deal ever negotiated.”[ii] While strict enforcement is an important first step, it is insufficient. The JCPOA provides Iran with a patient pathway to nuclear weapons capability. If the United States simply enforces the agreement, Iran will become a threshold nuclear weapons state.

The JCPOA preserved essential elements of the country’s nuclear infrastructure and placed only limited, temporary, and reversible constraints on Iran’s nuclear activities. In exchange, Iran got the complete dismantlement of many of the most effective U.S. and international economic sanctions.

At the heart of the JCPOA is a fatal flaw: Iran does not need to cheat to reach threshold nuclear weapons capabilities. By following the deal, and waiting patiently for key constraints to disappear, Tehran can emerge as a threshold nuclear power with an industrial-size enrichment program; near-zero breakout time; an easier clandestine sneak-out pathway; an advanced long-range ballistic missile program, including intercontinental ballistic missiles; access to advanced heavy weaponry; greater regional dominance; and a more powerful economy increasingly immunized against Western sanctions.

In less than four years under UN Security Council Resolution 2231 in which the JCPOA is embedded, the UN embargo on conventional arms sales will disappear. In less than seven years, the restrictions on ballistic missile development will disappear, too.[iii] From there, Tehran can significantly enhance its military power – as well as the capabilities of its proxies – by acquiring advanced conventional weapons and further expanding its long-range ballistic-missile program to include intercontinental ballistic missiles. No country developing ICBMs has ever not also obtained nuclear weapons.

Under the terms of the JCPOA, Iran’s uranium and plutonium pathways to atomic weapons expand over time, as well. The deal allows for Iran to continue limited testing and ultimately ramp up the testing of even more advanced centrifuges in seven years, and install these machines in its Natanz enrichment facility in nine years from now.[iv] Breakout time – the amount of time needed to enrich one bomb’s worth of fissile material to nuclear grade – drops from one year, where it is now, to months and then just weeks.[v]

In less than 15 years, the majority of restrictions on vital components of a military-nuclear program vanish. This includes bans on uranium enrichment above 3.67 percent purity and the stockpiling of low-enriched uranium.[vi] At that time, Iran can restart its uranium enrichment in the Fordow nuclear facility – a previously secret nuclear site buried under a mountain that is believed to be impenetrable to U.S. military strikes. Moreover, Iran can build an unlimited number of other advanced centrifuge-powered enrichment facilities just like Fordow.[vii] Iran can deploy an unlimited number of advanced centrifuges in these facilities. They are more efficient than Iran’s basic models, can enrich uranium to weapons-grade faster thereby requiring a fewer number of machines, and can be housed in smaller, harder-to-detect facilities. While building clandestine facilities and diverting uranium to these sites would be a JCPOA violation, the leaders in Iran know that the challenge of monitoring and inspecting such a massive nuclear program on a territory more than twice the size of Texas will be a formidable challenge for the IAEA and Western intelligence services.


Eric Cortellessa, “In call with Riyadh, Trump vows to ‘rigorously enforce’ Iran deal,” The Times of Israel, January 30, 2017. (http://www.timesofisrael.com/in-call-with-riyadh-trump-commits-to-rigorously-enforce-iran-deal/)

[ii] “Trump administration pledges ‘great strictness’ on Iran nuclear deal,” Reuters, March 7, 2017. (http://www.reuters.com/article/us-iran-nuclear-idUSKBN16E2GZ)

[iii] Joint Comprehensive Plan of Action, Vienna, July 14, 2015, Annex V – Implementation Plan. (http://eeas.europa.eu/statements-eeas/docs/iran_agreement/annex_5_implementation_plan_en.pdf); United Nations Security Council, Resolution 2231, July 20, 2015, Annex B, paragraphs 3 and 5. (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2231(2015))

[iv] Joint Comprehensive Plan of Action, Vienna, July 14, 2015, Annex I – Nuclear-related measures, paragraphs 27, 37-38, and 53. (http://collections.internetmemory.org/haeu/20160313172652/http://eeas.europa.eu/statements-eeas/docs/iran_agreement/annex_1_nuclear_related_commitments_en.pdf)

[v] Olli Heinonen, “Iran’s Breakout Time Drops Below Administration Benchmarks,” Foundation for Defense of Democracies, July 29, 2016. (http://www.defenddemocracy.org/media-hit/olli-heinonen1-irans-breakout-time-drops-below-administration-benchmarks/); David Albright, Houston Wood, and Andrea Stricker, “Breakout Timelines Under the Joint Comprehensive Plan of Action,” The Institute for Science and International Security, August 18, 2015. (http://isis-online.org/uploads/isis-reports/documents/Iranian_Breakout_Timelines_and_Issues_18Aug2015_final.pdf)

[vi] Joint Comprehensive Plan of Action, Vienna, July 14, 2015, Annex I – Nuclear-related measures, paragraphs 28 and 56. (http://collections.internetmemory.org/haeu/20160313172652/http://eeas.europa.eu/statements-eeas/docs/iran_agreement/annex_1_nuclear_related_commitments_en.pdf)

[vii] Joint Comprehensive Plan of Action, Vienna, July 14, 2015, Annex I – Nuclear-related measures, paragraph 31. (http://collections.internetmemory.org/haeu/20160313172652/http://eeas.europa.eu/statements-eeas/docs/iran_agreement/annex_1_nuclear_related_commitments_en.pdf)

 

Testimony

Increasing the Effectiveness of Non-Nuclear Sanctions Against Iran

Testimony for House Financial Services Monetary Policy and Trade, and Terrorism and Illicit Finance Subcommittees
4th April 2017

Download the full testimony here.

The Joint Comprehensive Plan of Action (JCPOA) that was implemented in January 2016 has emboldened Iran and given its leaders additional resources to pursue their regional hegemonic ambitions. In theory, under the JCPOA, the United States retains both the authority and leverage to counter Iran’s regional ambitions and ongoing support for terrorism, including through the use of non-nuclear sanctions. In practice, however, since the implementation of the JCPOA, this arsenal has been rarely used.

This is especially true with regards to Iran’s ongoing airlifts to the Syrian regime of Bashar al-Assad and to Hezbollah, Iran’s terror proxy in Lebanon. In fact, the JCPOA lifted decades of U.S. and international sanctions against Iran’s civil aviation sector exactly at a time when the sector became vital to Tehran’s war efforts in the Syrian theater. Put simply: Iran has devoted its commercial aviation sector to keeping Assad in power and Hezbollah armed to the teeth. The JCPOA, meanwhile, has made it legal to sell new aircraft to carriers that are complicit.

Iranian commercial carriers have been crisscrossing Iraqi airspace to deliver military support to Assad and Hezbollah since 2011, but they have increased their tempo since the summer of 2015, when Iran and Russia coordinated their efforts to save Assad’s regime from crumbling in Aleppo. Hundreds of flights, most of them operated by commercial airlines using civilian aircraft, have helped reverse the course of that war.

The Iranian aviation sector has exposed the inadequacy of the JCPOA caveat that licensed items and services must be used “exclusively for commercial passenger aviation.”[1] Currently, at least five Iranian and two Syrian commercial airlines are engaged in regular military airlifts to Damascus. They are:

  • Iran Air (Iranian, national carrier, de-sanctioned under the JCPOA)
  • Mahan Air (Iranian, privately owned, U.S. sanctioned)[2]
  • Pouya Air (Iranian, IRGC owned, U.S. sanctioned)[3]
  • Saha Airlines (Iranian, privately owned, not sanctioned)
  • Fars Air Qeshm (Iranian, privately owned, not sanctioned)
  • Cham Wings Airlines (Syrian, privately owned, U.S. sanctioned)[4]
  • Syrian Arab Airlines (Syrian, national carrier, U.S. sanctioned).[5]

The Department of Treasury cited collusion between Iranian commercial airlines and Iran’s Islamic Revolutionary Guards Corps (IRGC) in these military airlifts to Syria as a reason for its 2011 designations of Iran Air[6] and Mahan Air.[7] It also designated Syrian Arab Airlines in 2013[8] and Cham Wings in 2016[9] for transporting weapons and fighters to Syria. Clearly, these airlines are not ferrying civilian passengers between Tehran and Damascus.

The administration should suspend licensing for aircraft deals with Iranian commercial carriers while it conducts a thorough review of their role in the airlifts to Syria. The U.S. should proceed to revoke licenses and re-impose sanctions if that role were to be ascertained. But the only way to prevent U.S. manufacturers such as Boeing from supplying aircraft to Iranian entities involved in material support for terrorism is to rely on U.S. non-nuclear sanctions. While the United States cannot stop every plane, it can use sanctions to exact a heavy price on Iran’s aviation sector.

U.S. sanctions can also target providers of material support to the Syria airlifts, both inside and outside Iran. The U.S. should use these sanctions to communicate to Iran that its continuous support for Assad and Hezbollah comes with a cost, one that, especially in the case of aviation, could diminish the economic benefits Iran accrued from the nuclear deal.


[1] Joint Comprehensive Plan of Action, Vienna, July 14, 2015, Annex II – Sanctions related commitments, section 5.1.1. (http://eeas.europa.eu/statements-eeas/docs/iran_agreement/annex_2_sanctions_related_commitments_en.pdf)

[2] U.S. Department of the Treasury, Press Release, “Treasury Designates Iranian Commercial Airline Linked to Iran’s Support for Terrorism,” October 12, 2011. (https://www.treasury.gov/press-center/press-releases/Pages/tg1322.aspx)

[3] U.S. Department of the Treasury, Press Release, “Treasury Targets Networks Linked to Iran,” August 29, 2014. (https://www.treasury.gov/press-center/press-releases/pages/jl2618.aspx)

[4] U.S. Department of the Treasury, Press Release, “Treasury Sanctions Additional Individuals and Entities in Response to Continuing Violence in Syria,” December 23, 2016. (https://www.treasury.gov/press-center/press-releases/Pages/jl0690.aspx)

[5] U.S. Department of the Treasury, Press Release, “Treasury Increases Sanctions Against Syria,” May 16, 2013. (https://www.treasury.gov/press-center/press-releases/Pages/jl1947.aspx)

[6] U.S. Department of the Treasury, “Fact Sheet: Treasury Sanctions Major Iranian Commercial Entities,” June 23, 2011. (https://www.treasury.gov/press-center/press-releases/Pages/tg1217.aspx)

[7] U.S. Department of the Treasury, Press Release, “Treasury Designates Iranian Commercial Airline Linked to Iran’s Support for Terrorism,” October 12, 2011. (https://www.treasury.gov/press-center/press-releases/Pages/tg1322.aspx)

[8] U.S. Department of the Treasury, Press Release, “Treasury Increases Sanctions Against Syria,” May 16, 2013. (https://www.treasury.gov/press-center/press-releases/Pages/jl1947.aspx)

[9] U.S. Department of the Treasury, Press Release, “Treasury Sanctions Additional Individuals and Entities in Response to Continuing Violence in Syria,” December 23, 2016. (https://www.treasury.gov/press-center/press-releases/Pages/jl0690.aspx

 

Testimony

Increasing the Effectiveness of Non-Nuclear Sanctions Against Iran

Testimony for House Financial Services Monetary Policy and Trade, and Terrorism and Illicit Finance Subcommittees
4th April 2017

Download the full testimony here. 

Our present discussion on how to push back against Iran’s enduring “non-nuclear” threats is a product of diplomatic developments from the summer of 2015, when international negotiators from the P5+1 and Iran agreed to the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. Despite its name, the agreement, which provided the Islamic Republic with over $100 billion in upfront sanctions relief,[1] was anything but comprehensive. The JCPOA only temporarily deals with select aspects of the Islamic Republic’s illicit nuclear program. The agreement does not address issues relevant to delivery vehicles like ballistic missiles,[2] despite assessments from the U.S. intelligence community that ballistic missiles were Tehran’s “preferred method of delivering nuclear weapons.”[3] Compounding this problem, United Nations Security Council Resolution (UNSCR) 2231, which enshrined the accord,[4] features an Annex containing watered-down prohibitions on missile testing, further indicative of an Iranian negotiating victory.[5]

And missiles are not the only challenge that the deal overlooked. The accord does not address Iran’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.

With the removal or waiving of nuclear sanctions pursuant to the JCPOA as well as the informal sanctions relief Iran has received, it has become considerably difficult to influence the behavior of what Secretary of Defense James Mattis has called the “biggest state sponsor of terrorism.”[6] Assuming that the nuclear accord will remain in place,[7] the immediate challenge for U.S. policy will be how to identify and erode Iran’s non-nuclear threats. Such endeavors are not impossible, but require considerable political will and commitment over a long period of time.


[1] Adam Szubin, “Written Testimony of Adam J. Szubin, Acting Under Secretary of Treasury for Terrorism and Financial Intelligence United States Senate Committee on Banking, Housing, And Urban Affairs,” Testimony before Senate Committee on Banking, Housing, and Urban Affairs, August 5, 2015. (https://www.treasury.gov/press-center/press-releases/Pages/jl0144.aspx)

[2] Behnam Ben Taleblu, “Don’t Forget Iran’s Ballistic Missiles,” War on the Rocks, August 25, 2014. (https://warontherocks.com/2014/08/dont-forget-irans-ballistic-missiles/)

[3] James R. Clapper, “Statement for the Record, Worldwide Threat Assessment of the US Intelligence Community,” Testimony before the Senate Select Committee on Intelligence, January 29, 2014, page 6. (http://online.wsj.com/public/resources/documents/DNIthreats2014.pdf)

[4] United Nations Security Council, “Resolution 2231 (2015): Ballistic missile-related transfers and activities,” accessed March 25, 2016. (http://www.un.org/en/sc/2231/restrictions-ballistic.shtml)

[5] See positions in: Parisa Hafezi and Louis Charbonneau, “Iran demands end to U.N. missile sanctions, West refuses,” Reuters, July 6, 2015. (http://www.reuters.com/article/us-iran-nuclear-idUSKCN0PF0HG20150706). In 2014, Iranian officials held the line on not including missiles in talks. “روحانی: توان موشکی ایران به هیچ وجه قابل مذاکره نیست (Rouhani: Iran’s Missile Capabilities Are By No Means Negotiable),” Kayhan (Iran) August 17, 2014. (http://kayhan.ir/fa/news/21352)

[6] Defense Secretary James Mattis quoted in: “Iran is world’s biggest state sponsor of terrorism, US says,” BBC News (UK), February 4, 2017. (http://www.bbc.com/news/world-us-canada-38868039)

[7] While it is too soon to tell what the Trump administration’s policy will be with respect to the JCPOA, there are indications that the administration desires to keep the deal in place in the short-term. Specifically, Christopher Ford of the National Security Council told a conference hosted by The Carnegie Endowment for International Peace, “Until otherwise decided, the United States will adhere to the Iran nuclear deal and ensure that Iran also does.” “White House Adviser Says Will Honor Iran Nuclear Deal, Ensure Iran Complies,” Radio Free Europe/Radio Liberty, March 22, 2017. (http://www.rferl.org/a/white-house-aide-ford-says-honor-iran-nuclear-deal-ensure-iran-complies/28383425.html

 

Testimony

Pressuring North Korea: Evaluating Options

Testimony for House Foreign Affairs Committee, Subcommittee on Asia and the Pacific
21st March 2017

Chairman Yoho, Ranking Member Sherman, and distinguished members of this subcommittee, thank you for the opportunity to address you today on this important issue.

My testimony will outline four core elements to create a more effective North Korea policy, myths on North Korean sanctions, review North Korean sanctions evasion, and provide recommendations for Congress and the Trump administration.

The Kim family dynasty continues its 25-year drive to develop a nuclear weapon that it has already used to threaten the United States and our allies in Japan and South Korea. The last three U.S. presidents, Republicans and Democrats, were unable to develop an effective strategy to prevent North Korea from acquiring a nuclear weapon. Now Kim Jong Un has threatened to test an intercontinental ballistic missile (ICBM) that could reach the United States, and last month tested a solid propellant ballistic missile and killed his half-brother with nerve agent in a Malaysian airport. Earlier this month he simulated an attack on a base in Japan. We know that North Korea has proliferated ballistic missiles to Iran, Syria, and other nations, and secretly built a nuclear reactor in Syria in a location that has since fallen to ISIS.[1] Pyongyang is likely to proliferate the technology it develops to other rogue regimes, such as Iran.

One expert has predicted that North Korea could have an operational ICBM by 2020.[2] It is plausible, even likely, that by 2020, the regime will have a miniaturized nuclear device that could survive reentry on an ICBM, or may even have such a capability already.[3]

Meanwhile, South Korea may soon elect a president who once questioned the deployment of THAAD – a U.S. anti-ballistic missile system designed to shoot down short-, medium-, and intermediate-range ballistic missiles in their terminal phase.[4] Advisors to the candidate, Moon Jae In, last week suggested that the next South Korean president should review THAAD’s deployment.[5] Moon has also advocated negotiations with North Korea that would include offering the regime financial inducements that would undermine the financial pressure of U.N. and U.S. sanctions, and which could violate recent U.N. Security Council resolutions.[6] This scenario is concerning, as Washington has tried to alter Pyongyang’s behavior through economic engagement for 25 years, as well as disarming it through bilateral and multilateral negotiations, resulting in three separate agreements with Pyongyang to freeze or dismantle its nuclear weapons. This approach has completely failed.

The approach outlined below preserves U.S. dedication to the denuclearization of the Korean Peninsula while acknowledging that North Korea is not ready to negotiate away its nuclear weapons. Nonetheless, the Kim family must know that the United States will not accept it as a nuclear state or back down against its aggressive actions.

In my testimony before the full committee last month, I reviewed the impact of the North Korea Sanctions and Policy Enhancement Act (NKSPEA) of 2016.[7] While the law was a significant step forward, there is more that the U.S. should do. The law is largely responsible for nearly doubling the number of designations since March 2016, but 88 percent of those were persons inside North Korea, which does not address Pyongyang’s international business.



[1] David Albright, Serena Kelleher-Vergantini, and Sarah Burkhard, “Syria’s Unresolved Nuclear Issues Reemerge in Wake of ISIL Advance and Ongoing Civil War,” Institute for Science and International Security, June 30, 2015. (http://isis-online.org/uploads/isis-reports/documents/Syria_June_30_2015_Final.pdf)
[2] John Schilling, “North Korea’s Large Rocket Engine Test: A Significant Step Forward for Pyongyang’s ICBM Program,” 38 North, April 11, 2016. (http://38north.org/2016/04/schilling041116/)
[3] Jeffrey Lewis, “North Korea’s Nuke Program Is Way More Sophisticated Than You Think,” Foreign Policy, September 9, 2016. (http://foreignpolicy.com/2016/09/09/north-koreas-nuclear-program-is-way-more-sophisticated-and-dangerous-than-you-think/)
[4] James Griffiths and Joshua Berlinger, “What is THAAD?” CNN, September 9, 2016. (http://www.cnn.com/2016/07/13/asia/what-is-thaad/)
[5] Yeganeh Torbati and James Pearson, “Top South Korean presidential canididate would review missile defense process: advisors,” Reuters, March 17, 2017. (http://www.reuters.com/article/us-southkorea-china-thaad-idUSKBN16O0ZF)
[6] Kent Boydston, “Moon Jae-In on North-South Integration,” North Korea: Witness to Transformation, September 8, 2015. (https://piie.com/blogs/north-korea-witness-transformation/moon-jae-north-south-integration)
[7] Anthony Ruggiero, “Countering the North Korean Threat: New Steps in U.S. Policy,” Testimony Before House Foreign Affairs Committee, February 7, 2017.            

 

Testimony

Assessing U.S. Sanctions on Russia: Next Steps

Testimony for Senate Banking, Housing and Urban Affairs Committee
15th March 2017

Download the full testimony here.

Introduction

Chairman Crapo, Ranking Member Brown, and distinguished members of the Senate Committee on Banking, Housing & Urban Affairs, I am honored to appear before you today to discuss assessing U.S. sanctions on Russia and next steps.

I would like to focus my testimony on the effectiveness of the current U.S. sanctions programs targeting Russia, as well as what the United States can do to responsibly ramp up economic pressure on Russia to convince Moscow to cease destabilizing activities in Eastern Ukraine, reduce malicious cyber activities targeting the United States and its allies, and limit their military operations in Syria. 

To date, U.S. sanctions on Russia have a mixed record of success.  Many macroeconomic indicators and recent studies suggest the various forms of sanctions—in particular the sectoral sanctions imposed on key Russian economic sectors—have had an impact on overall Russian economic health.  Likewise, Russian Government officials continually push for sanctions relief, either in public statements[1] or by trying to undermine EU sanctions,[2] suggesting that Russia is feeling the pinch. 

Nevertheless, the United States has not achieved many of the core objectives it sought when deploying these tools; while the United States has imposed one of the most sophisticated sanctions regime ever constructed—including list-based sanctions targeting Russian individuals supporting separatist activities in eastern Ukraine, as well as individuals engaged in human rights abuses, a comprehensive embargo on Crimea, sectoral sanctions focused on key sectors of the Russian economy, sanctions targeting Russian malicious cyber activity, and secondary sanctions authority—Russia continues to engage in threatening activity in a range of areas.  In Eastern Ukraine, Russian-backed forces continue to violate the ceasefire, routinely attacking Ukrainian villages and military personnel.  Likewise, Moscow continues to target Russian opposition leaders, often with lethal means.  Last year and again more recently, Russian opposition leader Vladimir Kara-Murza was poisoned after speaking out about Russian human rights abuses and corruption, with many believing the Russian Government was behind the attempt on his life.[3]  This poisoning followed the shooting death of Russian opposition leader Boris Nemtsov in February 2015, a killing widely perceived as a response to Nemtsov’s outspoken protests against the government.[4]  In Syria, Russia continues to support President Bashar al-Assad with direct military intervention,[5] including during the Syrian Government’s brutal assault on Aleppo.[6]  And finally, in the cyber realm, according to the intelligence community, Russia has continued its efforts to influence and undermine U.S. allies across Europe, in recent months focusing these efforts on upcoming elections in Western Europe.[7]

This Committee should make no mistake; Russian activity in these areas poses a serious threat to U.S. interests and the United States should be prepared to use all elements of its national power—including its economic power—to blunt Moscow’s ability to undermine U.S. interests at home and abroad.      


[1] David Herszenhorn, “Putin Calls for End to Use of Sanctions and Criticizes U.S. in Afghanistan,” The New York Times, July 10, 2015, https://www.nytimes.com/2015/07/11/world/europe/putin-criticizes-us-role-in-afghanistan.html; “Russia Can’t Mend Times with U.S. While it Backs Sanctions: Lavrov,” Reuters, Dec. 10, 2015,  http://www.reuters.com/article/us-russia-usa-lavrov-idUSKBN0TT0YR20151210; Roland Oliphant, “‘Cancel Sanctions and Scale Back NATO’ Russia Tells US as Vladimir Putin Scraps Nuclear Deal,” The Telegraph, Oct. 3, 2016, http://www.telegraph.co.uk/news/2016/10/03/putin-scraps-deal-to-dispose-of-bomb-grade-plutonium-in-swipe-at/; “Russia Demands U.S. End Sanctions, Pay Compensation if Plutonium Accord to be Resumed: Draft Law,” Reuters, Oct. 3, 2016, http://www.reuters.com/article/us-russia-usa-nuclear-lawmaking-idUSKCN1231HA?il=0

[2] “Putin Steps Up Drive to Kill Sanctions Amid Signs of EU Disunity,” Voice of America News, July 29, 2016, http://www.voanews.com/a/putin-steps-up-drive-kill-sanctions-signs-eu-disunity/3440262.html.

[3] Andrew Kramer, “More of Kremlin’s Opponents Are Ending Up Dead,” The New York Times, Aug. 20, 2016, https://www.nytimes.com/2016/08/21/world/europe/moscow-kremlin-silence-critics-poison.html.

[4] Andrew Kramer, “Boris Nemtsov, Putim Foe, Is Shot Dead in Shadow of Kremlin,” The New York Times, Feb. 27, 2015, https://www.nytimes.com/2015/02/28/world/europe/boris-nemtsov-russian-opposition-leader-is-shot-dead.html.

[5] Sam Heller, “Russia in Charge in Syria: How Moscow Took Control of the Battlefield and Negotiating Table,” War On The Rocks, June 28, 2016, https://warontherocks.com/2016/06/russia-is-in-charge-in-syria-how-moscow-took-control-of-the-battlefield-and-negotiating-table/.

[6] Alison Meuse, “U.N. Report Says Syrian Forces and Rebel Factions Committed Aleppo ‘War Crimes’,” National Public Radio, Mar. 3, 2017, http://www.npr.org/sections/parallels/2017/03/03/518134951/u-n-report-says-syrian-forces-and-rebel-factions-committed-aleppo-war-crimes.

[7] “Background to ‘Assessing Russian Activities and Intentions in Recent US Elections’: The Analytic Process and Cyber Incident Attribution,” Director of National Intelligence, Intelligence Community Assessment, Jan. 6, 2017, https://www.dni.gov/files/documents/ICA_2017_01.pdf.

 

Testimony

Resolving the Conflict in Yemen: U.S. Interests, Risks, and Policy

Testimony for Senate Committee on Foreign Relations
9th March 2017

Download the full testimony here. 

Senator Corker and other members of the committee, thank you for inviting me here today to discuss the ongoing war in Yemen. Unfortunately, I do not see a way that this conflict can be resolved any time soon. Yemen is rife with internal divisions, which are exacerbated by the proxy war being waged by several actors. Arab states, Iran, and others see Yemen as a key battleground in their contest for regional power. In addition, al Qaeda has taken advantage of the crisis to pursue its chief objective, which is seizing territory and building an emirate inside the country.

I discuss these various actors in my written testimony below and look forward to answering your questions.

The Iranian-backed Houthi offensive has significantly undermined U.S. counterterrorism efforts.

Governance in Yemen has been a longstanding problem. But the Houthi offensive in late 2014 knocked President Abdrabbuh Mansur Hadi from power at a time when the U.S. was counting on his government to act as a vital counterterrorism partner.

There is a debate over how close the Houthis and Iran really are. Some have argued that the Houthis should not be thought of as an Iranian terror proxy, such as Hezbollah. While this accurate – the Houthis have their own culture and traditions – there is no question that Iran and the Houthis are allies. And it is in Iran’s interest to work with the Houthis against Saudi-backed forces in Yemen, while also encouraging Houthi incursions into the Saudi kingdom.

The U.S. government has long recognized Iran as one of the Houthis’ two key backers. (The other being former President Ali Abdullah Saleh and his network, which is discussed below.) In its Country Reports on Terrorism 2012, the State Department noted:[1]

Iran actively supported members of the Houthi tribe in northern Yemen, including activities intended to build military capabilities, which could pose a greater threat to security and stability in Yemen and the surrounding region. In July 2012, the Yemeni Interior Ministry arrested members of an alleged Iranian spy ring, headed by a former member of the IRGC.

That warning proved to be accurate, as the Houthis made significant gains just over two years later. The U.S. and its allies have intercepted multiple Iranian arms shipments reportedly intended for the Houthis.[2] And senior U.S. officials have repeatedly referenced Iran’s ongoing assistance. Late last year, Reuters reported that “Iran has stepped up weapons transfers to the Houthis,” including “missiles and small arms.”[3]

In September 2015, then-Secretary of Defense Ash Carter listed America’s “core interests in the region.” Among them, according to Carter, was “supporting Saudi Arabia in protecting its territory and people from Houthi attacks, and supporting international efforts to prevent Iranian shipments of lethal equipment from reaching Houthi and Saleh-affiliated forces in Yemen.”[4] The Houthis have responded by launching missiles at American ships, as well as ships operated by other countries.


[1] U.S. Department of State, “Chapter 3: State Sponsors of Terrorism Overview,” Country Reports on Terrorism 2012, May 30, 2013. (https://www.state.gov/j/ct/rls/crt/2012/209985.htm)

[2] See: “U.S. Navy says it seized weapons from Iran likely bound for Houthis in Yemen,” Reuters, April 4, 2016. (http://www.reuters.com/article/us-iran-usa-yemen-arms-idUSKCN0X12DB)

[3] Yara Bayoumy and Phil Stewart, “Exclusive: Iran steps up weapons supply to Yemen's Houthis via Oman – officials,” Reuters, October 20, 2016. (http://www.reuters.com/article/us-yemen-security-iran-idUSKCN12K0CX)

[4] Secretary of Defense Ash Carter, “Statement on U.S. Policy and Strategy in the Middle East before the House Armed Services Committee,” House Armed Services Committee Hearing, June 17, 2015. (https://www.defense.gov/News/Speeches/Speech-View/Article/606680

 

Testimony

The Future of Counterterrorism: Addressing the Evolving Threat to Domestic Security

Testimony for House Committee on Homeland Security, Subcommittee on Counterterrorism and Intelligence
28th February 2017

Download the full article here. 

Chairman King, Ranking Member Rice, and other members of the committee, thank you for inviting me to testify today. The terrorist threat has evolved greatly since the September 11, 2001 hijackings. The U.S. arguably faces a more diverse set of threats today than ever. In my written and oral testimony, I intend to highlight both the scope of these threats, as well as some of what I think are the underappreciated risks.

My key points are as follows:

  • The U.S. military and intelligence services have waged a prolific counterterrorism campaign to suppress threats to America. It is often argued that because no large-scale plot has been successful in the U.S. since 9/11 that the risk of such an attack is overblown. This argument ignores the fact that numerous plots, in various stages of development, have been thwarted since 2001. Meanwhile, Europe has been hit with larger-scale operations. In addition, the U.S. and its allies frequently target jihadists who are suspected of plotting against the West. America’s counterterrorism strategy is mainly intended to disrupt potentially significant operations that are in the pipeline.
  •  Over the past several years, the U.S. military and intelligence agencies claim to have struck numerous Islamic State (or ISIS) and al Qaeda “external operatives” in countries such as Afghanistan, Iraq, Libya, Pakistan, Syria, Yemen, and elsewhere. These so-called “external operatives” are involved in anti-Western plotting. Had they not been targeted, it is likely that at least some of their plans would have come to fruition. Importantly, it is likely that many “external operatives” remain in the game, and are still laying the groundwork for attacks in the U.S. and the West.
  • In addition, the Islamic State and al Qaeda continue to adapt new messages in an attempt to inspire attacks abroad. U.S. law enforcement has been forced to spend significant resources to stop “inspired” plots. As we all know, some of them have not been thwarted. The Islamic State’s caliphate declaration in 2014 heightened the threat of inspired attacks, as would-be jihadists were lured to the false promises of Abu Bakr al Baghdadi’s cause.
  • The Islamic State also developed a system for “remote-controlling” attacks in the West and elsewhere. This system relies on digital operatives who connect with aspiring jihadis via social media applications. The Islamic State has had more success with these types of small-scale operations in Europe. But as I explain in my written testimony, the FBI has uncovered a string of plots inside the U.S. involving these same virtual planners.
  • The refugee crisis is predominately a humanitarian concern. The Islamic State has used migrant and refugee flows to infiltrate terrorists into Europe. Both the Islamic State and al Qaeda could seek to do the same with respect to the U.S., however, they have other means for sneaking jihadists into the country as well. While some terrorists have slipped into the West alongside refugees, the U.S. should remain focused on identifying specific threats.
  • More than 15 years after 9/11, al Qaeda remains poorly understood. Most of al Qaeda’s resources are devoted to waging insurgencies in several countries. But as al Qaeda’s insurgency footprint has spread, so has the organization’s capacity for plotting against the West. On 9/11, al Qaeda’s anti-Western plotting was primarily confined to Afghanistan, with logistical support networks in Pakistan, Iran, and other countries. Testifying before the Senate in February 2016, Director of National Intelligence (DNI) James Clapper warned that the al Qaeda threat to the West now emanates from multiple countries. Clapper testified that al Qaeda “nodes in Syria, Pakistan, Afghanistan, and Turkey” are “dedicating resources to planning attacks.” To this list we can add Yemen. And jihadists from Africa have been involved in anti-Western plotting as well. Incredibly, al Qaeda is still plotting against the U.S. from Afghanistan. 

Testimony

Countering the North Korean Threat:  New Steps in U.S Policy

Testimony for House Committee on Foreign Affairs
7th February 2017

Download the full testimony here. 

My testimony will review the accomplishments of the North Korea Sanctions and Policy Enhancement Act of 2016, outline four core elements to create a more effective North Korea policy, clear away myths about North Korean sanctions, and provide recommendations for Congress and the Trump administration.

The Kim family dynasty continues its 25-year drive to develop a nuclear weapon that it has already used to threaten the United States and its allies in Japan and South Korea. None of the last three U.S. presidents, Republicans and Democrats, were able to develop an effective strategy to prevent North Korea from acquiring a nuclear weapon. And now Kim Jong Un has threatened to test an intercontinental ballistic missile (ICBM) to target the United States. We know that North Korea has proliferated ballistic missiles to Iran, Syria, and other nations, and secretly built a nuclear reactor in a location in Syria that has since fallen under the control of ISIS.[1] Pyongyang is likely to proliferate any technology it develops to other problematic regimes, such as Iran.

As we look at the North Korea problem, it is hard to find anyone who argues that the status quo is acceptable. That can be frustrating, because there is no simple, ready-made solution. One expert has predicted that North Korea could have an operational ICBM by 2020.[2] It is plausible, even likely, that by 2020, North Korea will have a miniaturized nuclear device that could survive reentry on an ICBM. It is important to note that North Korea could have that capability now or soon.[3]

An equally concerning scenario has emerged now that South Korea may soon elect a president that, at one time, questioned the deployment of THAAD, a U.S. anti-ballistic missile system designed to shoot down short-, medium-, and intermediate-range ballistic missiles in their terminal phase.[4] (The presidential candidate, Moon Jae In, has subsequently back-tracked on this statement.)[5] Moon has also advocated negotiations with North Korea that would include offering the Kim regime financial inducements that would undermine the financial pressure of UN and U.S. sanctions, and which could violate recent UN Security Council resolutions.[6] This scenario is concerning, as history has clearly shown that this approach will not resolve the North Korean nuclear crisis. The United States has tried altering Pyongyang’s behavior through economic engagement for 25 years, and we have tried disarming it through bilateral and multilateral negotiations on multiple occasions, resulting in three separate agreements with Pyongyang to freeze or dismantle its nuclear weapons. This approach failed, and it failed miserably.

The approach I outline out below lives in the area between these two scenarios, where we preserve our dedication to the denuclearization of the Korean peninsula while acknowledging that North Korea is not ready to negotiate away its nuclear weapons. Given that reality, we must use all of the tools of American power to protect ourselves and our allies while we simultaneously begin to roll back the North Korean threat. Although Pyongyang is not yet ready to give up its nuclear weapons, the Kim family must know that the United States will not accept it as a nuclear state, or back down against its aggressive actions.


[1] David Albright, Serena Kelleher-Vergantini, and Sarah Burkhard, “Syria’s Unresolved Nuclear Issues Reemerge in Wake of ISIL Advance and Ongoing Civil War,” Institute for Science and International Security, June 30, 2015. (http://isis-online.org/uploads/isis-reports/documents/Syria_June_30_2015_Final.pdf)

[2] John Schilling, “North Korea’s Large Rocket Engine Test: A Significant Step Forward for Pyongyang’s ICBM Program,” 38 North, April 11, 2016. (http://38north.org/2016/04/schilling041116/)

[3] Jeffrey Lewis, “North Korea’s Nuke Program Is Way More Sophisticated Than You Think,” Foreign Policy, September 9, 2016. (http://foreignpolicy.com/2016/09/09/north-koreas-nuclear-program-is-way-more-sophisticated-and-dangerous-than-you-think/)

[4] James Griffiths and Joshua Berlinger, “What is THAAD?” CNN, September 9, 2016. (http://www.cnn.com/2016/07/13/asia/what-is-thaad/)

[5] Dagyum Ji, “S. Korean presidential candidate Moon reverses position on THAAD deployment,” NK News, January 16, 2017. (https://www.nknews.org/2017/01/s-korean-presidential-candidate-moon-reverses-position-on-thaad-deployment/)

[6] Kent Boydston, “Moon Jae-In on North-South Integration,” North Korea: Witness to Transformation, September 8, 2015. (https://piie.com/blogs/north-korea-witness-transformation/moon-jae-north-south-integration

 

Testimony

Enduring Non-Nuclear Challenges by Iran: Problems and Prospects

Testimony for Canadian Standing Senate Committee on Foreign Affairs and International Trade
2nd February 2017

FDD senior Iran analyst Behnam Ben Taleblu testified before Canada's Standing Senate Committee on Foreign Affairs and International Trade on state sponsored terrorism by Iran, and lingering human rights challenges in the post-JCPOA era.

Watch Behnam's testimony here

Testimony

Israel, the Palestinians and the United Nations: Challenges for the New Administration

Testimony for House Committee on Foreign Affairs
2nd February 2017

Download the full testimony here

Chairman Ros-Lehtinen, Chairman Smith, Ranking Member Deutch, Ranking Member Bass, and distinguished members of these subcommittees, on behalf of the Foundation for Defense of Democracies, thank you for the opportunity to testify. My testimony will address the policy options for the Palestinian-Israeli conflict that former president Barack Obama was considering at the end of his term. From there, I will discuss the deleterious impact of United Nations Security Council Resolution 2334. I will also present new FDD research that raises troubling questions about the role of the Palestine Liberation Organization (PLO) and the Palestinian Authority (PA) in the ongoing campaign to delegitimize Israel. Finally, I present a number of recommendations for Congress and the new administration to consider.

Obama’s Policy Options on the Palestinian-Israeli Conflict

In the months leading up to his departure, outgoing president Barack Obama tasked various officials within the U.S. bureaucracy to prepare policy options for ways he could, as one U.S. official put it to me, “level the playing field” between the Palestinians and Israelis, with the assumption that US policy was too supportive of Israel. This official noted, “all options [were] on the table” for the President to either punish Israel for its policies in the disputed territories or to increase Palestinian leverage in its effort to gain international recognition.[1]

Of course, it is not unheard of for a president to engage in last minute maneuvers to further the cause of Palestinian-Israeli peace. President Ronald Reagan initiated a dialogue with the PLO in the waning days of his Administration in an effort to give the Bush Administration cover to launch a process that brought both sides to the table.[2] The Clinton Administration fought until its last days to bring both sides together. What is notable about both of these examples is that these were efforts to cajole both sides to engage in diplomacy. Neither was designed to be a punitive measure against Israel. By contrast, Obama’s menu of options appeared to be largely punitive in nature, and seemed to be designed to influence the next president’s relationship with Israel.

Below are the major options that were under consideration:

1.A U.N. Security Council Resolution to guide the final outcome of negotiations. The Administration was considering a binding measure before the UN Security Council. The resolution, as envisioned, would lay out new parameters for diplomacy and replace UNSCR 242 in future negotiations. FDD assessed that this was not likely because the administration had promised publicly that it would not do this. Second, the White House understood that a process of this magnitude at the United Nations might begin with one set of parameters, but could become very unwieldy and ultimately yield a very different resolution than the U.S. had in mind. Third, the President had already stated in 2011, “it is up to Israelis and Palestinians to take action. No peace can be imposed upon them.”[3] Finally, in handing this file to the U.N., the White House would effectively be ceding its role as primary mediator in the Israeli-Palestinian conflict to the international community.

2.Abstaining or Voting for Recognition of a Palestinian State at the U.N. In 2011, the Palestinian Authority sought to declare statehood at the UN Security Council.[4] The United States declared its intention to veto the move, and the Palestinian Authority ultimately took the vote the following year to the General Assembly where the vote, even while overwhelmingly approved, was nonbinding.[5] The Palestinians continued to voice their intention to declare statehood again at the UN Security Council.[6] And while Obama might have been inclined to pave the way for this, he understood that Congress had leverage. If the U.N. recognized a Palestinian state, certain members of Congress warned they would cut U.S. aid to the United Nations. That is more than 22% of the U.N.’s total budget.[7] This is pursuant to the prohibition on U.S. funding of U.N. agencies that recognize a Palestinian state as stipulated in two pieces of legislation that were signed into law by President George H.W. Bush in 1990 and President Bill Clinton in 1994.[8]

3.Executive Order Against Settlement Activity. The Administration was apparently briefed on a possible executive order sanctioning Israeli officials or entities for engaging in further settlement activity, even natural growth within existing communities in the West Bank. The executive order could extend to other foreign nationals or even American citizens.  One official ceded to me that such an effort would raise “legal issues.”[9] With no similar executive order against countries involved in similar territorial disputes in Turkey, Morocco, or China, for example, the door would be open for legal challenges from Congress. A measure of this severity this late in a presidential term would have elicited a severe backlash at home.

4.Internal Revenue Service Regulations on Settlement Supporters. Obama reportedly weighed the idea of revoking the tax-exempt status of U.S. nonprofits that provide material support to organizations facilitating settlements in the West Bank. With his measure, the White House could have also instructed the IRS to begin investigations into nonprofit activities.[10] This could have disrupted as many as 50 known U.S.-based organizations supporting communities in Israel.[11] One alternative, according to a Congressional tax expert, was to encourage the IRS to issue informal guidance. One official noted in September that this approach would have been “legally challenging.” In addition to creating an unprecedented backlash from Congress and the pro-Israel community in America, it would likely have prompted dozens of lawsuits.

5.A Statement of “Obama Parameters.” Obama was contemplating a public speech outlining his vision for a peace agreement to form the basis of United States policy, and perhaps inform new multilateral initiatives.[12] The move would be nonbinding, but perhaps influence the next round of diplomacy between the Palestinians and Israelis. Of course, it was ultimately former Secretary of State John Kerry who issued his parameters on December 28, 2016, in a 70-minute speech that placed the blame for the lack of diplomatic progress at the feet of the Israelis.[13]

6.A U.N. Security Council Resolution on Settlements. Finally, Obama was mulling a UN resolution against settlement activity by Israel. Such a measure would not be described as a new initiative designed to isolate Israel, but rather as an extension of UNSCR 446 from March 1979, with updates.[14] The goal was not to initiate the resolution, but rather abstain or even vote for a measure that another country introduced. And while it was never articulated, it was widely understood that the move would energize the Boycott, Divestment and Sanctions (BDS) campaign against Israel. Obama understood the damage that such a resolution could cause. This is why the Administration used its veto power in 2011 when a resolution on settlements was brought to the Security Council.[15] But as we now know, Obama instructed his UN ambassador, Samantha Power, to abstain on the measure followed by a speech in which she, rather remarkably, excoriated the UN for singling out Israel.[16]

As we all know, Obama chose two of the six options noted above. He also made a surprising and unforeseen move in the waning hours of his presidency when he attempted to send $221 million to the Palestinian Authority. The money was held up by legislators on both sides of the aisle.[17]

 



[1] Interview with U.S. officials, September 14, 2016.

[2] Robert Pear, “U.S. Agrees to Talks with PLO, Saying Arafat Accepts Israel and Renounces All Terrorism,” The New York Times, December 15, 1988. (http://www.nytimes.com/1988/12/15/world/us-agrees-talks-with-plo-saying-arafat-accepts-israel-renounces-all-terrorism.html?pagewanted=all)

[3] “Remarks of President Barack Obama – As Prepared for Delivery – ‘A Moment of Opportunity’,” The White House, May 19, 2011. (https://www.whitehouse.gov/the-press-office/2011/05/19/remarks-president-barack-obama-prepared-delivery-moment-opportunity)

[4] Mahmoud Abbas, “The Long Overdue Palestinian State,” The New York Times, May 16, 2011. (http://www.nytimes.com/2011/05/17/opinion/17abbas.html)

[5] Ethan Bronner & Christine Hauser, “U.N. Assembly, in Blow to U.S., Elevates Status of Palestine,” The New York Times, November 29, 2012. (http://www.nytimes.com/2012/11/30/world/middleeast/Palestinian-Authority-United-Nations-Israel.html)

[6] “Abbas Seeks to Re-Submit Statehood Bid to U.N. Security Council,” Reuters, January 4, 2015. (http://www.reuters.com/article/us-mideast-palestinians-idUSKBN0KD0K120150104)

[7] “Assessment of Member States’ Contributions to the United Nations Regular Budget for the Year 2015,” United Nations Secretariat, December 29, 2014. (http://www.un.org/ga/search/view_doc.asp?symbol=ST/ADM/SER.B/910)

[8] Limitation on Contributions to the United Nations and Affiliated Organizations, Pub. L. 103-236, 108 Stat. 454, codified as amended at 103 U.S.C. §410. (http://graphics8.nytimes.com/packages/pdf/world/PLO-UN-legislation.pdf) & Membership of the Palestine Liberation Organization in United Nations Agencies, Pub. L. 101-246, 104 Stat. 70, codified as amended at 101 US.C. §414. (http://graphics8.nytimes.com/packages/pdf/world/PLO-UN-legislation.pdf)

[9] Interview with U.S. officials, September 14, 2016.

[10] Eugene Kontorovich, “The Problem with Using the Tax Code to Punish Israeli Settlements,” Tablet, October 6, 2016. (http://www.tabletmag.com/scroll/215286/the-problem-with-using-the-tax-code-to-punish-israeli-settlements)

[11] Uri Blau, “U.S. Donors Gave Settlements More Than $220 Million in Tax-Exempt Funds Over Five Years,” Haaretz, December 7, 2015. (http://www.haaretz.com/settlementdollars/1.689683)

[12] Mark Landler, “Obama Seeks to Pave Way to Mideast Deal After He Leaves Office,” The New York Times, March 8, 2016. (http://www.nytimes.com/2016/03/09/world/middleeast/obama-seeks-a-way-to-save-israeli-palestinian-gains.html)

[13] “Kerry Blasts Israeli Government, Presents Six Points of Future Peace Deal,” Haaretz, December 28, 2016, http://www.haaretz.com/israel-news/1.761881

[14] “Resolution 446 (1979),” U.N. Security Council, March 22, 1979. (https://documents-dds-ny.un.org/doc/RESOLUTION/GEN/NR0/370/60/IMG/NR037060.pdf?OpenElement)

[15] Ed Pilkington, “U.S. Vetoes UN Condemnation of Israeli Settlements,” The Guardian, February 18, 2011. (https://www.theguardian.com/world/2011/feb/19/us-veto-israel-settlement)

[16] “U.S. Ambassador to the UN Samantha Power's Full Speech at the Security Council,” Haaretz, December 24, 2016. http://www.haaretz.com/israel-news/1.761017

[17] Alexander Lockie, “Why Obama sent the Palestinians $221 million during his last hours in office,” Business Insider, January 24, 2017. http://www.businessinsider.com/obama-queitly-sends-221-million-to-palestine-2017-1

 

Testimony

The Future of Counter-Terrorism Strategy

Testimony for Senate Committee on Foreign Relations
1st December 2016

Download the full testimony here 

Introduction

The nature of the global terrorist threat today is more geographically dispersed, adaptive, and strategically relevant than ever before. Terrorist attacks appear to be quickening and intensifying around the globe, and the perception of a worldwide metastasizing threat is increasing.

Terrorist groups continue to learn from each other – with demonstration effects of attacks, methodologies, and messaging echoing instantaneously around the world. These groups and their adherents adapt quickly to pressure and opportunity, leveraging elements of globalization and modern communication while exploiting seams in security along with weaknesses in governance to their full advantage.

These groups also take advantage of and exacerbate dislocation, conflict, and sectarianism to fuel their agendas, fill their coffers, and gain footholds and adherents. In the context of broader dislocations and national anxieties, terrorist attacks and messaging take on more strategic relevance. Even a series of smaller-scale attacks could have broad social effects and political impact that affect the trajectory of nations and societies.

The rise and reach of ISIS has driven much of the adaptation we have witnessed in the global terrorist landscape over the past few years. The emergence of ISIS outpaced expectations and surprised most authorities and terrorism analysts. With the announcement of the caliphate in Iraq and Syria and the taking of Mosul and other major cities, ISIS sought to redraw the map of the Middle East, threaten the West, establish provinces (“wilayats”) and terrorist alliances, and inspire attacks well beyond the Middle East. ISIS has perpetrated serious attacks in Europe, Beirut, Istanbul, Egypt, Bangladesh, and the Gulf countries, and its affiliates and aspirant supporters have attacked far afield in Nigeria, Afghanistan, Indonesia, San Bernardino, and Orlando.

Likewise, al Qaida affiliates have continued to perpetrate terrorist attacks from West Africa to Yemen, with members perpetrating the 2015 Charlie Hebdo attack in Paris. Al Qaida is now smartly rebranding itself in key conflicts and war zones, such as in Syria, Yemen, and Libya, and attempting to reemerge again as part of the legitimate local landscape.

Though ISIS and al Qaida have been in strategic competition and in direct conflict in certain arenas like Syria, they form part of a broader violent Islamic extremist movement that can find common cause, leverage each others’ networks, and reflag quickly to adapt to opportunities in the environment. We have seen this in the shift in allegiances declared from al Qaida to ISIS by Boko Haram in West Africa, the Islamic Movement of Uzbekistan in Central Asia, and Taleban and al Qaida members in Afghanistan. Though competition still exists, cooperation could accelerate in certain contexts, especially in the face of increasing Shia and Iranian pressure and proxy battles.

All the while, these violent Islamic extremist organizations have occupied territory – creating a terrorist archipelago encompassing not just the deserts, jungles, and mountains of past safe havens but urban and resource-rich environments. This has allowed both ISIS and al Qaida to exploit civilian populations and to develop local and regional war economies. It has allowed ISIS in particular to leverage the establishment of the caliphate as its demonstration that it can govern an Islamic state and to animate the global terrorist movement in support of its cause. This has revived and connected pre-existing jihadi networks from Southeast Asia to the streets of Europe.

Dangerously, failing to understand and anticipate ISIS’ intent and capabilities – and the shifting terrorist landscape -- has led to some misguided assumptions that have now been shattered in the wake of a series of serious attacks, particularly following the Paris and Brussels attacks. As part of its broader strategy of establishing the caliphate, ISIS is purposefully confronting the West. While creating its caliphate and expanding its provinces to places like Libya and Yemen, ISIS has been planning to strike the West, using Western operatives flowing into the conflict zone by the thousands, and is openly attempting to inspire singular attacks by sympathetic radicals in Western societies. It has built these capabilities over time and taken advantage of intelligence and security gaps to implant operatives in Europe. This is a strategy not triggered by provocation or weakness, but rather is a deliberate part of ISIS’ planning.

European authorities have come to grips with the realization that ISIS is targeting the heart of Europe with dozens of operatives. Ongoing raids, arrests, and disruption of plots continue throughout the continent.

This should not have come as a surprise to those watching ISIS erase the border between Iraq and Syria, occupy major cities in the Middle East, and take advantage of the safe haven it has established and of the foreign fighters flowing in and out of the region.

Indeed, with the thousands of foreign fighters traveling to terrorist-controlled territory and others animated by the allure and narrative of a historic and heroic caliphate battling infidel forces, ISIS and al Qaida can more easily mobilize attacks against the West. France and Belgium have been particularly vulnerable given the role and importance of Francophone terrorist networks embedded in pockets of radicalization like Molenbeek in Brussels. But they are not alone. The rest of Europe is vulnerable, and the United States is at risk for acts of terror resembling what occurred in San Bernardino, Orlando, or from more organized attacks by foreign fighters or sympathizers.

The United States does not face the same kind of threats from ISIS and al Qaida that Europe does, but the threat remains real – for U.S. citizens and interests abroad and for the Homeland.

Recent terrorist attacks inspired by ISIS and violent Islamic extremism in Orlando; San Bernardino; Garland, Texas; Brooklyn; Chattanooga; and Philadelphia reflect an environment in which radicalized or deranged individuals are willing to attack fellow citizens on behalf of a foreign terrorist organization or its brand. The case this past week of the Somali refugee who attacked fellow students at Ohio State University by running them over and stabbing them may be another example of this kind of threat. Terrorism-related prosecutions brought by the U.S. Department of Justice over the past few years demonstrate a fairly consistent, yet small number of cases of radicalized individuals willing to support ISIS and al Qaida as well as plan attacks.

There have been small pockets of radicalization that have emerged, for example in the Somali-American community which has seen young members of its community travel to Somalia to fight with al Shabaab and more recently to fight in Iraq and Syria. ISIS and al Qaida have continued to target Americans – including young women - specifically for recruitment, including by using targeted social media and peer-to-peer communications to identify, isolate, and mobilize operatives in the United States.

The FBI Director has stated that there are open “homegrown violent extremist investigations” in all fifty states. The diversity and volume of cases fueled by the ideology of ISIS and al Qaida have challenged U.S. counter-terrorism capabilities to identify, monitor, and determine the seriousness and priority of each case.

It is important that we examine and understand the threat soberly. ISIS, al Qaida, and like-minded groups are neither omnipotent nor comprised of ten-foot giants. They have not been able to mobilize large percentages of susceptible Muslims to violence, and the communities impacted by their brutality have largely rejected their message.

But they have rallied thousands to their cause, perpetrated some of the worst brutalities of the 21st century, and caused major disruptions and dislocation in an Arc of Instability from Central Asia to West Africa. Their rapid and devious adaptations – in attack methodologies, messaging, recruitment, financing, and governance – are dangerous and cannot be ignored or discounted. ISIS’ use of chemical weapons, establishment of a chemical weapons unit, and surveillance of Belgian nuclear infrastructure and personnel raise the specter of a group intent on using weapons of mass destruction.

The blind spots in our intelligence have only heightened concerns of what we are not seeing or hearing regarding terrorist plans. And these groups remain intent and capable of striking the West in strategically impactful ways.

Testimony

Libya’s Terrorist Descent: Causes and Solutions

Testimony for House Foreign Affairs Committee - Subcommittee on Terrorism, Nonproliferation, and Trade
27th September 2016

Download the full testimony here.

Chairman Poe, Ranking Member Keating and members of the subcommittee, thank you for inviting me here today to discuss the turmoil in Libya. Obviously, the multi-sided conflict in Libya is complex, with various forces pulling the country in multiple directions. My testimony today focuses on the jihadist groups operating inside Libya, especially the Islamic State’s arm and groups belonging to al Qaeda’s network. I am going to emphasize five key points:

  1.    The Islamic State is on the verge of losing its safe haven in Sirte, Libya. The loss of Sirte would be a major blow to the so-called caliphate, as Abu Bakr al Baghdadi’s organization has invested significant resources in this state-building project. From the Islamic State’s perspective, Sirte was one of the most important cities under its control. This was true even though most of the city’s citizens had fled the jihadists’ occupation. By controlling Sirte, the Islamic State was able to portray its “caliphate” as having significant territory outside of Iraq and Syria. If Baghdadi’s loyalists are cleared from Sirte in the coming weeks, then the U.S. and its allies should trumpet the group’s loss. During its rise to power, the Islamic State’s motto was “remaining and expanding.” This was a key part of the organization’s marketing message. But in Libya, as in Iraq and Syria, it is no longer true.
  1.   Despite losing its grip on Sirte and the surrounding towns and villages, however, the Islamic State will retain a presence inside Libya. The group has cadres in Benghazi and elsewhere. The Islamic State’s leaders likely evacuated some of their men from Sirte as the offensive on the city progressed. It is important to note that even though the Islamic State is on the verge of a significant defeat, the effort required a robust commitment by local Libyan ground forces, as well as more than 170 “precision” American airstrikes to date. As the Islamic State’s men have been cleared block by block from Sirte, they have demonstrated that they continue maintain a strong operational capacity, launching suicide bombings in neighborhoods they’ve lost and killing dozens of their Libyan enemies. The U.S. and its partners will have to make sure that they hold Sirte once it is cleared, as well as prevent the Islamic State from seizing significant terrain elsewhere. 
  1.    The Islamic State’s loss of Sirte will be viewed in jihadist circles as a vindication of al Qaeda’s strategy. Al Qaeda’s senior leaders, including Osama bin Laden and Ayman al Zawahiri, repeatedly warned that the premature declaration of an Islamic state harms the jihadists’ cause. Al Qaeda in the Islamic Maghreb’s (AQIM) emir, Abdulmalek Droukdel, has made the same argument. Al Qaeda has consistently argued that a jihadist state cannot survive if the U.S. and its allies decide to intervene. This is exactly what happened in Sirte.
  1.    Some assume that, unlike the Islamic State, al Qaeda does not seek to control territory and build Islamic emirates (states). But this is an erroneous assumption. A wealth of evidence shows that this is, in fact, al Qaeda’s primary goal. However, al Qaeda and the Islamic State have very different strategies for achieving this same end. AQIM and its allies briefly controlled much of Mali beginning in 2012. Documents recovered in Mali show that AQIM was laying the groundwork for an Islamic state. But Droukdel and his advisors concluded that their effort needed to be firmly rooted in the host society, so AQIM was willing to partner with tribes and organizations that did not share its ideology. AQIM is following a version of this same strategy inside Libya today and has been working to embed itself in various local groups and communities. The Islamic State’s model for state-building is top-down authoritarian. In the view of Baghdadi and his key advisors, all Muslims must submit to the so-called caliphate’s authority. Al Qaeda’s follows a bottom-up plan, which means that the organization is seeking to spread the jihadist ideology, win popular support and embed itself within local societies. Al Qaeda and AQIM, which is openly loyal to Ayman al Zawahiri, are not close to achieving their goals in many areas. But the al Qaeda network remains deeper than many assume.
  1.    In addition to the assistance the U.S. military provides local forces, the U.S. government should work to expose al Qaeda’s network inside Libya. Sun light is a key part of any plan to combat al Qaeda’s clandestine strategy. Al Qaeda’s senior leadership has dispatched operatives to Libya in the past. AQIM doesn’t typically advertise its presence in Libya, but has clearly backed groups such as Ansar al Sharia in Libya and the Mujahideen Shura Council in Derna. Indeed, al Qaeda has worked under multiple brand names in Libya. 

Testimony

Radicalization in the U.S. and the Rise of Terrorism

Testimony for House Committee on Oversight and Government Reform
14th September 2016

Download the full testimony here. 

Chairman DeSantis, Chairman Meadows, Ranking Member Lynch, and Ranking Member Connolly, and distinguished members of both subcommittees, on behalf of the Foundation for Defense of Democracies, it’s an honor to appear before you to discuss today’s topic.

This country is in the midst of the largest spike in homegrown jihadist terrorist activity that it has ever seen, both in the overall number of cases and also the number of fatalities caused by terrorists claiming to act in service of the jihadist cause. While I assess jihadism to remain the top domestic terrorist threat, adherents to several other U.S.-based movements have also engaged more frequently in terrorist violence in recent years, including members of the anti-government Sovereign Citizens movement, and both white nationalists and black nationalists.

This testimony will first show that the problem of terrorism is growing in scale. It then argues that both analysts and the media have an unjustifiable default assumption that relatively small-scale attacks have likely been carried out by “lone wolves.” This prevalence of this assumption was crystal clear in the wake of Omar Mateen’s bloody June 2016 attack in Orlando.

Testimony

Fueling Terror: The Dangers of Ransom Payments to Iran

Testimony for Testimony for House Financial Services Committee
8th September 2016

Download the full testimony here. 

Chairman Duffy, Vice Chairman Fitzpatrick, Ranking Member Green, and distinguished members of the Committee on Financial Services, Subcommittee on Oversight and Investigations, I am honored to appear before you today to discuss the dangers of ransom payments to Iran.

In particular, I would like to focus my testimony on what we know about the $1.7 billion payment to Iran, including the $400 million cash payment that was tied to the release of U.S. hostages, the legality of such a payment, and most importantly, why such a payment was a missed opportunity by the Administration to limit Iran’s ability to use these funds to support terrorism, weapons proliferation, and human rights abuses.

With the recent one-year anniversary of the signing of the Joint Comprehensive Plan of Action (“JCPOA”) between Iran and the P5+1, it is as important as ever to carefully examine the consequences of that agreement and Iran’s continued destabilizing activities in the region, and to remain vigilant in ensuring that Iran is limited in its ability to support terrorist forces and corrupt the international financial system.   

While the JCPOA has arguably curbed Iran’s nuclear activities in the short run, the Islamic Republic continues to send fighters to Syria, develop ballistic missiles in violation of United Nations Security Council Resolutions, and openly support Hezbollah, which is well known to have killed Americans and remains designated as a Specially Designated Global Terrorist, as well as other terrorist groups and militant proxies. Iran has also continued to take American citizens hostage, in particular dual-citizens who have traveled to the country following the partial relaxation of U.S., EU, and UN sanctions on Implementation Day of the JCPOA.  In short, Iran remains a threat to American citizens, our key allies such as Israel, and regional stability in the Middle East.

In addition—and of particular importance to this Committee—Iran poses a special threat to the global financial system.  Beginning in the early 2000s, the United States and the international community more broadly recognized this threat and began actively cutting Iranian banks out of global financial markets and limiting Iran’s ability to use the international financial system to finance its proliferation and terrorist activities. 

Make no mistake:  while Iran has signed the JCPOA and begun implementing it, Iran has not changed the underlying criminal activity that has led respectable financial institutions across the world to refuse to do business in Iran or with clients doing substantial business there.  Indeed, one marked development in the past year has been the international financial community’s unwillingness to re-enter the Iranian market, even if legally permitted to do so.

Iran’s unwillingness to change its destabilizing conduct is one of the reasons the payment of the $1.7 billion to the Islamic Republic raises serious concerns that this money will be—or already has been—used to support the Islamic Revolutionary Guard Corps (“IRGC”), the Iranian military, and its proxy terrorist forces throughout the region—and that any future payments will similarly go towards such activities.  While those on both sides of the aisle will debate whether the $400 million, paid upon the successful release of American hostages immediately following Implementation Day, amounted to a ransom, one thing is certain:  The way in which the money was paid—in cash, in the middle-of-the-night, delivered to Iran Air (an entity formerly designated by the Office of Foreign Assets Control (“OFAC”) at the United States Department of the Treasury for supporting the IRGC and supplying goods and services to Hezbollah and Syrian President Bashar al-Assad)—was both troubling and a missed opportunity. 

The $1.7 billion payment was troubling in large part because, in providing funds to Iran—including cash—without controls on how Iran would use that money, we allowed the country to disburse these funds to the Iranian military and other nefarious actors.  In addition, the very nature of the payment led Iranian officials to conclude that it amounted to a ransom payment; for example, on January 20, 2016, the commander of the IRGC paramilitary Basij unit reportedly said the reclaiming of $1.7 billion in blocked Iranian assets “had nothing to do the [nuclear] negotiations and was the . . . price that America paid to free its spies.” While the payment itself may not have been a ransom under U.S. law, Iran’s perception of the payment matters; a principle purpose of the United States’ no ransom policy is to deter hostage takers from compromising the safety of American citizens abroad—if terrorist groups and rogue countries do not think the U.S. will pay for hostages, those bad actors will be less likely to take hostages. Because of the particular nature of this payment, Iran believed this to be a ransom and consequently may be more inclined to seize Americans in the future.

The payment is also a missed opportunity because the United States could have set up payments stemming from the settlement agreement struck between Iran and the United States related to outstanding legal issues in a way that conditioned providing the funds on ensuring they would not be used to support terrorism or be given to the Iranian military or other sanctioned parties.  By releasing these funds in a way that limited Iran’s ability to use them to support its destabilizing activities, the Administration could have out-maneuvered the Islamic Republic.

I will focus my comments today on four main areas.  First, I discuss the $400 million and subsequent $1.3 billion payments, including a factual narrative of what we know about the payments.  Second, I assess the legal case concerning whether the Administration’s actions violated any relevant sanctions regulations or underlying U.S. laws.  Third, I detail why—while the Administration was on solid legal footing in facilitating these payments—the way these payments were sent to Iran raises serious concerns.  Fourth and finally, I discuss why the Administration’s approach was a missed opportunity and identify ways that this Committee can help ensure that, in the case of any future payments made to Iran—either by the United States or the private sector—we are able to reduce the risks that Iran uses the funds to support terrorism and other destabilizing activities.      

Testimony

Fueling Terror: The Dangers of Ransom Payments to Iran

Testimony for House Financial Services Committee
8th September 2016

33 Billion Graphic

Introduction

This summer marked the one-year anniversary of the announcement of the Joint Comprehensive Plan of Action (JCPOA). This deal is fatally flawed in that it provides the Islamic Republic of Iran with a patient pathway to nuclear weapons capability by placing limited, temporary, and reversible constraints on Iran’s nuclear activities. These nuclear “sunset provisions,” which will begin to expire in seven years and mostly disappear over a period of ten to fifteen years, leave Iran as a threshold nuclear power with an industrial-size uranium enrichment and plutonium program, near-zero nuclear breakout capacity, an advanced centrifuge-powered clandestine sneakout capability, advanced ballistic missile and ICBM programs, access to advanced heavy weaponry, greater regional hegemony, and a more powerful economy that could be immune to Western sanctions. Even as Iran temporarily scales back some of its nuclear activities under the JCPOA, the regime’s illicit efforts to obtain proliferation-related technology continues while its other non-nuclear malign activities are expanding.

The deal – as well as the interim agreement known as the Joint Plan of Action (JPOA) – provided Iran with substantial economic relief that helped the regime avoid a severe economic crisis and return to a modest recovery path. The lifting of restrictions on Iran’s use of frozen overseas assets as part of the interim agreement returned about $11.9 billion to Iran. The final agreement provided Tehran with access to a further $100 billion, including over $50 billion in unencumbered, liquid cash, according to the Obama administration. These funds gave Tehran badly needed hard currency to settle its outstanding debts, begin to repair its economy, build up its diminished foreign exchange reserves, and ease a budgetary crisis, as well as providing the regime greater resources for the financing of terrorism and other illicit activities.

The nuclear deal did nothing to address the full range of Iran’s malign activities, including ballistic missile development, support for terrorism, regional destabilization, and human rights abuses. Iran also still owes American terrorism victims and their families more than $55 billion in unpaid, outstanding damages awarded by American courts. The weakening of missile language in the key UN Security Council Resolution, the lifting of a conventional arms embargo in four years, and lifting the missile embargo in seven years severely undermines international efforts to combat Iran’s illicit activities.

A key driver of these threats remains the Islamic Republic’s ability to bankroll and finance a host of terrorist groups, militias, and proxy forces throughout the Middle East, including Hezbollah, Hamas, Palestinian Islamic Jihad, and designated Iraqi Shiite militias, as well expanding the existing asymmetric military capabilities of the Islamic Revolutionary Guard Corps (IRGC) and its elite Quds Force. Iran remains the world’s largest and most dangerous state sponsor of terrorism, according to President Obama’s State Department.

Cash Funnel Graphic

Iran’s ability to access cash outside the formal banking system is crucial in supporting these activities. Tehran also uses cash for other malign activities that it aggressively supports: WMD procurement, missile and heavy weaponry procurement, as well as aid to the murderous regime of Bashar al-Assad in Syria, designated Shiite militias, the Houthis in Yemen, and other malign actors.

Given existing U.S. financial sanctions, Tehran remains restricted in how it can fund these forces and activities through the formal financial system. The regime needs cash – liquid, untraceable, convertible, and easy to transfer. Cash is critical for Iran to sustain and expand these activities.

The subject of this hearing is the nature and consequences of the $400-million cash payment to Iran in connection with the settlement of an outstanding Iranian claim before the Iran-United States Claims Tribunal (the “Tribunal”). We also know that the subsequent $1.3 billion payment to Iran was made in cash. Instead of only focusing my testimony on the question of whether the $400-million and $1.3-billion cash transfers constituted a ransom, I want to broaden the scope of the inquiry to look at a number of related questions:

  1.  Was the Obama administration’s payment of $1.7 billion in three separate cash shipments a unique occurrence or part of a pattern of cash payments as part of Tribunal settlements and/or sanctions relief?
  2. If this situation was unique, did the administration agree to a cash payment scheme because it stood to receive a very valuable Iranian concession – the release of hostages, for example?
  3. How much has Iran received in cash or in gold and other precious metals, in particular, since January 2014, when the interim nuclear agreement came into effect?
  4. Did these cash transfers include billions of dollars sent to Iran between 2014 and 2016 as part of the administration’s push for a nuclear deal?
  5. Did the administration approve the transfer of billions of dollars in cash to Iran because no formal financial channels existed, or did U.S. officials concede to Iranian demands for this cash?
  6. Which Iranian entities received the cash payments, and who were the ultimate beneficiaries of these payments – the Central Bank of Iran, the Defense Ministry, the IRGC, the Quds Force, the Ministry of Intelligence, or other state or quasi-state entities?
  7. Did the Obama administration facilitate a massive and unprecedented cash transfer scheme to the leading state sponsor of terrorism with dangerous illicit finance consequences?

According to U.S. Treasury spokeswoman Dawn Selak, it was necessary to pay the $1.7-billion settlement “in non-U.S. currency, in cash” because of “the effectiveness of U.S. and international sanctions regimes over the last several years in isolating Iran from the international financial system.” If this is true, it raises serious concerns that Iran received billions of dollars in sanctions relief from the nuclear agreement in cash. Alternatively, if Iran was able to receive sanctions relief through the formal financial system, it would seem that the administration is not being transparent about the real reasons that the $1.7 billion was paid to Iran in cash.

Testimony

The Iran Nuclear Agreement: One Year Later

Testimony for Senate Committee on Foreign Relations
14th July 2016

Download the full written testimony here

Download the summary version of his testimony here

Chairman Corker, Ranking Member Cardin, members of the Committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify. What follows below is a summary of the main points and recommendations contained in a much longer written testimony that I have submitted for the record.

As we mark the one-year anniversary of the announcement of the Joint Comprehensive Plan of Action (JCPOA), it is worth recalling why this deal is fatally flawed. The JCPOA provides Iran with a patient pathway to nuclear weapons capability by placing limited, temporary, and reversible constraints on Iran’s nuclear activities. These nuclear “sunset provisions,” which begin to expire in eight years and mostly disappear over a period of ten to fifteen years, leave Iran as a threshold nuclear power with an industrial-size, uranium enrichment and plutonium program; near-zero nuclear breakout capacity; an advanced centrifuge-powered clandestine sneakout capability; advanced ballistic missile and ICBM programs; access to advanced heavy weaponry; greater regional hegemony; and a more powerful economy that could be immune to Western sanctions. Even as Iran temporarily scaled back some of its nuclear activities under the JCPOA, the regime’s illicit effort to obtain proliferation-related technology continues while its other non-nuclear malign activities are expanding.

The deal (as well as the interim agreement in place during the negotiations) provided Iran with substantial economic relief that helped the regime avoid a severe economic crisis and return to a modest recovery path. The lifting of restrictions on Iran’s use of frozen overseas assets of about $100 billion gave Tehran badly needed hard currency to settle its outstanding debts, begin to repair its economy, build up its diminished foreign exchange reserves, and ease a budgetary crisis, which in turn freed up funds for the financing of terrorism.

The nuclear deal also did nothing to address the full range of Iran’s illicit activities, including ballistic missile development, support for terrorism, regional destabilization, and human rights abuses. Indeed, the weakening of missile language in the key UN Security Council Resolution and the lifting of a conventional arms embargo after five years, and the missile embargo after eight years, undermine international efforts to combat Iran’s illicit activities.

During last summer’s congressional review period, Obama administration officials pledged that the United States would continue to enforce non-nuclear sanctions and oppose all of Iran’s dangerous activities. However, many of us raised concerns that Iran would view any imposition of sanctions as a violation of the deal and grounds to “snap back” its nuclear program,  and that those threats would in effect prevent Washington from imposing new non-nuclear sanctions. This is what I called Iran’s “nuclear snapback.”

In fear of the nuclear snapback, the Obama administration has missed numerous opportunities since the conclusion of the JPCOA to push back against Iran’s malign activities, including support for terrorism, human rights abuses, and other destabilizing activities in Syria, Iraq, Yemen, Lebanon, and other countries across the Middle East. Iran also has tested nuclear-capable ballistic missiles seven times since July 2015 in violation of UN Security Council resolutions.  Yet, the administration has only issued a handful of new designations,  including an ineffectual targeting of Iran’s missile procurement networks. Tehran can easily reconstitute these networks, and the designations do not impose the kind of economic costs needed to change Tehran’s strategic calculus.

In the past weeks, reports revealed Iran’s ongoing attempts to illegally procure nuclear and ballistic missile technology and raw materials.  This activity violated UN Security Council Resolution 1929 (in place prior to January 2016), it violates UN Security Council Resolution 2231, and it violates the spirit, if not the letter, of the JCPOA. In its annual report released at the end of June, Germany’s domestic intelligence agency found that Iran engaged in a “quantitatively high level” of attempts to acquire nuclear and missile technology and equipment.  German states also released their own intelligence reports, and multiple reports noted that Iran attempted to procure goods and technology relevant to “atomic, biological, and chemical weapons” and “nuclear and missile delivery programs.”  In its coverage of these reports, The Wall Street Journal spoke with two German intelligence officers who stated that Iran’s illegal procurement efforts continued in 2016 – well after Implementation Day (January 16th).  If these 2016 activities included nuclear goods and technologies, Iran would be in violation of its JCPOA obligations; for missile-related technologies, Tehran would be in violation of UNSCR 2231.

The Obama administration and its European allies have not imposed meaningful sanctions or punished Iran for its illicit activities. In fact, nuclear experts at the Institute for Science and International Security found that over the past two years, “The Obama administration has inhibited federal investigations and prosecutions of alleged Iranian illegal procurement efforts.”

The Obama administration also has failed to enforce human rights sanctions against Iran. Since the JCPOA was concluded last summer, the administration has designated no individuals or entities for human rights abuses, and has issued only three designations since Hassan Rouhani took power in the summer of 2013.  Meanwhile, Iran continues to hold hostage U.S., Canadian, and British dual nationals Bagher and Siamak Namazi, Homa Hoodfar, and Nazanin Ratcliffe as well as Nizar Zakka, a Lebanese citizen and U.S. permanent resident, and other individuals. This is unacceptable and inexcusable. They all must be released unconditionally and immediately.

As international businesses re-enter the Iranian market, the regime continues to oppress its citizens and deny their basic human rights. The regime seems to hope that the promise of profits will blind the international community to Iran’s vast system of domestic repression.

Those of us who were critical of the deal also raised concerns that Iran would view the JCPOA not as the end of the negotiations, but as the beginning, and demand ever-greater sanctions relief, as we have indeed seen.  We have witnessed the Iranian government’s full-court press to persuade the United States to green-light Iran’s access to U.S. dollar transactions.  This significant and unilateral concession to Iran would go beyond the sanctions relief promised by the nuclear agreement,  and seemed to be under active consideration by the State Department before congressional pressure stopped it (for now).  Iran has pressured the Financial Action Task Force (FATF) to remove it from its financial “blacklist.” While FATF recently refused to do so, it did suspend mandatory counter-measures against Iran for one year and opened up the possibility for future changes in the not-too-distant future.  Iran is also seeking membership in the World Trade Organization (WTO), and enjoys the backing of some European countries. WTO membership for Iran could severely curtail Washington’s future ability to use financial and economic sanctions.

Statements by administration officials such as Secretary of State John Kerry that it is America’s responsibility to ensure that Iran “get[s] the benefits that they are supposed to get”  are very problematic. The administration is allowing Iran to hold the U.S. responsible for delivering financial and economic outcomes, and for providing ever-greater sanctions relief in order to persuade Iran to keep to the JCPOA. This is not good policy. Instead, Congress should ensure that the onus is placed on Iran. If Tehran wants more sanctions relief and wants to encourage multinational companies to enter the Iranian market, it must change its dangerous behavior.

The JCPOA lifts sanctions on Iran’s nuclear activities, but it does not preclude the United States from using non-nuclear sanctions – despite statements from Iran that it will view any imposition of sanctions as a violation of the deal and grounds to “snapback” its nuclear program.  Congress should reject that Iranian position – which amounts to a form of nuclear blackmail – and hold the administration accountable for its commitments to “oppose Iran’s destabilizing policies with every national security tool available.”  Sanctions need to be imposed to target Iran’s support for terrorism, ballistic missile program, support for the Bashar al-Assad regime in Syria and designated Shiite militias in Iraq, and human rights abuses. These steps are not a violation of the JCPOA, but rather an affirmation of the stated U.S. policy.

Specifically, I recommend that Congress consider taking the following steps:

1. Protect the integrity of the U.S. dollar from Iranian illicit finance.

Congress should clarify that it is prohibited for any U.S. financial institution to process any transactions for Iranian entities. Congress should also state that it is prohibited for a U.S. financial institution to provide dollars for offshore clearing facilities if any party to the transaction anywhere in the financial chain is an Iranian entity. Congress furthermore should authorize mandatory sanctions on any offshore large value payment system that provides dollar-clearing services in any transactions involving an Iranian party. The termination of these prohibitions should be linked to a certification from the president that Iran is no longer involved in supporting terrorism and illicit missile development and that the Iranian regime has addressed its outstanding obligations to compensate victims of Iranian terrorism.

2. Reauthorize the Iran Sanctions Act, an important foundation of the sanctions architecture.

At the end of this year the Iran Sanctions Act is set to expire unless lawmakers act to reauthorize it. The Iran Sanctions Act is a critical foundation of the Iran sanctions architecture and should be reauthorized. Reauthorizing the Iran Sanctions Act would not violate the JCPOA, as no new sanctions would be imposed. Iran may voice objection to the reauthorization, perhaps even threatening to walk away from the agreement, but Congress should call Iran’s bluff and not allow the regime to have veto power over American laws. Furthermore, the justification for the Iran Sanctions Act is not only Iran’s nuclear program, but also its support for international terrorism.

3. Counter the narrative that Iran is a responsible financial actor.

As Iran engages with the global financial community and seeks to gain legitimacy, Tehran will attempt to further the narrative that it is a responsible global actor. Congress should counter the Iranian narrative and explain to markets the ongoing compliance and business risks involved in transactions with Iran. Congress should expose Iran’s ongoing deceptive conduct and illicit activities through both open source data and declassified evidence to build on the already-existing market concerns of doing business with Iran. Congress also should require the administration to provide detailed reporting on Iran’s deceptive conduct and illicit activities.

4. Strengthen sanctions against the IRGC by targeting its support for terrorism and expanding non-proliferation sanctions and designations.

If the administration refuses to designate the IRGC for terrorism, Congress should impose the same penalties provided under the Foreign Terrorist Organization designation or Executive Order 13224 through other means. Such sanctions would reinforce existing secondary sanctions against companies engaged in business with IRGC companies. In the missile arena, numerous companies owned or controlled by the IRGC and the Iranian Ministry of Defense and Armed Forces Logistics (MODAFL) and high-ranking Iranian officials involved in the program have not been sanctioned. Congress should require the administration to provide a list of and sanction all of the individuals and entities involved in Tehran’s ballistic missile development.

5. Require updated reporting on IRGC penetration in sectors of the Iranian economy, along with reporting and sanctions on the sectors involved in Iran’s ballistic missile development.

Congress can require the president to provide not only an assessment of which sectors are controlled by the IRGC, but also a determination of the nature and extent of the IRGC’s penetration into key sectors of Iran’s economy. Congress should then create sector-based sanctions targeting any sector of the Iranian economy with a significant IRGC presence. Congress also should require a similar report on the sectors of Iran’s economy that are contributing directly or indirectly to the development of the country’s ballistic missile program. FDD’s research has revealed that metallurgy and mining; chemicals, petrochemicals, and energy; construction; automotive; and electronic, telecommunication, and computer science sectors are involved in Iran’s ballistic missile program.  These sectors are a good starting point.

6. Require the U.S. Treasury to designate companies with IRGC or MODAFL beneficial ownership.

Currently, Treasury uses the 50-percent threshold to determine IRGC ownership (or ownership by any other designated entity); however a 25-percent threshold would better reflect global standards and Treasury’s own recommendations.  Congress should require the Treasury Department to lower the threshold for designation to the 25-percent beneficial ownership threshold rather than majority ownership and also include “board of directors’ criteria.” Lowering the threshold would likely also generate greater public scrutiny and enhanced due diligence procedures by the private sector.
7. Require the U.S. Treasury to create an IRGC Watch List.

Congress should consider a legislative requirement that Treasury create an “IRGC Watch List” of entities that do not meet the threshold for designation but have demonstrable connections to the IRGC. My colleagues Emanuele Ottolenghi and Saeed Ghasseminejad have already identified about 230 companies over which the IRGC exercises significant influence either through equity shares or positions on the board of directors.  Treasury, or another government agency such as the Government Accountability Office, should maintain the list and evaluate both public and classified information on companies that may be used as fronts for the IRGC. The criteria for inclusion on the IRGC Watch List should be flexible to account for the IRGC’s evolving use of deceptive business practices.

8. Require reporting to the Securities and Exchange Commission regarding any transactions with IRGC Watch List companies or in sectors connected to Iran’s ballistic missile program.

To address the IRGC’s role in Iran’s economy, Congress can require companies publicly traded in the U.S. to file reports with the Securities and Exchange Commission (SEC) to report on: 1) any business in sectors with significant IRGC penetration; 2) any joint ventures with public or private Iranian companies (as even so-called private companies are often heavily influenced or controlled by the IRGC); 3) any transactions with companies on the IRGC Watch List; and 4) any transactions with the sectors connected to Iran’s ballistic missile program.

9. Insist on robust investigation into Iran’s ongoing illicit procurement efforts and outstanding concerns about the possible military dimensions of Iran’s nuclear program.

The recent report from German intelligence, as well as independent reporting by the nuclear experts at the Institute for Science and International Security, raises serious concerns about Iran’s ongoing illicit procurement and the U.S. and international community’s failure to hold Iran accountable for its illegal activities. Congress should insist on detailed briefings from the administration on its intelligence and law enforcement efforts to combat these ongoing violations. Congress should also require the administration to report on, and sanction, those Iranian entities involved in these procurement efforts. Additionally, Congress should insist on a detailed briefing from the administration and from International Atomic Energy Agency officials about follow-up investigations to clarify ongoing questions about nuclear-related activities at the Parchin military base and man-made uranium particles found at the site.

10. Expand human rights sanctions by imposing sanctions on Iranian state organs responsible for institutionalized human rights abuses and by linking sanctions concessions to improvements in human rights conditions.

The administration’s record of human rights sanctions since the JCPOA and, indeed, since Rouhani took power in 2013, has been abysmal. There is ample evidence of continued and escalating human rights crimes. Congress should impose human rights sanctions on state organs responsible for institutionalized human rights abuses, as well as individuals who work for these state organs. Congress should also consider the creation of a new authority to designate an entity, or even an entire country, as a “jurisdiction of human rights concern,” using the model of Section 311 of the USA PATRIOT Act The goal of this policy would be to encourage the private sector to sever ties with institutions that perpetrate human rights abuses. The United States should also link any further sanctions relief concessions to Iran with an improvement in Tehran’s atrocious human rights record.

11. Target corruption and kleptocracy for reasons related to terrorism and human rights issues.

Corruption and kleptocracy are not just financial transparency issues, but are also human rights issues. The Revolutionary Guard and the ruling elite (including the supreme leader) have enriched themselves at the expense of the Iranian people. The United States can lead efforts to develop new policy tools, including financial sanctions tools, to combat corruption in Iran as well as in other authoritarian governments. Congress should consider legislation targeting corruption in all state sponsors of terrorism because the link between the funds generated from corruption and the sponsorship of terrorism by these regimes is well documented.

12. Require reporting on U.S. citizens and other dual-nationals held hostage in Iran.

Even as Iran released in January Jason Rezaian, Saeed Abedini, Amir Hekmati, and Nosratollah Khosravi – four American citizens the regime was unjustly holding hostage – the Islamic Republic continued to arrest, imprison, and harass American citizens in Iran. Today, Iran is holding hostage U.S., Canadian, and British dual nationals Bagher and Siamak Namazi, Homa Hoodfar, and Nazanin Ratcliffe, as well as Nizar Zakka, a Lebanese citizen and U.S. permanent resident as well as many other individuals. The regime also refuses to give information on missing American citizen Robert Levinson, who vanished after traveling to Iran more eight years ago. This is unacceptable and inexcusable. Congress should require the administration to report to Congress on U.S. citizens and other dual-nationals detained in Iran or harassed by agents of the regime. The release of these innocent individuals must be a priority for the United States, and Iran should receive no additional sanctions relief until all who are unjustly held are released.

13. Require reporting on and expand sanctions against Iran’s support for the Assad regime and IRGC activities in Syria.

Congress should require regular reporting from the administration on Iran’s activities in Syria and what types of support (provision of arms, financial support, intelligence sharing, and military strategy) Iran provides. Congress should also authorize sanctions against entities that are aiding the IRGC’s efforts in Syria. Congress should expand sanctions against Iranian airlines and front companies that carry weapons, equipment, and personnel to aid Iran’s efforts in Syria.

14. Require presidential certification that commercial planes are only being used for civil aviation end-use.

Iran must be prevented from misusing U.S.-made aircraft and those containing American parts given Iran’s history of sanctions evasion, support for terrorism, and aid to the Assad regime in Syria. Before any aircraft sales are licensed, Congress should require the president to certify that none of Iran’s commercial planes are being used for purposes other than exclusively civil aviation end-use.

15. Prohibit any U.S. financial institution, including the Export-Import Bank, from financing any trade with Tehran while Iran remains a state sponsor of terrorism.

In addition to the certifications that Iran is not misusing its commercial aircraft, Congress should prohibit Treasury from licensing U.S. or foreign financial institutions to facilitate any trade (including the Boeing deal) with Iran while it remains a state sponsor of terrorism. No banks should be permitted to finance the Boeing or Airbus deals, amongst others, given the risks discussed above that any financing arrangement exposes. Additionally, the Export-Import bank should not provide any financing for trade with Iran while the country remains a state sponsor of terrorism.

16. Require reporting on the use of foreign airports and seaports by sanctioned Iranian entities.

The Iran Freedom and Counter-Proliferation Act of 2012 (which is part of the National Defense Authorization Act for Fiscal Year 2013) requires the administration to report on foreign vessels calling at ports that are controlled by the IRGC-owned company Tidewater.  The bill also requires the administration to report to Congress on all airports at which sanctioned Iranian airlines have landed. This report is crucial for Congress to understand how Mahan Air and other designated Iranian airlines are evading U.S. sanctions. Congress should use this report to pressure U.S. allies to cease allowing Mahan Air and other sanctioned airlines to land at their airports. This reporting requirement, however, is set to expire at the end of the year but should be extended.

These recommendations summarize key points from the longer, written testimony.

***

To confront this reality, the United States needs a comprehensive strategy to sharpen its tools of coercion and to deploy all of the coercive tools of statecraft to push back against the full range of Iran’s malign activities. It is my hope that these recommendations will assist Congress in that endeavor.

If Washington does not confront these activities now and at every turn, in ten to fifteen years, we may face a situation in which the president has insufficient leverage to respond to an expanding Iranian military-nuclear program, regional aggression, and global terrorism. The U.S. may have only military force left to respond to Iran’s nuclear and other dangerous activities – at which time, the Iranian regime will be stronger, and the consequences of such military action likely will be severe.

Thank you for the opportunity to testify today. I look forward to your questions.

Testimony

Pakistan: Friend or Foe in the Fight against Terrorism?

Testimony for House Foreign Affairs Committee
12th July 2016

Download the full testimony here

Chairman Poe and Chairman Salmon, Ranking Members Keating and Sherman, and other members of the Committees, thank you for inviting me here today to speak about Pakistan and its support for terrorist groups that threaten the security of the United States and its allies.

This Committee rightly asks the question of whether Pakistan is a friend or foe in the fight against terrorism. While Pakistani officials and forces have assisted the U.S. in hunting senior al Qaeda figures at times, Pakistan’s overall strategy is pro-jihadist and therefore puts it in the foe category. Pakistan does battle some terrorist groups within its borders, but it only does so because these groups pose a direct threat to the state.

Pakistan myopically supports a host of terrorist groups in Pakistan, Afghanistan, and India to further its goals in the region. Pakistan backs these groups despite the fact that they are allied with and aid the very terrorist groups that fight the Pakistani state. In addition, many of the jihadist groups sponsored by Pakistan are allied with al Qaeda.

Today I will highlight six major groups directly supported or tolerated by Pakistan’s establishment: the Afghan Taliban and its subgroup, the Haqqani Network; the Mullah Nazir Group, Lashkar-e-Taiba, Harakat-ul-Mujahideen, and Jaish-e-Mohammed. Each of these groups is used by Pakistan as an instrument of its foreign policy. These six groups are by no means the only terrorist organizations supported by Pakistan, they are merely the most prominent.

Pakistan uses these six groups and others as a counterweight against what its policy makers perceive to be Pakistan’s greatest threat: India. However, the jihadist ideology has also spread throughout Pakistan as a result of policies adopted by the country’s military elite. Therefore, we should not underestimate the degree to which these groups are supported for ideological reasons.

Pakistan, a country of 182 million people, does not possess the manpower to counter India, a nation of 1.25 billion. Pakistan and India have been in a virtual state of war since Partition in 1947. The two countries have fought four active wars in 1947, 1965, 1971, and 1999. Each of these wars was initiated by Pakistan, and ended in defeats. Pakistani strategists have determined that to counter India, it must use unconventional means, including supporting jihadist groups.

Testimony

The Implications of U.S. Aircraft Sales to Iran

Testimony for House Committee on Financial Services
7th July 2016

Chairman Huizenga, Vice Chairman Mulvaney, Ranking Member Moore, and distinguished members of the Committee on Financial Services, Subcommittee on Monetary Policy and Trade, I am honored to appear before you today to discuss the implications of U.S. aircraft sales to Iran. In particular, I would like to focus my testimony on the threat Iran still poses, both to the region and to the international financial community, the risks in providing commercial aircraft to Iran, as well as how to best mitigate those risks. In addition, I will also speak directly to the three legislative proposals circulated by Committee staff.

As we approach the one-year anniversary of the signing of the Joint Comprehensive Plan of Action (“JCPOA”) between Iran and the P5+1, it is as important as ever to carefully examine the consequences of that agreement and Iran’s continued destabilizing activities in the region, and to remain vigilant in ensuring that Iran is limited in its ability to support terrorist forces and corrupt the international financial system.

While the JCPOA has arguably curbed Iran’s nuclear activities in the short run, the Islamic Republic continues to send fighters to Syria, develop ballistic missiles in violation of United Nations Security Council Resolutions, and openly support Hezbollah, which is well known to have killed Americans and remains designated as a Specially Designated Global Terrorist, as well as other terrorist groups and militant proxies. In short, Iran remains a threat to regional stability in the Middle East and to our key allies such as Israel.

In addition—and of particular importance to this Committee—Iran poses a special threat to the global financial system. Beginning in the early 2000s, the United States and the international community more broadly recognized this threat and began actively cutting Iranian banks out of global financial markets and limiting Iran’s ability to use the international financial system to finance its proliferation and terrorist activities.

Make no mistake. Though Iran has signed the JCPOA and begun implementing it, Iran has not changed the underlying criminal activity that has led respectable financial institutions across the world to refuse to do business in Iran or with clients doing substantial amount of business there. Indeed, one marked development in the past year has been the international financial community’s unwillingness to re-enter the Iranian market, even if legally permitted to do so.

Yet as we approach the one-year anniversary of the JCPOA and despite these serious risks, we are seeing increasing interest from Western companies to legally re-enter Iranian markets. In particular, pursuant to a Statement of Licensing Policy issued by the Office of Foreign Assets Control (“OFAC”) at the United States Department of the Treasury, both Boeing and Airbus have recently struck agreements to sell aircraft to Iran, contingent on securing approval from the United States Government.  While these sales were clearly contemplated under the JCPOA, the sale of such aircraft to Iran, and in particular to Iran Air, raises serious concerns that such planes will be used to traffic illicit arms and militants to Syria in support of Syrian President Bashar al-Assad, to Hezbollah in Lebanon, and to militants in Yemen. This fear is warranted: as recent research has shown, Iran Air—as well as still-designated entities like Mahan Air—regularly flies commercial aircraft to Syria and Lebanon that are known to—or suspected of—transporting arms, cash from illicit activities, or foreign militants. 

At the same time, there are legitimate public policy reasons to at least consider approving these sales. In particular, Iran’s commercial aviation safety record is dismal and new Boeing and Airbus aircraft and maintenance would likely reduce these horrible catastrophes that risk the lives of ordinary Iranian citizens. 

Yet any licenses issued by the Treasury Department permitting the sale of aircraft by Boeing and Airbus to Iran Air or any other government entity or private company in Iran risk not only providing the Islamic Republic with new ways to support Hezbollah and President Assad, but also of potentially signaling to the international financial community that it may be acceptable to return to doing business in the Islamic Republic, despite the fact that the underlying international security and financial crimes compliance (“FCC”) risks remain.

This Committee is right to consider legislation significantly restricting the sale of these aircraft. In any prospective sale of aircraft to Iran, the impetus must remain on Iran to prove that it is not and will not use them for illicit or dangerous purposes. In the following testimony, I suggest ways the Committee can modify the current legislative proposals to continue to pressure Iran.

Further, the United States should not be a cheerleader for these deals and should not actively help facilitate them. It is one thing to say to private industry that it can do permissible business that was bargained for in the JCPOA. It is quite another to proactively tell U.S. and foreign financial institutions—through a specific licensing process—that they can bank such activities.  Given Iran’s history of abusing the international financial system, the United States should refrain from providing legal authorization to any financial institution that wants to re-enter Iranian markets in all but the rarest of circumstances.

I will focus my comments today on four main areas. First, I will discuss the threats posed to the international financial system by Iran’s continued support for terrorism and proliferation, as well as the general risks facing any companies considering doing business in the Islamic Republic. Second, I will touch on the specific real and regulatory risks that Boeing and Airbus face when deciding whether to sell aircraft and associated services to Iran Air and other Iranian entities, as well as any financial institutions that decide to provide financial services related to the agreements. Third, I will discuss the legitimate safety concerns with the Iranian airline fleet that and how these concerns must be balanced against the financial crime and illicit activity risks inherent in providing these planes to Iran. Fourth, I will comment directly on the three proposed pieces of legislation.

Testimony

The Implications of U.S. Aircraft Sales to Iran

Testimony for House Financial Services Committee
7th July 2016

Executive Summary 

As we approach the one-year anniversary of the announcement of the Joint Comprehensive Plan of Action (JCPOA), many of the concerns of those who opposed the deal have indeed come to pass: an increase in Iran’s malign activities, an Obama administration reluctant to use non-nuclear sanctions to punish and deter these activities, and an Iranian regime for whom the JCPOA was not the end of negotiations but merely the beginning.

The JCPOA was objectively a very good deal for Tehran: It preserved essential elements of the country’s nuclear infrastructure and placed only temporary, limited restrictions on its nuclear ambitions, which start expiring in 2023. In exchange, Iran got the complete dismantlement of many of the most impactful U.S. and international economic sanctions, which already has helped trigger an economic recovery.

In January, the accord proceeded as scheduled. Iran mothballed some of its nuclear infrastructure and got the coveted stamp of approval from the International Atomic Energy Agency. Following that, Washington and the Europeans terminated or suspended a slew of punishing economic sanctions and even agreed to hand over access to $100 billion in blocked Iranian assets.

Even this was not enough for the Islamic Republic. “On paper the United States allows foreign banks to deal with Iran, but in practice they create Iranophobia so no one does business with Iran,” thundered Supreme Leader Ali Khamenei.  Iran demanded greater sanctions relief or it would walk away from the nuclear deal.

The administration acquiesced to these demands. Secretary of State John Kerry rushed overseas on an international invest-in-Tehran “road show.”  Banks simply need to “do their normal due diligence and know who they’re dealing with,” Kerry told reporters.  But the banks know that there is no “normal due diligence” in a country as corrupt as the Islamic Republic.

In an attempt to assuage their concerns further, Kerry’s staff briefed State Department reporters on a plan to issue a license to permit foreign banks to use dollars when processing transactions with their Iranian counterparts  – a concession never explicitly negotiated as part of the nuclear deal. This prompted a backlash in Congress that had Treasury Department officials scrambling to issue guidance that Washington is not permitting Iranian access to the U.S. financial system, even as they left open the possibility of offshore dollar clearing. 

More recently, Boeing and Iran Air announced a deal worth an estimated $25 billion to sell and lease aircraft. This represents a multi-billion dollar bet by President Barack Obama that the economic benefits from the JCPOA will moderate Iran’s behavior before the nuclear restrictions start expiring.

Yet Boeing is signing a deal with an Iranian aviation company and an industry complicit in the regime’s weapons proliferation and destabilizing adventurism. Boeing and those banking this deal face a due diligence nightmare. They cannot prevent their planes from being used by Iran’s Islamic Revolutionary Guard Corps (IRGC), for example, for deadly airlifts to Syria’s Bashar al-Assad and Lebanese Hezbollah.

This deal is unnecessary: Iranian citizens and foreign travelers to Iran have alternatives.

Over the past five years, Gulf and Turkish airlines were primarily responsible for the growth in the Iranian aviation market, with an increase in their routes by nearly 60 percent over the past three years.  European airlines also announced a resumption of flights to Tehran following the lifting of sanctions.

Iranian citizens need not rely on Iran Air or Mahan Air – companies racked with corruption and implicated in a range of illegal activities – but can look to more reliable foreign companies to meet their travel needs. Indeed, corruption plagues Iran’s aviation industry; safety challenges reportedly have been the result of corruption and mismanagement, not U.S. sanctions. The Boeing deal may end up benefitting the still U.S.-sanctioned and IRGC-controlled Mahan Air, which has become the largest international carrier to and from Iran, as well as other sanctioned airlines supporting the IRGC and the Assad regime.

In addition to implicating U.S. companies in Iran’s malign activities, the Boeing deal also undermines the Obama administration’s much-touted economic “snapback” mechanism for enforcing the JCPOA. Iran targeted the Europeans to block any transatlantic re-imposition of sanctions by signing a similar deal with Boeing’s competitor Airbus and with ATR, a joint venture between Airbus and Italy’s Finmeccanica. French and Italian financial institutions and export credit agencies will finance these purchases, with a combined value of close to 30 billion dollars. 

From Iran’s perspective, this is a smart strategy: Snapping back sanctions would cause American and European aviation companies and banks to lose billions of dollars in unpaid contracts. The aircraft companies and banks would surely lobby the White House and European capitals against restoring sanctions against Tehran, or at least seek reassurances that the aviation and financial sectors would be spared. In other words, with these deals, Iran can further exploit the tension between national security and Western commercial interests.

The Boeing deal comes at a time when the Obama administration has failed to push back against Iran’s malign activities, including support for terrorism, human rights abuses, and other destabilizing activities in Syria, Iraq, Yemen, Lebanon, and other countries across the Middle East. It underscores the deterrence power of Iran’s “nuclear snapback,” wherein Tehran will threaten nuclear escalation if the world powers try to force it back into compliance with the agreement or impose sanctions against its non-nuclear malign activities.

The Boeing deal only serves to increase the Iranian regime’s leverage over the nuclear deal while diminishing the American appetite for rigorous enforcement. Before the aviation deal is permitted to move ahead, Congress should maintain pressure on the Iranian regime to change its behavior by linking the sale to demonstrable changes in the behavior that prompted sanctions in the first place.

Specifically, I recommend that Congress consider taking the following steps:

  1. Require presidential certification that commercial planes are only being used for civil aviation end-use.
  2. Prohibit any U.S. financial institution, including the Export-Import Bank, from financing any trade with Tehran while Iran remains a state sponsor of terrorism.
  3. Protect the integrity of the U.S. dollar from Iranian illicit finance by codifying existing restrictions, reporting on financial institutions involved in dollarization, and linking the termination of these measures to the end of Iranian support for terrorism and missile development as well as compensation for victims of Iranian terrorism.
  4. Reauthorize the Iran Sanctions Act, an important foundation of the sanctions architecture and legislation based on both Iran’s nuclear program and its support for international terrorism.

If the deal is permitted to proceed without these requirements, the Obama administration will in effect make one of America’s most respected companies and the banks that finance this deal accomplices to the world’s leading state sponsor of terrorism.

Testimony

Exploring the available economic levers to enhance respect for human rights

Testimony for Standing Senate Committee on Human Rights
15th June 2016

Thank you, Chair and Honourable Senators for inviting me here today. I commend this committee for turning its attention to the promotion of human rights abroad. Multiculturalism, which according to many national polls is one of the seminal elements of Canadian pride and identity, is rooted in a respect for all individuals, regardless of personal backgrounds. This is precisely what human rights violators are lacking: a respect  – or even a basic tolerance for – those who are different from them.  Ahmed Shaheed, the UN’s Special Rapporteur on human rights in Iran, recommends that every state “keep urging that steps be taken to strengthen the promotion and protection of human rights.”

At the same time, we must be aware of the hazards of engaging in the discourse of human rights when it comes to foreign states. Authoritarian governments love nothing more than to accuse liberal democratic countries of themselves being the human rights abusers and to threaten retaliatory action.

While I firmly reject equating Saudi human rights abuses against women, children and non-Sunnis with, for instance, modern-day Canadian treatment of indigenous peoples, where recent governments have made genuine efforts to rectify past wrongs, we nonetheless should approach the discussion of human rights with caution.  

One of the motivations behind this committee’s inquiry may have been the $15 billion LAV trade deal with Saudi Arabia. I join many Canadians in feeling a discomfort in exporting military assets to one of the worst human rights violators, but I feel compelled here to highlight the grayness and complexity of international politics. As reprehensible as Saudi Arabia is when it comes to human rights violations, we cannot ignore that it acts as a regional counterweight to an equally atrocious or even worse human rights violator: the Islamic Republic of Iran. To be clear, I am not defending Saudi Arabia. But as Iran gets stronger economically due to nuclear sanctions relief, even as it wrongly imprisons Canadians, sponsors terrorism, illegally tests ballistic missiles inscribed with death to Israel messages, financially and militarily props up the Assad regime in Syria, and brutally abuses the rights of various minorities, the West simply cannot abandon Saudi Arabia in that nasty neighborhood.

I understand that the Export and Import Permits Act is of particular interest to the committee. While human rights are not expressly mentioned in the act, they are a relevant consideration. Section 7 allows the minister, in deciding whether to issue a permit, to take into account whether the goods or technology are prejudicial to the peace, security or stability in any region or country. Certainly severe human rights violations could meet this criterion. And the Export Controls Handbook states that exports from Canada are not to be used to commit human rights violations.

If Parliament were to decide to make explicit reference to human rights in the Act itself, I have preliminarily identified a few places where this could happen:

- a new paragraph in section 3(1)
- section 7(1.01)(b)
- in the regulations under the Act
- in a very egregious case, section 4, which covers Area Control Lists, could be impacted by a human rights assessment

Besides amending the Act, we also must ask if the enforcement of existing export restrictions and other sanctions is adequate. In 2014, I wrote an article flagging a report by David Albright, a physicist who founded the Institute for Science and International Security (ISIS) in Washington, D.C. This report, written at the height of Canadian and international sanctions against Iran, noted “the widespread suspicion that Iran exploits Canada as a source of sanctioned goods.” Albright further asserted that “Canada's export control efforts and laws against sanctioned countries such as Iran are rudimentarily enforced at best; the country is ripe for exploitation by illicit procurement networks and agents seeking to take advantage of a lack of knowledge and seriousness by industry concerning these regulations.”

In April 2014, Lee Specialties Ltd. of Alberta pled guilty to charges and was fined $90,000 for unlawful exports of dual-use goods to Iran. This is one of only a handful of export compliance cases prosecuted by Canada. 

Albright recommended that authorities make examples of companies with fines higher than $90,000 and include significant incarceration in relevant laws as a penalty for these types of crimes.  In 2014, Lee Specialties had an estimated annual revenue of nearly $29,000,000.  The comparably low penalty is unlikely to deter other companies from similar wrongdoing.

In EIPA, under section 19, a person who contravenes the Act and is guilty of an offence punishable on summary conviction is liable to a fine up not exceeding $25,000 or to no more than 12 months in prison. An indictable offence leads to a fine at the discretion of the court or to a term of imprisonment not exceeding ten years.

It would be useful to review the number of prosecutions that have taken place under EIPA and the amount of fines levied, in order to determine whether effective enforcement is taking place.

Setting aside enforcement and getting back to the law itself, I would like to draw your attention to US policy on exports and human rights. In the context of the Export Administration Regulations, which is promulgated under the authority of the Export Administration Act, there is a section on crime control and detection. It begins with these words: “In support of U.S. foreign policy to promote the observance of human rights throughout the world, a license is required to export and reexport crime control and detection equipment, related technology and software…”

The regulations specifically state that “The judicious use of export controls is intended to deter the development of a consistent pattern of human rights abuses, distance the United States from such abuses and avoid contributing to civil disorder in a country or region.”

The other licensing consideration to note for this committee, as greater transparency and clearer standards in the Canadian decision-making process may be desirable, is that the Department of State annually compiles Country Reports on Human Rights Practices for submission to Congress. The factual information presented in these reports is a significant element in export licensing recommendations made by the Department of State.

I will also note the US International Religious Freedom Act of 1998 (IRFA), which calls on the President to take diplomatic or other appropriate action with respect to any country engaged in systematic, egregious violations of religious freedom accompanied by flagrant denials of the rights to life, liberty, or the security of persons. For such countries, IRFA provides that the Department of Commerce must restrict exports of items on the Commerce Control List for reasons of crime control or detection, and require export licenses for items that are being used, or are intended for use, to carry out particularly severe violations of religious freedom.

Looking beyond the Export and Import Permits Act, Canada has and could have in place other measures to enhance respect for human rights in other countries.  

Currently, sanctions under the Special Economic Measures Act can be imposed by Canada for two purposes: to implement an international resolution to take economic action against a foreign state and to respond to a grave breach of international peace and security that has resulted, or is likely to result, in a serious international crisis. SEMA has already been used to penalize the governments of Syria, Zimbabwe, and Burma for their human rights abuses. Nonetheless, it may be worthwhile to amend SEMA to include severe human rights abuses as explicit additional grounds for sanctions. I realize that the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) proposes such a change in SEMA.

As my colleague Mark Dubowitz recently suggested to you, under SEMA, Ottawa could impose human rights sanctions on the state organs responsible for institutionalized human rights abuses in a particular country, as well as the individuals who work for these state organs. In Iran, for instance, Canada should single out those institutions, such as prisons or military bases, at which abuses like torture and arbitrary detention occur, including Evin Prison, where Canadian Zahra Kazemi was held and tortured and ultimately killed, and where Concordia professor Homa Hoodfar is currently being detained without access to legal or consular services.

Both Canada and the United States should consider legislation targeting corruption in all state sponsors of terrorism. The link between the funds generated from corruption and the sponsorship of terrorism by these regimes is well documented. The Magnitsky Law is one mechanism that could be used to target corruption. That legislation authorizes sanctions not only against human rights violators but also against government officials and their associates responsible for or complicit in significant corruption.

Focusing on corruption is crucial because authoritarian leaders paint civil society groups as foreign agents, pass laws to regulate these groups, and cast themselves as defenders of traditional values against a decadent and deviant West. They have a more difficult time, however, using ideological, cultural, or nationalist arguments to justify thievery.

Lastly, to the extent that the safety and security of the person is a fundamental human right and is threatened by terrorist violence, the government’s ability to designate states as sponsors of terror and groups or individuals as listed entities, is also relevant. By designating a state as a sponsor of terror, its immunity in a Canadian court is lifted, and private citizens can use civil suits as economic levers to encourage a change in the state’s behaviour. And once an entity is listed under the Criminal Code, Canadians are prohibited from having any financial dealings with them.
Thank you again for the opportunity to appear before you today, and I look forward to your questions.

Testimony

The Next Terrorist Financiers: Stopping Them Before They Start

Testimony for House Financial Services Committee
23rd June 2016

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Chairman Fitzpatrick, Ranking Member Lynch, Vice Chairman Pittenger, and distinguished members of the Task Force to Investigate Terrorism Financing. I am honored to testify before you to discuss the evolving challenges and threats from terrorist and illicit financing. I am especially pleased to be testifying with former colleagues and distinguished experts in this field.

Let me begin by commending this Task Force and the Committee for its diligent work and focus on terrorist financing over the past year. This Task Force has resurrected important policy conversations and oversight to ensure the effective application of U.S. tools, information, authorities, and strategies to tackle the challenges of terrorist financing and illicit financing. These are issues that affect our national security and the integrity and strength of the global financial system.

I was privileged to testify at the first hearing on April 22, 2015, and noted at the time that the work of the Committee would prove even more relevant as the terrorist threat evolved and America’s enemies adapted to find ways to raise and move money for their causes. I also testified that there would be a need to tackle core issues of transparency and accountability in the global financial system to ensure that we could protect the U.S. financial system from abuse. Much of my testimony today builds on those prior reflections and recommendations.

Since the Task Force began its work, much has happened to underscore the need to focus on terrorist financing and illicit finance – and the importance of the strength, resilience, and integrity of the U.S. and international financial and commercial systems.

  • Terrorist organizations and criminal networks have continued to leverage local and regional economies and the global commercial system to both profit and evade scrutiny, with the U.S. and other governments attempting to expose and disrupt significant illicit financial and trade networks and nodes from Panama to Afghanistan.
  • Growing regional and proxy battles in the Middle East, South Asia, and Africa have increased the risk that terrorist and militant groups are taking advantage of crises, lack of governance, and fund flows to rejuvenate longstanding financial support from donors, charities, and state sponsors.
  • Terrorist infiltration and control of urban environments, populations, and resources – in cities like Mosul, Sirte, and Raqqa – have complicated how the U.S. government and our allies attempt to disrupt terrorist financing, putting a premium on dislodging terrorist organizations physically from key sites and sources of revenue.
  • The application of U.S. law to exclude Hezbollah from the Lebanese financial system has created enormous pressure in Lebanon, with Hezbollah leadership speaking out against the closing of Hezbollah-related bank accounts and a bomb exploding in front of Blom Bank in Beirut on June 12, 2016.
  • The Panama Papers and tax-related leaks have raised important questions about the limits of financial transparency, accountability, and traceability and whether the current anti-money laundering/countering the financing of terrorism (AML/CFT) system is effective.
  • Complications and burdens on the legitimate financial community in the application of sanctions and financial crime risk management have continued to abut against the public policy needs for financial inclusion.
  • New technologies enabling the digital economy are providing enormous opportunities for financial access and innovation, but illicit actors are finding ways to leverage tools like digital currency to create illicit bazaars via the Internet and access capital without scrutiny, as seen in the Silk Road and Liberty Reserve cases.
  • Continued, significant cyberattacks by state and non-state actors on financial institutions and networks, to include the recent heist affecting the Bangladeshi Central Bank and others via the SWIFT bank-messaging network, have tested the trust in the international financial system and continued to demonstrate that the financial sector remains at the heart of the cyber storm.

These are just some examples and recent developments that continue to illuminate and complicate the terrorist and illicit financing landscape. Billions of dollars in illicit trade and money laundering continue to reach the hands of criminal and illicit actors. There is much work to be done to ensure the United States and our partners around the world are making it harder, costlier, and riskier for terrorist groups and illicit actors to raise and move money across and within borders.

Indeed, the terrorist threat and its underlying ideology have continued to metastasize, and the global threat of terrorism has adapted quickly. Terrorist organizations continue to adapt to the pressure placed on their global financial networks since 9/11 and have learned to raise and manage their own budgets by becoming for-profit organizations taking advantage of the economic resources and opportunities where they operate. Just as the problem of terrorism is more global and diversified today than ever before, the means and resources that networks and groups have to raise and move money have become more varied and localized.

Though under increasing pressure, the so-called Islamic State of Iraq and al-Sham (ISIS) has maintained its hold on key territory – even beyond the Syrian and Iraqi theaters – and has erased or reshaped borders in the heart of the Middle East. Its finances in Iraq and Syria have been disrupted thanks to targeted air strikes on oil infrastructure and cash centers, but the group continues to raise millions of dollars in revenue and manages a diversified war economy as it attempts to govern and expand its reach.

To contain the global reach of terrorist groups and to thwart the manifestation of their ambitions, we must disrupt their financing and force them to make operational and strategic choices. After 9/11, the U.S. government understood that defending the country and undermining terrorism required deterring, disrupting, and dismantling terrorist funding sources and networks, as these are all essential to the broader counterterrorism mission. Whether it is al-Qaeda, ISIS, or Hezbollah, the reality is that terrorist groups need money to operate their networks, logistics, maintain territory or influence, and to plan strategically against the United States and our allies.

Any terrorist group, illicit network, or rogue state seeking significant global reach and impact needs access to the financial and commercial system. Financial flows and budgets become even more important as groups like ISIS, Boko Haram, and al-Shabaab attempt to govern and operate local economies.

Money is their enabler, but it’s also their Achilles’ heel. If you can cut off funding flows to rogue groups or states, you can restrict their ability to operate and govern, and force them to make choices – not only budget decisions, but also strategic choices.

Financial strategies are powerful tools that can constrict our enemies’ current activities and their strategic reach. Yes, one suicide bombing may cost a terrorist organization less than $1,000, but if that organization cannot pay for all the sophisticated training it would like, cannot adequately maintain its international alliances, and cannot develop all the programs and operations it imagines, then its ultimate impact will be limited. In maximalist terms, we can alter the enemy’s behavior by affecting its bottom line.

Testimony

The Next Terrorist Financiers: Stopping Them before They Start

Testimony for House Committee on Financial Services
23rd June 2016

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Chairman Fitzpatrick, Ranking Member Lynch and members of the Task Force to Investigate Terrorism Financing, thank you for the opportunity to testify today. It is an honor for me to be here.

On February 3, 2016, I was similarly honored to appear before this Task Force to testify on a topic of great concern – trade based money laundering and value transfer.

I am pleased to note that as a result of the referenced hearing, there has been additional focus on trade-based money laundering (TBML) and its links to terror finance. I am also heartened that the Task Force has explored some of the recommendations in my testimony.

The focus of today’s hearing is to summarize findings but also identify emerging terrorism financing threats so that we can act to mitigate coming dangers. So this morning, I would like to shift my focus away from TBML and take this opportunity to discuss another topic that I have also been concerned about for many years. It is already dramatically transforming financial services in areas of the world in which our adversaries operate.

. . . . . . . . . .

Exponential Growth

In 2008, I wrote an essay published by the Department of State titled “Mobile Payments – a Growing Threat.”  Eight years later, the threat has materialized.

Mobile payments is actually an umbrella term that covers diverse high-tech money transfer systems such as digital precious metals, Internet payment services, prepaid calling cards, and M-payments (i.e., money and e-value transfer via the use of cell phones).

(Note: I am limiting my remarks to mobile network operators where transactions are generally processed over the operators’ wireless network(s). I will not address mobile payment services offered by financial institutions or the mobile payment service provider model where the provider offers mobile payment capabilities to its service users which may include merchants.)

The growth of access to cellular devices is breathtaking. In 1990, there were approximately 11 million mobile phones worldwide.  In 2016, the number of mobile lines in service has surpassed the global population!  By 2020, more people will have mobile phones than electricity and running water. 

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The GSMA, an organization that represents the global mobile industry, estimates that there are now approximately 411 million mobile money accounts in the world. The total was increased by almost a third in 2015. There are approximately 270 mobile money services operating in 93 countries. More than one billion mobile money transactions were processed in December 2015.

We should cheer these developments. The G-20 included “financial inclusion” on its priority agenda to help over two billion adults around the world who have limited access to financial institutions.  As an example, only an estimated four percent of Mauritanian adults have bank accounts.

I know many of Task Force members are international travelers. Many of you have traveled extensively in the developing world. Undoubtedly, you have observed how easy access to M-payments via the ubiquitous cell phone is transforming lives by providing a much needed link to contemporary financial services at a reasonable price. Users are not required to have a bank account or credit card. Countries without modern financial and communications infrastructure are able to “leapfrog” directly into cutting edge networks.

For example, in Tanzania only 12 percent of the population is engaged in the formal financial sector. Mobile banking services fill the gap and, as a result, are expanding rapidly. The Central Bank of Tanzania estimates that the equivalent of $650 million is transferred each month through mobile transfers. 

In Kenya, using 2013 data, an astounding 43 percent of Kenya’s GDP flowed through M-Pesa, the country’s leading mobile money service provider.  Twenty-three million Kenyans use M-Pesa or 90 percent of the adult population. There over 100,000 M-Pesa agents in Kenya.

Testimony

The Enemy in our Backyard: Examining Terror Funding Streams from South America

Testimony for House Committee on Financial Services
8th June 2016

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Introduction

Chairmen Fitzpatrick and Ranking Member Lynch, and Honorable Members of the Task Force to Investigate Terrorism Financing, I deeply appreciate the invitation to participate in this very important hearing on terrorism financing and the increased Hezbollah activities in Latin America. Let me start by thanking you for your service and for your unwavering support of federal law enforcement, our military and our intelligence services. However, just as important is your valuable support to security institutions in many of our neighboring countries in Latin America and the Caribbean. I have testified before many of you over the years and worked with outstanding members of your staff. I have the utmost respect for each of you and the tremendous contributions that you have made, and continue to make, in keeping America safe.

I spent 33 years in law enforcement serving in some of the toughest and most austere locations around the globe and retired from the US Drug Enforcement Administration (DEA) approximately seven and one-half years ago. I was very fortunate to have ascended through the ranks of the DEA where I ultimately served as the Acting Chief of Intelligence for approximately one year and as the Assistant Administrator and Chief of Operations for almost four years. In that assignment I had operational oversight responsibility for DEA’s 227 domestic and 86 foreign offices and several Headquarters divisions, including the Special Operations Division.

With the support of a phenomenal team, I was responsible for leading the efforts to design and implement the DEA’s significant expansion in Afghanistan, as well as for the Foreign-deployed Advisory and Support Teams (FAST) program and the agency’s Drug Flow and Financial Attack Strategies. I was also responsible for leading the formative development of the Department of Justice multi-agency Organized Crime Drug Enforcement Task Force Fusion Center after being appointed by the Deputy Attorney General to serve as the Center’s first Director. The Center supports both terrorism and drug trafficking investigative efforts by seven federal law enforcement agencies.

I served in DEA field assignments at various ranks on both the East and West Coasts, on our Southern and Northern borders, in the Midwest, in Washington, DC during three separated Headquarters tours, and also led joint tactical operations for several years with host-nation counterparts in the Andean Region and the northern-tiered countries of Central America. I also volunteered for an assignment with the Department of Defense Coalition Provisional Authority during the summer of 2003 to serve as the SES Chief of Staff for the Iraq Interim Ministry of Interior. I served in local and state law enforcement for almost twelve years prior to joining the DEA and enlisted in the US Marine Corps in 1971 where I served fourteen months deployed overseas, including limited duty in the Republic of Vietnam. Two days after retiring from the DEA in late 2008 I co-founded SGI Global, LLC and started work as a Managing Partner, a role that I continue to serve in to this day. SGI is currently supporting critically important security projects for our military and government agencies in Afghanistan, Central Asia, the Middle East, Africa, Mexico and Panama, as well as in various locations here at home.

From that, I believe you can conclude I am not a politician, a diplomat or an academic. I am a career law enforcement practitioner and it is in that context that I appear before you today to address, from purely my perspective, the threat posed by terrorism financing and increased Hezbollah activities in Latin America.

Testimony

The Enemy in our Backyard: Examining Terror Funding Streams from South America

Testimony for House Committee on Financial Services
8th June 2016

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Chairman Fitzpatrick, Vice Chairman Pittenger, ranking member Lynch, members of the Task Force to Investigate Terrorism Financing, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to testify.

In Latin America, the combination of weak central governments, porous borders, and widespread corruption in public institutions creates an ideal environment for Transnational Organized Crime (TOC). According to the U.S. administration, “Not only are criminal networks expanding, but they also are diversifying their activities, resulting in the convergence of threats that were once distinct and today have explosive and destabilizing effects.”

Drug trafficking, trade-based money laundering, and terror financing in Latin America have merged as a single threat to the national security of the United States: drug cartels, smugglers, counterfeiters, insurgent groups, and terror organizations have coalesced, sometimes against local authorities and sometimes with their active complicity and support, for their mutual benefit. The result is a toxic mix in which drug traffickers rely on terror organizations to move their merchandise to their final destinations in North America and Europe. For their part, terror organizations offer the traffickers services that generate profits to fund their own terrorist activities.

Hezbollah plays a central role in this new landscape, as in Latin America. The group’s religious institutions and clerics, charitable and educational activities, its supporters’ licit commercial activities, and its illicit finance network and organized crime are not distinct endeavors involving different people but overlap.

In my testimony, I will illustrate how Hezbollah, thanks to its reliance on local Shi’a communities, is becoming a key player in the complex regional dynamics of Transnational Organized Crime.

Testimony

Guantanamo Bay: The Remaining Detainees

Testimony for House Committee on Oversight and Government Reform
24th May 2016

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Chairman DeSantis, Ranking Member Lynch, and other members of the committee, thank you for inviting me to testify today. I have been writing about Guantanamo and the detainees held there for more than a decade and I visited the detention facility in 2008. I have reviewed most, if not almost all, of the publicly available files created by the U.S. government on the individual detainees, as well as the habeas decisions issued by the courts.  This material constitutes thousands of pages of source files, which I have summarized in databases containing dozens of variables on most of the men who have been detained. The Guantanamo detainees are a regular part of my coverage at The Long War Journal, which was among the first publications to report that former detainee Ibrahim al Qosi, who is a senior al Qaeda figure, had rejoined the fight. 

The key points in my testimony today are as follows:

1. Guantanamo has always posed risk management problems for the U.S. government. Early on, U.S. officials decided to divide the detainee population into categories based on risk. This process was incredibly difficult as it must take into account numerous factors, including sometimes murky, contradictory or uncorroborated intelligence. This process hasn’t been perfect, as some detainees were misidentified as low threats, transferred or released, and then rejoined the jihad in a significant capacity. In addition, in some cases detainees were misidentified as being more senior in jihadist organizations than they really were.

2. Even so, various bodies in the U.S. government have collected significant intelligence on most of the detainees. And the detainees’ dossiers have been reviewed multiple times by U.S. officials.

3. In January 2010, President Obama’s Guantanamo Review Task Force finished its work on the detainee population. It should be noted that the task force did not recommend any of the 240 detainees it evaluated be outright released.

4. Instead, the task force approved for “transfer,” or eventual transfer after “conditional detention,” 156 of the 240 detainees it reviewed -- that is, nearly two-thirds of the detainee population.   The task force made it clear that the term “transfer” was “used to mean release from confinement subject to appropriate security measures.” The term “release” was “used to mean release from confinement without the need for continuing security measures in the receiving country.”  Again, no detainees were approved for outright release. In other words, the task force determined that there was at least some risk involved in the detainee transfers.

5. As of May 19, 2016, 80 detainees remain at Guantanamo. Only 15 of them were approved for transfer by President Obama’s task force. The majority of the detainees, 65 in all, were either referred for prosecution or slated for continued detention under the law of war (2001 Authorization for Use of Military Force). Therefore, the detainee population today is mostly comprised of detainees who President Obama’s own task force deemed too dangerous to transfer.

6. The Obama administration has established a Periodic Review Board (PRB) process to evaluate the cases of the 65 detainees previously deemed too dangerous to transfer. The PRB has issued 28 decisions thus far. The PRB has approved for transfer – again, subject to “appropriate security measures” – 21 of the 28 detainees. In some cases, detainees were approved for transfer by the PRB just months after the PRB itself ruled that continued detention remained necessary to mitigate the threat posed by the detainee. In the remaining seven instances, the PRB concluded that detention remained necessary.

7. In its most recent assessment, the Office of the Director of National Intelligence said that 204 former detainees were “confirmed” or “suspected” of reengaging in jihadist activities. The overwhelming majority of these recidivists were transferred or released by the Bush administration. But the number of recidivists transferred by the Obama administration has begun to climb as well, and it is likely only a matter of time until more of them are considered recidivists.

8. In sum, the U.S. government has taken on more and more risk in approving detainee transfers. The government seeks to mitigate this risk and some of its practices are likely somewhat effective (such as transferring detainees to countries that are not currently embroiled in jihadist insurgencies). Still, history shows that it is often difficult for the U.S. government to ensure that “appropriate security measures” are enacted by host countries.

Testimony

Understanding the Role of Sanctions Under the Iran Deal

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
24th May 2016

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Chairman Shelby, Ranking Member Brown, and distinguished members of the Senate Committee on Banking, Housing, and Urban Affairs, I am honored to be with you today to discuss the role and significance of sanctions in the Iran nuclear deal, the Joint Comprehensive Plan of Action (JCPOA). The JCPOA is an ongoing and unfolding agreement, with significant implications for how the United States continues to leverage its economic and financial influence to affect Iranian behavior and counter its nefarious activity. This is an important moment for the United States to examine Iranian activity around the globe soberly and determine how best to proceed with the agreement and against the Iranian threat.

When the JCPOA was being debated, I expressed deep concerns and reservations about its structure, demands, and effects on U.S. interests, especially in anticipation of increased Iranian belligerence and adventurism. In detailed testimony before both this Committee and the Senate on Foreign Relations Committee, I explained that the JCPOA was fundamentally flawed, in part because it would empower and enrich the regime and ultimately constrain our ability to use the most effective financial and economic tools of isolation to counter dangerous Iranian behavior.

With strategic patience, Iran can march toward a weaponized program with greater capabilities, breakout capacity, and more economic resources, resilience, and connectivity to the global oil markets and commercial system. Even if Iran complies with all elements of this deal, Tehran will end up with an unfettered opportunity to break out and weaponize its nuclear program, overtly or covertly, along with an ability to arm itself and its allies more openly and aggressively. The end state of the agreement takes us far afield from the declared goal of successive administrations at the start of negotiations.

The structure, processes, and nature of this agreement give Iran the benefit of the doubt that it is pursuing a peaceful program, when the onus should remain on Iran to prove the peaceful nature of its program, as constructed in the prior, relevant UN Security Council Resolutions (UNSCRs).

Ultimately, what we negotiated and promised was Iran’s reintegration into the global economic system. The JCPOA sacrifices the ability of the United States to use its financial and economic power and influence to isolate and attack dangerous and problematic Iranian activity – beyond the nuclear program. Beyond simple sanctions relief, we negotiated away one of our most important tools of statecraft – the very financial and economic coercion that helped bring the Iranian regime to the table. Though “non-nuclear” sanctions were supposedly off the table, the spirit and letter of the agreement neuters Washington’s ability to leverage one of its most powerful tools – its ability to exclude rogue Iranian actors and activities from the global financial and commercial system.

As I explained last year, promising Iranian reintegration into the global system was not possible unless we were willing to defang our sanctions regime and ignore Iranian behavior; rehabilitate the perception of the Iranian regime ourselves; and take the most effective tools of financial isolation off the table.

This is a critical point as Iran continues the range of dangerous activities that have been the subject of sanctions and international opprobrium. In the wake of the JCPOA implementation, these activities have included the following:

1. Iran has conducted repeated ballistic missile tests in violation of UN resolutions, including earlier this month according to Iranian news reports, and promises further tests. The launch in March also coincided with Vice President Biden’s visit to Israel.

2. Qassem Soleimani, the head of the Iranian Revolutionary Guard Corps’ (IRGC) Qods Force, traveled twice to Moscow in contravention of international travel bans to coordinate military cooperation with the Russian government, to include the delivery of the S-300 system to Iran and defense of the Assad regime in Syria.

3. Iran remains the leading state sponsor of terror and has continued its direct support to terrorist proxies throughout the region, to include Hizballah’s activities in Lebanon and Syria, as well as Iraqi Shi’ite militias who were responsible for the deaths of hundreds of Americans in Iraq and are now deployed in Syria to fight for the Assad regime. Iran’s support of terrorist proxies is intended to destabilize regional governments allied with the United States, and the Gulf States have uncovered and interdicted Iranian arms shipments to militias. In recent months, international naval forces have interdicted Iranian arms shipments likely headed to Houthi rebels in Yemen.

4. Iran has deployed troops – regular and from the IRGC – to Syria to fight for and defend the Assad regime, with reports of thousands on the ground. Qassem Soleimani continues to appear at key battlefronts throughout Syria, and the Iranians help funnel Iraqi, Afghani, and Pakistani Shi’ite militias into the battlefield.

5. Iran has continued to engage in human rights abuses and the restriction of democratic norms. In the run up to recent parliamentary elections, Iran disqualified thousands of individuals from running  and continues to hold the leaders of the Green Movement under house arrest.

6. Iran detained two Iranian-American citizens, a father and son, in October 2015 and February 2016, and continues to hold them. In addition, Robert Levinson remains missing after disappearing on Kish Island on March 9, 2007.

7. On January 12, 2016, Iranian naval forces arrested American sailors at gunpoint, broadcasting the video of their detention, and subsequently mocking the sailors through a reenactment at a rally commemorating the anniversary of the Iranian Revolution. The Iranians detained the American sailors days before the implementation of the JCPOA, and hours before the President’s State of the Union address.

8. Iran continues to develop its cyber capabilities and has engaged in malicious cyberattacks against U.S. government sites, the U.S. private sector, and specific individuals. In March 2016, the Department of Justice indicted seven individuals who worked for the IRGC and carried out attacks on forty-six (46) American banks (including JPMorgan Chase, Bank of America, Capital One, and PNC Bank), the New York Stock Exchange, AT&T, and the Bowman Dam in a suburb of New York. In February 2014, Iran launched a cyberattack against the Las Vegas Sands Corporation.

Much of this activity is not a surprise, but it cannot be dismissed as simply the bad behavior of a recalcitrant IRGC or extremists within the Iranian system. In the Iranian system, these actions are blessed by the Supreme Leader, designed to promote the interests of the regime, and calculated to test the will of the West.

Importantly, the nature of the regime, its control of the economy, and its willingness to use the financial system to pursue all its goals internally and externally has not changed. The Iranian system is corrupt, lacks transparency at all levels, and is centrally controlled by the regime. This – along with the uncertainty of how the JCPOA will unfold – ultimately creates enormous risk for legitimate international actors and companies considering doing business in or with Iran. This explains why there has not been a wave of Western businesses investing aggressively or operating directly in Iran. It further explains why the Iranian leadership continues to complain that the United States has not satisfied its side of the bargain.

Testimony

Understanding the Role of Sanctions Under the Iran Deal

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
23rd May 2016

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Chairman Shelby, Ranking Member Brown, members of the Committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

Iran is engaged in a robust effort to legitimize its financial sector despite a decades-long rap sheet of financial crimes and illicit financial activities that it shows no sign of curbing. Since the conclusion of the JPCOA, the Obama administration has missed numerous opportunities to push back against Iran’s legitimization campaign. Instead of insisting on an end to Iran’s continuing malign activities (terrorism, human rights violations, and other destabilizing activities in Syria, Iraq, Yemen, Lebanon, and other countries across the Middle East), and using non-nuclear sanctions to deter and punish these activities, the administration is now effectively acting as Iran’s trade promotion and business development authority. Indeed, the administration may be departing from its original JCPOA negotiating position that it would only suspend or lift so-called U.S. “nuclear sanctions” under its executive authority. Rather, the administration is allowing Iran to hold the U.S. responsible for delivering financial and economic outcomes.

Iran complains that it has not received the sanctions relief it was promised. But the regulatory and economic realities are very different. The administration honored its commitments on Implementation Day in lifting or suspending the entire “nuclear-related” sanctions architecture. Iran already has received an economic windfall: The JCPOA (as well as the interim agreement in place during the negotiations) provided Iran with substantial economic relief that helped Tehran avoid a severe economic crisis and even return to a modest recovery path. The lifting of restrictions on Iran’s use of frozen overseas assets of about $100 billion gives it badly needed hard currency to settle its outstanding debts, repair its economy, build up its diminished foreign exchange reserves, and ease a budgetary crisis, which has actually freed up funds for the regime to increase its financing of terrorism.

The nuclear deal also did nothing to address the full range of Iran’s other illicit activities, including ballistic missile development, support for terrorism, regional destabilization, and human rights abuses. Indeed, the weakening of missile language in the key UN Security Council Resolution coupled with the lifting of a conventional arms embargo after five years and the missile embargo after eight will undermine international efforts to combat these activities. Meanwhile, Iran’s domestic repression has intensified with a record number of executions in 2015.  When President Rouhani was elected in June 2013, there was a widespread assumption that he would shepherd in an era of greater freedoms in Iran. Yet, domestic repression has intensified. As United Nations Special Rapporteur on human rights in the Islamic Republic of Iran Ahmed Shaheed reports, there has been no “meaningful change on the ground.” 

During last summer’s congressional review period, Obama administration officials pledged that the United States would continue to enforce non-nuclear sanctions and oppose the full range of Iran’s illicit and dangerous activities. This was a very logical approach. While the JCPOA lifts sanctions on Iran’s nuclear activities, it does not preclude the United States from using these non-nuclear sanctions – despite Iranian threats that it would view any imposition of sanctions as a violation of the deal and grounds to “snapback” its nuclear program. 

Congress should reject the Iranian position – which amounts to nuclear blackmail – and hold the administration to its commitments. Sanctions need to target Iran’s support for terrorism, ballistic missile program, support for the Assad regime in Syria and designated Shiite militias in Iraq, and human rights abuses. These steps are not a violation of the JCPOA, but rather an affirmation of stated U.S. policy to “oppose Iran’s destabilizing policies with every national security tool available.” 

Sadly, since the JCPOA was reached, the administration has only issued a handful of new designations; only nine individuals and nine entities have been added to Treasury’s sanctions list.  These designations include ineffectual sanctions targeting Iran’s missile procurement networks. Tehran can easily reconstitute these networks, and therefore the designations do not impose the kind of economic costs needed to change Tehran’s calculus. Discussions at the UN Security Council are unlikely to lead to any meaningful response to Iran’s repeated ballistic missile tests,  and the administration has backed away from language of “violations,” instead arguing that missile activities are “inconsistent” with UN Security Council Resolution 2231.

The administration also has failed to enforce human rights sanctions against Iran. Indeed, since the JCPOA was concluded last summer, the administration has designated no individuals or entities for human rights abuses. In fact, only one individual and two entities have been sanctioned for human rights violations since Rouhani came to power in the summer of 2013.  This is a sharp drop from the 34 individuals and entities designated between 2009 and 2013.

And even this is a relatively dismal record compared to the European Union, which designated 84 individuals and one entity between 2009 and 2015. 

Meanwhile, the administration is touring Western capitals to encourage banks to re-enter the Iranian market and is reportedly mulling a new unilateral concession that Iran did not negotiate as part of the JCPOA: Iranian use of dollarized financial transactions through offshore dollar-clearing, intra-bank book transfers and conversions, or some other kind of mechanism that would allow Iran access to the dollar. This concession, a response to threats from Iran’s Supreme Leader Ali Khamenei,  undercuts the efficacy of future non-nuclear sanctions, which depend on the private sector’s perception of the severe financial risks involved in transactions with Iran. Easing dollarized transaction restrictions also aids an Iranian push to legitimize its financial sector without halting the terror, nuclear, and missile financing, not to mention the money-laundering and sanctions evasion that violate international norms of responsible financial activities.

In remarks before the Carnegie Endowment for International Peace, Treasury Secretary Jack Lew argued that sanctions are an effective instrument to address illicit activities, but they must be lifted when the illicit behavior changes.  This is an important principle, but the commentary surrounding these remarks misses a crucial detail: Iran has not addressed the underlying behavior that prompted many of the U.S. sanctions.

Testimony

White House Narratives on the Iran Nuclear Deal

Testimony for House Committee on Oversight and Government Reform
17th May 2016

Chairman Chaffetz, Ranking Member Cummings, members of the Committee, on behalf of the Foundation for Defense of Democracies, thank you for the invitation to testify on the Iran nuclear deal.

For me, as a foreign policy analyst, perhaps the most important revelation made in the recent New York Times Magazine profile of Ben Rhodes  was its allegation concerning President Obama’s overriding strategic purpose in seeking a nuclear deal with Iran – a purpose which, until now, has been largely concealed from the American people. According to the article:

By eliminating the fuss about Iran’s nuclear program, the administration hoped to eliminate a source of structural tension between the two countries, which would create the space for America to disentangle itself from its established system of alliances with countries like Saudi Arabia, Egypt, Israel and Turkey. With one bold move, the administration would effectively begin the process of a large-scale disengagement from the Middle East.

If accurate, this is truly a stunning admission with huge implications. As suggested elsewhere in the article, it represents nothing less than “a radical shift in American foreign policy.” According to the article, Mr. Rhodes’ passion for the Iranian nuclear deal did not derive from any investment in the technical details of sanctions, centrifuges, or the future of Iranian politics, but rather “from his own sense of urgency of radically reorienting American policy in the Middle East in order to make the prospects of any American involvement in the region’s future wars a lot less likely.”

Whether you agree or disagree with this inclination to step back from the leadership role that the United States has played in the Middle East since World War II, the troubling fact remains that this fundamental shift in strategy has never been openly communicated to the American people. It has never been debated by the U.S. Congress. And it has never been revealed to long-time allies in the Middle East. Determining whether or not this claim is true – that is, whether the White House is now in reality seeking to engineer a large-scale disengagement from the Middle East – is a question of vital importance that the Congress should seek clarification on. 

If, in fact, the nuclear deal with Iran is, as Mr. Rhodes suggests, “the center of the arc” for President Obama’s efforts to radically transform U.S. policy, it raises a host of concerns. Certainly, it casts doubt on the administration’s repeated claim that “No deal was better than a bad deal.” To the extent that the preeminent objective was, in Mr. Rhodes’ view, “to eliminate the fuss about Iran’s nuclear program” rather than actually eliminate that program, one wonders whether the administration was as demanding in the negotiations as it might otherwise have been.

To take one example: If your goal is to make sure that Iran will never be able to develop nuclear weapons, sunset clauses, like those in the JCPOA that in 15 years allow Iran to produce as much fissile material as it wants, would probably be deemed unacceptable. If, on the other hand, your main interest was creating a decent interval that kicks the can down the road and gives you space to implement a broader strategy of disengagement, then a deal that promises to park the Iranian nuclear issue for a decade and a half might look very good.

Similar concerns exist now that the deal is in place. When Congress was reviewing the JCPOA last summer, the administration made repeated assurances that it would vigorously enforce the agreement while using every tool at its disposal to counter Iran’s terrorism, destabilizing regional activities, ballistic missile program, and human rights abuses.

Since then, however, Iran’s bad behavior has only escalated. It has significantly increased its combat role in Syria. It has arrested additional U.S. citizens. It has conducted multiple ballistic missile tests. It has fired rockets in close proximity to U.S. ships in the Persian Gulf, held 10 American sailors captive, and threatened to close the Straits of Hormuz.

The U.S. response to these repeated provocations has ranged from tepid to non-existent. Even more worrisome, perhaps, has been the reported U.S. willingness to contemplate granting Iran additional sanctions relief that it failed to negotiate in the JCPOA. Specifically, Iran is demanding access to dollarized financial transactions. This would be a huge unilateral concession that would greatly expand Iran’s ability to do business internationally while legitimizing an Iranian banking sector that remains mired in illicit financing activities.

Let me close by stressing that, especially in light of the questions raised by the New York Times profile on Mr. Rhodes, it is extremely important that Congress now hold the administration’s feet to the fire when it comes to its commitment to combat Iran’s continued aggression. At a minimum, Congress should do everything in its power to ensure that Iran receives no new sanctions relief in the absence of significant new Iranian concessions. And far more aggressive use should be made of non-nuclear sanctions to constrain Iran’s expanding ballistic missile program and deter the Iranian Revolutionary Guard Corps from their destabilizing activities in Syria, Iraq, and Yemen. The bottom line is that the United States should not be sending Iran the message that we now place such a high premium on its continued adherence to the nuclear deal that it has carte blanche to pursue its increasingly threatening policies in other areas that endanger our interests.

Thank you for this opportunity to testify and I look forward to your questions.

Testimony

Terrorism, Missiles and Corruption: The Risks of Economic Engagement with Iran

Testimony for House Committee on Foreign Affairs
12th May 2016

Download the full testimony here

Chairman Royce, Ranking Member Engel, and distinguished members of the House Committee on Foreign Affairs, I am honored to be with you today to discuss the risks of economic engagement with Iran, particularly in light of its ongoing support for terrorism, ballistic missile activities, and illicit financing and corruption. As implementation of the Joint Comprehensive Plan of Action (JCPOA) unfolds, this is an important moment for the United States to examine Iranian activity around the globe soberly and determine how best to proceed with the agreement and against the Iranian threat.

When the JCPOA was being debated, I expressed deep concerns and reservations about the structure, demands, and effects of the nuclear deal on U.S. interests, especially in anticipation of increased Iranian belligerence and adventurism. In detailed testimony before both the Senate Foreign Relations Committee and the Senate Banking Committee last year, I explained that the JCPOA was fundamentally flawed, in part because it would empower and enrich the regime and ultimately constrain our ability to use the most effective financial and economic tools of isolation to counter dangerous Iranian behavior.

With strategic patience, Iran can march toward a weaponized program with greater capabilities, breakout capacity, and more economic resources, resilience, and connectivity to the global oil markets and commercial system. Even if Iran complies with all elements of this deal, Tehran will end up with an unfettered opportunity to break out and weaponize its nuclear program, overtly or covertly, along with an ability to arm itself and its allies more openly and aggressively. The end state of the agreement takes us far afield from the declared goal of successive administrations at the start of negotiations.

The structure, processes, and nature of this agreement give Iran the benefit of the doubt that it is pursuing a peaceful program, when the onus should remain with Iran throughout to prove the peaceful nature of its program, as constructed in the prior, relevant UN Security Council Resolutions (UNSCRs).

Ultimately, what we negotiated and promised was reintegration of Iran into the global economic system. The JCPOA sacrifices the ability of the United States to use its financial and economic power and influence to isolate and attack dangerous and problematic Iranian activity – beyond the nuclear program. Beyond simple sanctions relief, we negotiated away one of our most important tools of statecraft – the very financial and economic coercion that helped bring the Iranian regime to the table. Though “non-nuclear” sanctions were supposedly off the table, the spirit and letter of the agreement neuters U.S. ability to leverage one of its most powerful tools – its ability to exclude rogue Iranian actors and activities from the global financial and commercial system.

As I explained last year, promising Iranian reintegration into the global system was not possible unless we were willing to defang our sanctions regime and ignore Iranian behavior; rehabilitate the perception of the Iranian regime ourselves; and take the most effective tools of financial isolation off the table.

This is a critical point as Iran continues the range of dangerous activities that have been the subject of sanctions and international opprobrium. In the wake of the JCPOA implementation, these activities have included the following:

1. Iran has conducted repeated ballistic missile tests in violation of UN sanctions, including reports from this week that one was launched as recently as April 20, 2016, and promises further launches. A missile launch in March also coincided with Vice President Biden’s visit to Israel.

2. Qassem Soleimani, the head of the Iranian Revolutionary Guard Corps’ (IRGC) Qods Force, traveled twice to Moscow in contravention of international travel bans to coordinate military cooperation with the Russian government, to include the delivery of the S-300 system to Iran and defense of the Assad regime in Syria.

3. Iran remains the leading state sponsor of terror and has continued its direct support to terrorist proxies throughout the region, to include Hizballah’s activities in Lebanon and Syria, as well as Iraqi Shi’ite militias who have been responsible for the deaths of hundreds of Americans and are now deployed in Syria to fight for the Assad regime. This has included support intended to destabilize governments allied with the United States, with Gulf states uncovering and interdicting arms shipments for apparent use in those countries. In recent months, international naval forces have interdicted Iranian arms shipments likely headed to Houthi rebels in Yemen.

4. Iran has deployed troops – regular and from the IRGC – to Syria to fight for and defend the Assad regime, with reports of thousands on the ground. Qassem Soleimani continues to appear at key battlefronts throughout Syria, and the Iranians help funnel Iraqi, Afghani, and Pakistani Shi’ite militias into the battlefield.

5. Iran has continued to engage in human rights abuses and the restriction of democratic norms. In the run up to recent parliamentary elections, Iran disqualified thousands of individuals from running1 and continues to hold the leaders of the Green Movement under house arrest.

6. Iran detained two Iranian-American citizens, a father and son, in October 2015 and February 2016, and continues to hold them. In addition, Robert Levinson remains missing after disappearing on Kish Island on March 9, 2007.

7. On January 12, 2016, Iranian naval forces arrested American sailors at gunpoint, broadcasting the video of their detention, and subsequently mocking the sailors through a reenactment at a rally commemorating the anniversary of the Iranian Revolution. The Iranians detained the American sailors days before the implementation of the JCPOA, and hours before the President’s State of the Union address.

Much of this activity is not a surprise, but it cannot be dismissed as simply the bad behavior of a recalcitrant IRGC or extremists within the Iranian system. In the Iranian system, these actions are blessed, designed to promote the interests of the regime, and calculated to test the will of the West.

Importantly, the nature of the regime, its control of the economy, and its willingness to use the financial system to pursue all its goals internally and externally has not changed. The Iranian system is corrupt, lacks transparency at all levels, and is centrally controlled by the regime. This – along with the uncertainty of how the JCPOA will unfold – ultimately creates enormous risk for legitimate international actors and companies considering doing business in or with Iran. This explains why there has not been a wave of Western businesses investing aggressively or operating directly in Iran. It further explains why the Iranian leadership continues to complain that the United States has not satisfied its side of the bargain.

Testimony

Terrorism, Missiles and Corruption: The Risks of Economic Engagement with Iran

Testimony for House Committee on Foreign Affairs
12th May 2016

Download the full testimony here

Chairman Royce, Ranking Member Engel, members of the Committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

EXECUTIVE SUMMARY

The Joint Comprehensive Plan of Action (JCPOA) provided Iran with a patient pathway to nuclear weapons capability by placing limited, temporary, and reversible constraints on Iran’s nuclear activities. The deal (as well as the interim agreement in place during the negotiations) provided Iran with substantial economic relief that helped Iran avoid a severe economic crisis and return to a modest recovery path. The lifting of restrictions on Iran’s use of frozen overseas assets of about $100 billion gave Tehran badly needed hard currency to settle its outstanding debts, begin to repair its economy, build up its diminished foreign exchange reserves, and ease a budgetary crisis, which in turn freed up funds for the financing of terrorism.

The nuclear deal also did nothing to address the full range of Iran’s illicit activities, including ballistic missile development, support for terrorism, regional destabilization, and human rights abuses. Indeed, the weakening of missile language in the key UN Security Council Resolution and the lifting of a conventional arms embargo after five years and the missile embargo after eight undermine international efforts to combat Iran’s illicit activities.

Simultaneously, Iran’s domestic repression intensified with a record number of executions in 2015. When President Rouhani was elected in June 2013, there was a widespread, but incorrect, assumption that he would shepherd in an era of greater freedoms in Iran. Instead, however, domestic repression has intensified. As United Nations Special Rapporteur on the situation of human rights in the Islamic Republic of Iran Dr. Ahmed Shaheed reports, despite a “noticeable change in the tone and tenor of the government’s approach to human rights,” there has been no “meaningful change on the ground.”

As international businesses re-enter the Iranian market, the regime continues to oppress its citizens and deny their basic human rights. The regime seems to hope that the promise of profits will blind the international community to Iran’s vast system of domestic repression. As Iranian officials attempt to whitewash their government’s actions to gain international legitimacy, it is critical that Congress and the administration continue to monitor the human rights conditions in Iran and use existing human rights-related executive orders and statutes to punish those violating the basic human freedoms of Iran’s citizens.

During last summer’s congressional review period, Obama administration officials pledged that the United States would continue to enforce non-nuclear sanctions and oppose the full range of Iran’s illicit and dangerous activities. While the JCPOA lifts sanctions on Iran’s nuclear activities, it does not preclude the United States from using these non-nuclear sanctions – despite statements from Iran that it will view any imposition of sanctions as a violation of the deal and grounds to “snapback” its nuclear program.

Congress should reject that Iranian position – which amounts to a form of nuclear blackmail – and hold the administration accountable for its commitments. Sanctions need to be imposed to target Iran’s support for terrorism, ballistic missile program, support for the Assad regime in Syria and designated Shiite militias in Iraq, and human rights abuses. These steps are not a violation of the JCPOA, but rather an affirmation of the stated U.S. policy to “oppose Iran’s destabilizing policies with every national security tool available.”

Since the JCPOA was reached, the administration has only imposed a handful of new sanctions designations; only nine individuals and nine entities have been added to Treasury’s sanctions list as a result of Iran’s ongoing illicit activities. These designations include ineffectual sanctions targeting Iran’s missile procurement networks. Tehran can easily reconstitute these networks, and therefore the designations do not impose the kind of economic costs that changed the regime’s strategic calculus with respect to its nuclear program. Discussions at the UN Security Council are unlikely to lead to any meaningful response to Iran’s repeated ballistic missile tests. Indeed, the administration has backed away from language of “violations,” instead arguing that these missile activities are “inconsistent” with UN Security Council Resolution 2231.

The administration also has failed to vigorously enforced human rights sanctions against Iran. Indeed, since the JCPOA was concluded last summer, the administration has designated no individuals or entities for human rights abuses. Indeed only one individual and two entities have been sanctioned for human rights violations since Rouhani came to power in the summer of 2013. This is a sharp drop from the 34 individuals and entities designated between 2009 and 2013, itself a relatively dismal record compared to the European Union, which designated 84 individuals and one entity between 2009 and 2015.

Even as the administration’s enforcement of non-nuclear sanctions is far less robust than many in Congress expected, the administration reportedly is considering providing a new unilateral concession that Iran did not negotiate as part of the JCPOA: Iranian use of dollarized financial transactions through offshore dollar-clearing, intra-bank book transfers and conversions, or some other kind of mechanism. This concession, a response to threats from Iran’s Supreme Leader Ali Khamenei, undercuts the effectiveness of future non-nuclear sanctions, which depend on the private sector’s perception of the overwhelming illicit financial risks involved in transactions with Iran. Easing dollarized transaction restrictions also aids an Iranian push to legitimize its financial sector without ceasing the terror, nuclear, and missile financing and related money-laundering and sanctions evasion that violate international norms of responsible financial activities.

Instead, Congress can maintain pressure on the Iranian regime to change its behavior and defend the sanctions architecture by strengthening non-nuclear sanctions and by linking the removal of sanctions to demonstrable changes in the behavior that prompted sanctions in the first place. Specifically, I recommend that Congress consider taking the following steps.

1. Protect the integrity of the U.S. dollar from Iranian illicit finance by codifying existing restrictions, reporting on financial institutions involved in dollarization, and linking the termination of these measures to the end of Iranian support for terrorism and missile development as well as compensation for victims of Iranian terrorism.

2. Strengthen sanctions against the Islamic Revolutionary Guard Corps (IRGC) for its support for terrorism by designating it under Executive Order 13224 or by declaring it to be a Foreign Terrorist Organization. If the administration refuses to designate the IRGC for terrorism, Congress should impose the same penalties provided for under the Executive Order 13224 or FTO designation.

3. Impose sanctions on the IRGC’s penetration in sectors of the Iranian economy and on sectors involved in Iran’s ballistic missile development, with regular reports on the sectors and Iranian and foreign entities involved. These sectors include metallurgy and mining; chemicals, petrochemicals, and energy; construction; automotive; and electronic, telecommunication, and computer science.

4. Require the administration to report to Congress on Iran’s deceptive conduct and illicit activities as well as the role of the IRGC and other rogue actors in Iran’s illicit financial networks.

5. Create an IRGC Watch List to identify companies with connections to the IRGC but that do not meet thresholds for designation as owned or controlled by sanctioned entities.

6. Expand designations of companies that are owned or controlled by the IRGC or Iran’s Ministry of Defense.

7. Require reporting on transactions with IRGC Watch List companies or joint ventures with IRGC entities.

8. Require Treasury to explain the qualitative and quantitative effects of individual designations against Iranian entities.

9. Expand human rights sanctions against all entities and individuals complicit in Iran’s systemic human rights abuses.

10. Target Iranian corruption and kleptocracy for both anti-money laundering and human rights.

In remarks before the Carnegie Endowment for International Peace, Treasury Secretary Jack Lew argued that sanctions are an effective instrument to address illicit activities, but they must be lifted when the illicit behavior changes. This is an important principle, but the commentary surrounding these remarks misses a crucial detail: Iran has not addressed the underlying behavior that prompted many of the U.S. sanctions.

Testimony

Iran Accountability Week

Testimony for Canadian Standing Senate Committee on Human Rights
4th May 2016

Introduction:

Chairman Munson, members of the committee, thank you for inviting me to appear before this distinguished committee. I applaud the Canadian Parliament for the annual Iran Accountability Week, an important series of events to draw attention to Iran’s deplorable record of human rights violations, support for terrorism, and regional aggression. I had the honor of testifying during the last four years, and I’ve had the privilege of working with former Member of Parliament and Minister of Justice Irwin Cotler. Professor Cotler is an essential voice, speaking for oppressed people around the world.

Some had anticipated that with the election of President Rouhani, real change on the human rights front would occur. Moreover, they hoped that the Iran nuclear deal would be the first step in bringing Iran into the community of nations that respect international norms. But neither Rouhani’s election nor last summer’s nuclear agreement between Tehran and the P5+1 addressed the full range of Iran’s illicit activities, including ballistic missile development, support for terrorism, regional destabilization, and systemic human rights abuses. In fact, the situation has worsened.

The Joint Comprehensive Plan of Action (JCPOA) is a fundamentally flawed arms control agreement because it provides Iran with a patient pathway to a nuclear weapons capability by placing only limited, temporary, and reversible constraints on Iran’s nuclear activities in exchange for substantial sanctions relief. Tehran has to simply abide by the agreement to emerge as a threshold nuclear power with a strong economy. In a little more than a decade, Iran can have an industrial-size nuclear program with intercontinental ballistic missile capabilities, access to heavy weaponry, an economy immunized against sanctions pressure, and a more powerful regional position from which it can continue its destabilizing and aggressive behavior.

Nor does the nuclear agreement wipe clean Iran’s record of systemic human rights abuses. Even as international businesses re-enter the Iranian market, the regime continues to oppress its citizens and deny their basic human rights. The regime seems to hope that the promise of profits will blind the international community to Iran’s vast system of domestic repression. As Iranian officials attempt to whitewash their government’s actions to gain international legitimacy, it is critical that the international community continue to monitor the human rights conditions in Iran and to use all its leverage to protect the basic human freedoms of all of Iran’s citizens.

Iran’s Record of Human Rights Abuses

When President Rouhani was elected in June 2013, there was a widespread, but incorrect, assumption that he would shepherd in an era of greater freedoms in Iran. Instead, however, domestic repression has intensified. As United Nations Special Rapporteur on the Situation of Human Rights in the Islamic Republic of Iran Dr. Ahmed Shaheed reports, despite a “noticeable change in the tone and tenor of the government’s approach to human rights,” there has been no “meaningful change on the ground.”  I know that Dr. Shaheed will be testifying before this committee as part of this hearing. The work he does is vital, and I know he will provide this committee with crucial information.

The Islamic Republic commits serious human rights abuses, including limiting freedom of expression and the press; engaging in arbitrary detention and torture; and discriminating against women, ethnic, and religious minorities, and other vulnerable populations.  The regime reigns over its citizens using repression and violence to rule through fear.

In the wake of the nuclear deal, the human rights situation in Iran has deteriorated even further.  The regime is suppressing internal dissent, and the Islamic Revolutionary Guards Corps (IRGC), the praetorian guard, has arrested hundreds of activists, journalists, and regular citizens in what human rights experts call the “largest crackdown since the violent state suppression” in 2009. 

Juvenile Executions: Last year, Iran executed a record number of prisoners, at least 966 individuals (including 16 juveniles), the majority of whom were convicted of drug-related crimes.  Amnesty International published an exhaustive study on juvenile executions in Iran noting that the country is “one of the world’s last executioners of juvenile offenders.” The report “debunks recent attempts by Iran’s authorities to whitewash their continuing violations of children’s rights.”  Amnesty International observed that Iran’s legal codes allow girls as young as nine and boys as young as 15 to be sentenced to death after “unfair trials, including those based on forced confessions extracted through torture and other ill-treatment.”

As of January 2016, 161 juvenile offenders were sitting on death row.  Two were executed in October 2015. Their stories need to be told. Samad Zahabi was secretly hanged without notifying his family or his lawyer of the impeding execution. At the age of 17, he was sentenced to death for murder, an act which he claimed was unintentional and in self-defense, and he was never informed of his right to judicial review.  Fatemeh Salbehi was hanged for the murder of her husband, whom she was forced to marry at the age of 16. Her trial was flawed to say the least: there was no judicial consideration of the domestic abuse Salbehi suffered,  and she confessed under duress.  UN Special Rapporteur on extrajudicial, summary or arbitrary executions Christof Heyns put it best: “These are unlawful killings committed by the State, the equivalent of murders performed by individuals. These are profound tragedies.”

Rights of Children: The brutal death of a six-year-old Afghan refugee in Iran last month shed a light on the violence and daily discrimination that refugee communities experience.  Migrant and refugee children, children of religious and ethnic minorities, and children of the LGBT community are vulnerable to abuses, including violence and state-sanctioned discrimination.  Girls are particularly vulnerable to sexual abuse because the legal age of marriage for girls is only 13, and girls as young as nine can be married with permission of the court and their fathers.  Earlier this year, the United Nations condemned Iran for an increasing number of forced marriages, which place young girls at risk of “sexual violence, including marital rape.” The UN Committee on the Rights of the Child said that Iran’s legal provisions “authorize, condone or lead to child sexual abuse.” 

Religious Freedom: For nearly two decades, the U.S. State Department has designated Iran as a “country of particular concern” under the International Religious Freedom Act (IRFA).  Earlier this week, the United States Commission on International Religious Freedom published its annual report, finding that religious freedom conditions in Iran “continued to deteriorate” over the past year.  This independent, bipartisan government commission notes that the number of individuals imprisoned for their religious beliefs has increased, and the government “continues to engage in systematic, ongoing, and egregious violations of religious freedom, including prolonged detention, torture, and executions based primarily or entirely upon the religion of the accused.” The report also finds that the Islamic Republic uses “religious laws to silence reformers, including human rights defenders and journalists, for exercising their internationally-protected rights to freedom of expression and religion or belief.”

Freedom of the Press: Yesterday, May 3, was World Press Freedom Day. Iran “celebrated” last week by sentencing four journalists working for reformist newspapers to a combined 27 years in prison. Afarin Chitsaz, Eshan Manzandarani, Davood Asadi, and Eshan Safarzaiee were arrested by the IRGC in November on trumped-up charges of acting against the national security of the state.  According to Dr. Shaheed, at least 47 journalists and social media activists were in prison as of January, and nearly 300 internet cafes were closed in 2015.  For the past six years, Iran has ranked in the top three of the world’s worst jailers of journalists and in the top ten most censored nations, according to the Committee to Protect Journalists (CPJ).  Iran engages in censorship and “uses mass and arbitrary detention as a means of silencing dissent.” In short, the CPJ observes, “the situation for the press has not improved under Rouhani.”

Expectations were misplaced that President Rouhani would improve the human rights situation. When he was elected, he was hailed as a man of the system who nevertheless wanted to make fundamental changes that would gradually bring greater freedom to Iranian society and politics. This assessment ignores the evidence. In 1999, he supported crushing student protests and called for the execution of those agitating for greater freedom.  Last year, my colleagues at the Foundation for Defense of Democracies conducted an in-depth study of his writings, speeches, and autobiography. Their research revealed that his “politics aren’t reformist”; his priority is to “ensure the regime’s continuing dominion.” He is “a founding father of Iran’s theocracy and its nuclear-weapons program” and has “arduously and vengefully worked to see the revolution succeed.”  Or, as former Undersecretary of State and U.S. negotiator in the Iran talks Wendy Sherman explained, “There are hardliners in Iran, and then there are hard-hardliners in Iran. Rouhani is not a moderate, he is a hard-liner.”

Iran’s human rights violations and crimes against humanity in Syria

Iran’s support for Syrian President Bashar al-Assad reached new levels in the last year, including the provision of IRGC ground forces, weaponry, intelligence, telecommunications, and financial support.  Through this support, Iran has allowed Assad to remain in power, bombing civilians with impunity, reportedly causing more than 470,000 deaths,  and creating millions of refugees who have fled to Europe and neighboring Middle Eastern states.

A recently published report by Naame Shaam, a group of Syrian and Lebanese activists and citizen-journalists whose reporting focuses on the role of the Iranian regime in Syria, finds that Tehran initially entered the fray to prevent its ally, the Assad regime, from collapsing but has effectively become an occupying force in the regime-held areas of Syria. The Syrian regime itself is “little more than a puppet” of the Iranian regime and the IRGC. 

Moreover, Shiar Youssef, the author of the report, noted that there is “sufficient evidence to try the Iranian regime’s military and political leadership for complicity” in war crimes and crimes against humanity. “The only thing missing is the political will in the White House and in the European Union to do so,” he added.

The report analyzes Iran’s role creating and organizing the shabbiha force, and quotes Assad’s cousin Rami Makhouf explaining that the paramilitary force was established “to do the ‘dirty work’ of the regime to counter the anti-regime protests.”  As early as May 2012, U.S. officials noted that the shabbiha forces “clearly reflect the tactics and the techniques that the Iranians use for their own suppression of civil rights.”  When the U.S. sanctioned the militia in December 2012, the U.S. Treasury noted that the IRGC has “provided training, advice, and weapons and equipment” as well as “funding worth millions of dollars” to these forces.

The shabbiha are responsible for “finding, torturing or killing” anti-regime activities, and “[t]here have been numerous reports about shabbiha force members looting houses and setting them on fire; about them destroying entire villages and raping, torturing and slitting the throats of inhabitants suspected of opposing the regime,” Naame Shaam finds. Vividly, Naame Shaam provides disturbing details of the alleged war crimes committed by shabbiha members, noting that these forces are known for, and may even be encouraged to, loot and rape. The report quotes a captured shabbiha member admitting to raping a woman and stating, “My commander raped many times. It was normal.” 

The report notes that “thanks to Sepah Pasdaran [another name for the IRGC] and Hezbollah Lebanon,” these shabbiha forces have become the combatants on the ground while the Syrian army plays a “logistical and directive role.”  Iran is responsible for the actions of the shabbiha forces because it has helped set up, train, and arm “one of the most notorious militia forces that has been responsible for war crimes and crimes against humanity committed in Syria,” Naame Shaam concludes. Additionally, top IRGC commanders in Syria as well as IRGC Quds Force commander Qassem Solemani and Supreme Leader Ali Khamenei “should also be implicated in the[se] crimes … because evidence suggests it was with their full knowledge and complicity, if not their direct orders, that these crimes were committed,” argues Naame Shaam.

The lifting of sanctions that were part of the nuclear deal with Iran provides the regime more financial resources to pursue these malign activities and to support the Assad regime’s brutality in Syria.

Corruption and Sanctions Relief

Earlier this spring, Iran held a parliamentary “selection.” I use this term rather than “election” because the Guardian Council, which vets candidates for Iran’s deeply flawed and undemocratic elections, disqualified 99 percent of all reformist candidates.  Simultaneously, Iran held “elections” for the Assembly of Experts, which picks the successor to the Supreme Leader. The Council again disqualified 80 percent of the candidates.  The vast majority of those disqualified in both cases were self-described moderates and reformers, although all were committed to the unquestioned rule of the theocrats. Real reformists – those who want to make political and social change – are excluded from the political system. Many did not even try to register, and the most prominent remain under house arrest, in jail, or in exile.  After the disqualifications, the self-styled moderate camp was forced to add notorious hard-liners to its ticket to have a full slate.  Hard-liners do not become moderates simply by being included on an election slate,  and yet, the narrative persisted that Iranian moderates somehow won the election. Supreme Leader Ali Khamenei explicitly rejected the very idea of moderate vs. hard-liner: politicians can be pragmatic as long as they remain faithful to the revolution.

We are now witnessing a consolidation of the regime’s power as it reaps the spoils of the nuclear agreement without changing its malign behavior. Even as Iran has temporarily suspended some of its nuclear activities, the regime continues to engage in ballistic missile activities in violation of UN Security Council Resolution 2231 and in weapons proliferation, support for terrorism, and regional aggression in violation of U.S., Canadian, and European laws.

Some argued that sanctions relief as a result of the deal would benefit Iranian society, but early reporting revealed that “the only deals being struck have been with state-backed conglomerates.”  The IRGC is a dominant force in the Iranian economy, and Iran’s “most powerful economic actor,” according to the U.S. Treasury.  Experts estimate that the IRGC controls around 20-30 percent of the Iranian economy.  Rather than benefitting independent Iranian businesses and the average Iranian, sanctions relief is strengthening the control of the Supreme Leader, IRGC, and the state in key sectors of Iran’s economy.

This should be expected in a country that is a hub of corruption and kleptocracy. Iran’s Supreme Leader himself controls a “shadowy network of off-the-books front companies,” according to the U.S. Treasury Department.  Transparency International ranks Iran 130 out of 168 counties on its corruption perception index, and the Basel Institute on Governance ranked Iran as the worst country in the world with regard to risks from money laundering and terrorism financing in its annual Anti-Money Laundering Index report.  As recently as February 2016, the global anti-money laundering and anti-terror finance standards body, the Financial Action Task Force (FATF), warned that Iran’s “failure to address the risk of terrorist financing” and its anti-money laundering and counter terror finance deficiencies pose a “serious threat … to the integrity of the international financial system.” 

Corruption and kleptocracy are not just financial transparency issues but are also human rights issues. Corruption is the reason many authoritarian leaders seize and cling to power. It is the glue that holds their regimes together, giving dictators spoils to distribute. As U.S. Assistant Secretary of the Treasury Daniel Glaser noted, corruption “stifles economic development, impairs democratic institutions, erodes public trust, and impairs international cooperation … [and] creates space for criminals to flourish.”  In Iran, these criminals are not only traditional thugs, but state-sponsored human rights violators.

Recommendations

The Joint Comprehensive Plan of Action has turned Iran from a nuclear pariah to nuclear partner without requiring Iran to come clean on its decades-long track record of nuclear mendacity. The December 2015 International Atomic Energy Agency decision to “close” the file on outstanding concerns about the possible military dimensions of Iran’s program  means that, without ever admitting to weaponization activities, Iran has convinced the international community to wipe its slate clean.

These schemes continue. With recent reports that Iran exceeded limits on its heavy water production  and worked out a deal to sell 32 tons to the United States,  Iran has created a clever plan: Produce too much heavy water so as to break the nuclear agreement, then get the United States to pay Tehran to get rid of it so that it can continue to produce an essential element for a plutonium-bomb making capability. This is of particular concern as the key restrictions on Iran’s nuclear program, including on both its uranium and plutonium paths to a bomb, begin to sunset during an eight- to fifteen-year period.

We also are witnessing Iran’s attempts to play the same game with the international financial and business community. Tehran is coupling a denial of its illicit financial activities with demands for more and more concessions. The government has mounted a full-court press to persuade the global financial community to overlook its long rap sheet of financial crimes  and to persuade the United States to green light Iran’s access to U.S. dollar transactions,  an action which would go beyond the sanctions relief promised by the nuclear agreement. 

Iranian Central Bank Governor Valiollah Seif has publicly criticized the U.S. for “not honor[ing its] obligations” and explicitly called for the U.S. to change its laws to allow Iran to access the U.S. financial system.  Deliberately sidestepping Iran’s record of illicit financial activities, he and Foreign Minister Javad Zarif dismiss concerns about Iran’s support for terrorism and provocative ballistic missile launches.  The Supreme Leader has accused the United States of scaring business away from Iran and creating “Iranophobia.”  Step-by-step, Iran is trying to legitimize itself in the global business community without changing its financial practices.

Iran will follow the same strategy in the human rights arena. As the United Nations renewed Dr. Shaheed’s mandate to investigate human rights abuses,  Iranian Foreign Ministry Spokesman Hossein Jaberi Ansari called his reporting “biased,” “discriminatory,” and “subjective and unbalanced.”  Instead, Ansari contended, human rights can only improve through cooperation and dialogue – in other words, Iran is looking to negotiate away the international community’s concerns about its widespread human rights abuses.

Instead, the world needs to hold Iran accountable. Legitimacy cannot be granted without a dramatic change in the Islamic Republic’s respect for the freedoms and human rights of its people. Canada – working with U.S. and EU partners – can lead the moral charge, as it has done in the past, while also increasing pressure on the regime to change its behavior.

1. Impose human rights sanctions on Iranian state organs responsible for institutionalized human rights abuses.

Ottawa should impose human rights sanctions on state organs responsible for institutionalized human rights abuses as well as any and all individuals who work for these state organs. Canada should target the people, companies, and sources of revenue that facilitate and embolden Iran’s vast system of domestic repression and single out institutions, such as prisons or military bases, at which abuses like torture and arbitrary detention occur. Many of these, including the notorious Evin prison’s Ward 2A for political prisoners,  are controlled by the Revolutionary Guards.

2. Amend the Special Economic Measures Act regulations on Iran to include systemic human rights abuses and designate the IRGC as a terrorist entity under the Criminal Code.

In previous testimonies, I recommended that Canada amend its Special Economic Measures Act (SEMA) regulations on Iran. SEMA enables the Canadian government to impose sanctions if there is a situation that constitutes a grave breach of international peace and security. With respect to Iran, this has primarily focused on nuclear and missile proliferation. In the wake of the nuclear agreement, there has already been a serious weakening of these sanctions. I would caution, however, that Iran’s missile activities, sponsorship of terrorism, and human rights abuses all continue to pose a threat to international peace and security.

Human rights abuses by the Iranian regime fulfill the basic criteria under section 4(1) of SEMA, which has already been used to sanction human rights abuses by Syria’s Assad regime and its supporters (May 24, 2011),  by the government of Zimbabwe (September 4, 2008),  and by the government of Burma (December 13, 2007),  among others.

In December 2012, the Government of Canada added Iran’s Quds Force, the overseas terrorist arm of the Islamic Revolutionary Guard Corps, to the list of terrorist groups under Canada’s Criminal Code.  This was an important step in recognizing the IRGC’s threat to international peace and security. As I urged in prior testimony, the Government of Canada should take the next logical step and designate the IRGC in its entirety under SEMA for its role in violating the human rights of the Iranian population, and under Canada’s Criminal Code for its terrorist operations. The Government of Canada should follow the leadership of the Obama administration, which designated the IRGC in its entirety for human rights abuses under Executive Order 13553 in June 2011 and in April 2012 under Executive Order 13606.

3. Establish linkage between further nuclear concessions and Iran’s human rights record.

The Government of Canada should build on its global leadership on Iranian human rights issues by establishing the importance of linking any further nuclear-related concessions to Iran with an improvement in Tehran’s atrocious human rights record. During the Cold War, Western negotiators linked certain arms control agreements with the Soviet Union to demands for Moscow’s adherence to human rights under the civil rights portion of the 1975 Helsinki Accords. The JCPOA did not require Tehran to make any improvements in its human rights record. This is a mistake: It will be much easier to monitor Iran’s nuclear program in a relatively freer and more transparent Iran.

4. Monitor Iran’s activities in Syria:

Canada should closely monitor Iran’s activities in the following areas: provision of arms, financial support, intelligence sharing, military support, and IRGC and foreign fighter deployments. Canada should work with the U.S. Treasury to report on Iran’s financial, technological, and material support to the Assad regime, including energy credits, loans, cash, and all other financial assistance. These reports will help inform the international community of the depth of Iranian involvement in Syria and provide the basis for additional U.S. and Canadian designations.

5. Punish IRGC Quds Force commander Qassem Soleimani

Since the nuclear deal was reached, IRGC Quds Force commander Qassem Soleimani has traveled to Moscow reportedly multiple times to coordinate Iranian and Russian actions in Syria.  This trip, as well as his travel to Iraq and Syria to coordinate Iran’s efforts, violates United Nations sanctions. UN sanctions against Soleimani are scheduled to remain in place for another eight years under the nuclear agreement, but there has been a notable lack of enforcement.  Canada should call on the United Nations to punish Quds Force leader Qassem Soleimani for violating its 2007 travel ban. 

6. Take action to limit foreign fighters in Syria

In a report earlier this year, my colleague at the Foundation for Defense of Democracies Max Peck examined the expanding role of Iranian proxy militias in the civil war in Syria, detailing the deployment of Lebanese Hezbollah, Iraqi Shiite militias, as well as Afghani and Pakistani brigades.  Greater intelligence resources and capabilities are necessary to combat Iran’s attempts to recruit, train, and transfer Shiite fighters from countries across the Middle East. Canada can be a critical partner in these efforts. Ottawa should work with Washington and with local governments in the region to dismantle Iranian networks and to expel Iranian agents involved in recruitment efforts. 

7. Target corruption and kleptocracy as not just financial transparency issues, but also human rights issues.

The Revolutionary Guards and the ruling elite (including the Supreme Leader) have enriched themselves at the expense of the Iranian people. But the Government of Canada can be a leader on anti-corruption issues and work with its international partners to fight global corruption. Canada can lead efforts to develop new policy tools, including financial sanctions tools, to combat corruption in Iran as well as in other authoritarian governments. Canada can develop a mechanism to facilitate the sharing of intelligence between international partners on illicit or suspicious financial activities to protect the integrity of the global financial system and prevent corrupt officials from using the world’s banking systems.

Focusing on corruption can be an effective way to promote human rights because it undercuts arguments that dictators often use to try to isolate and persecute human rights activists. Authoritarian leaders paint civil society groups as foreign agents, pass laws to regulate these groups, and cast themselves as defenders of traditional values against a decadent and deviant West. Dictators can muster excuses for shooting demonstrators, arresting political enemies, or censoring the Internet but have a more difficult time using ideological, cultural, or nationalist argument to justify thievery. Most ordinary people believe that international action against “crooks and thieves” in their countries is legitimate. Targeting corrupt individuals and institutions will not only impose economic costs, but it will also demonstrate to the Iranian people that Canada and the international community oppose the enrichment of oligarchs at the expense of ordinary people.

Conclusion:

The nuclear deal will politically and financially insulate the Iranian regime and, over time, weaken international leverage to change the regime’s behavior. Iran will try to use the new environment created by the nuclear agreement to convince the international community to ignore the regime’s vast human rights abuses in pursuit of limited nuclear goals and profits. Canada should continue its leadership position in shining a light on the deplorable conditions in Iran and increasing pressure on the regime to change its malign behavior.

Thank you for the opportunity to testify. I look forward to your questions.

Testimony

Testimony of Sheryl Saperia on Bill C-6

Testimony for House of Commons Standing Committee on Citizenship and Immigration
19th April 2016

Good morning, distinguished members of the committee. On behalf of the Foundation for Defense of Democracies, a think tank focused on national security and foreign policy, thank you for inviting me to appear before you today. My comments will focus exclusively on the provisions in the Citizenship Act that revoke citizenship for terrorism, treason, and armed conflict against Canada, which Bill C-6 seeks to repeal.

As I explained in my testimony on Bill C-24, I believe it is reasonable to predicate Canadian citizenship on a most basic commitment to the state: that citizens abstain from committing those offences considered most contrary to the national security interests of Canada.

Treason and armed conflict against Canada are actions clearly intended to damage the country as a national entity and political community. It seems fitting that one consequence of these crimes might be the loss of citizenship to the country the offender seeks to harm.

However, there are areas where the current law could be improved. Rather than repeal outright the provisions allowing citizenship to be stripped on national security grounds, I would propose several amendments.

For instance, I recommended in my previous testimony and in various newspaper publications that the law should be amended to stipulate a tighter connection between the terrorist crime and the consequence of losing one’s citizenship. Specifically, I suggest that the stripping of citizenship for terrorism be triggered only by terrorist offences in Canada, against a Canadian target, or when committed in association with a listed entity. Listed entities, after all, have been publicly designated by the Canadian government as terrorist organizations and are in effect public enemies of the state. Committing a terrorist act that meets one of those three criteria is, to my mind, a clear attempt to damage Canada, for which loss of citizenship is appropriate.

If the terrorist act has nothing to do with Canada, the revocation of citizenship should not be the consequence.

I would also suggest an amendment with regard to foreign terrorist convictions. I can understand Canada giving credence to a terrorism conviction from a like-minded country with legal standards similar to our own. But while the original legislation was clear that the substance of the foreign offence would be examined to ensure its equivalence to a Canadian Criminal Code terrorist act, the law failed to require an assessment of the fairness of the process by which the conviction was achieved. 

I would like to take a moment to address Minister McCallum’s most vociferous objection to the current law, namely, that it creates two classes of citizens – those with dual or multiple nationalities, who are at risk of having their Canadian citizenship stripped, and those with only Canadian citizenship, who may be punished in a variety of ways but cannot lose their citizenship. First, that distinction is not arbitrary; it only exists because there is a law that prohibits rendering a person stateless. Second, for dual nationals who have chosen that status – often because of personal connection to, or benefit from, more than one citizenship – this is not a compelling argument. Dual citizenship was not forced upon them and they are not being subject to discrimination as a result of any inherent trait. It is a choice they have made, just as they can choose to renounce their other citizenship so as to be solely Canadian and therefore not subject to these provisions.

In cases where a Canadian is also citizen of a country that does not enable renunciation of that citizenship, the minister or department could use their discretion to assess the extent of what I call the “active relationship” to that second citizenship. Does the person maintain deep ties to the other country? Has the individual invoked any of the rights of that citizenship? Has she traveled with the passport of that country, or served in an official capacity only open to citizens? The less active the citizenship, the weaker the argument that his or her Canadian citizenship should be revoked.

In short, it is simply not always true that a Canadian is a Canadian is a Canadian.  It is not an absolute category. Naturalized Canadians are Canadians only so long as they are not found to have lied on their citizenship application. Those who have committed war crimes, crimes against humanity and genocide can have their citizenship removed, as well. And consider also that naturalized citizens must pledge an oath of allegiance to the Queen as the personification of Canada. By committing treason, armed conflict, or terrorism against Canada, are they not renouncing that oath through their actions?  

Canadians with more than one nationality have a very easy way to retain their Canadian citizenship under this law: do not commit those criminal acts – treason, armed conflict, or terrorism – which are directed at Canada as a country.

Lastly, if the government believes that our national security interests are better served by keeping dangerous terrorists in Canada where we can watch them properly, rather than potentially letting them loose in another country, I urge them to follow that commitment through.  The safety of the Canadian public demands that if those involved in terrorism are to remain in this country, they need to be closely monitored while they are imprisoned and afterwards. Canada must develop a strategy for preventing convicted terrorists from radicalizing and recruiting members of the general prison population. The threat of Islamist prison radicalization is an important feature of modern counterterrorism, with prison being a unique incubator for violent radicalization. As more terrorists are incarcerated in this country, the related threat of prison radicalization will also rise. This issue is all the more potent now that there are Canadians who have travelled abroad to wage jihad, and whose narrative might be more compelling than that of a foreign recruiter.

So if indeed we are going to keep in Canada those who have demonstrated their allegiance to the destruction of Canada, we cannot hide from developing the necessary strategies to protect the public from the consequences.

Thank you again for inviting me to appear before you today. I look forward to your questions.

Testimony

Preventing Cultural Genocide: Countering the Plunder and Sale of Priceless Cultural Antiquities

Testimony for Task Force to Investigate Terrorism Financing; Committee on Financial Services
19th April 2016

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Chairman Fitzpatrick, Ranking Member Lynch, members of the Task Force to Investigate Terrorism Financing, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

COUNTERING THE ISLAMIC STATE’S ANTIQUITIES TRAFFICKING

Before delving into the issue of Islamic State (IS) antiquities trafficking, it is important first to clarify how the trade fits into IS’s overall economic goals. One way to understand these goals is to look at some of the philosophical underpinnings guiding the group’s actions.

One document which many experts  argue may have ideologically influenced IS’s strategy for violence, brutality, and territorial control is an online book called The Management of Savagery.  Posted online in 2004 under the author’s pseudonym Abu Bakr Naji, the book argues that Sunni jihadist groups must enter a period where they wreak immense violence within contested territories in order to facilitate the transition to a caliphate. IS’s tactics today reflect this approach. The final chapter in the book deals with the role of wealth in this transition.

In that chapter, the author argues for jihadist groups to use wealth as a way to “unite the hearts” of target populations. The aim is to win over locals who may be on the fence regarding submitting to jihadist rule. This approach gives context to the antiquities trade in IS territory. Although exactly how much IS earns from looting ancient artifacts is difficult to assess, the group clearly encourages and facilitates the illicit trade within its territory. This appears to be part of IS’s economic strategy; not just for funding the group itself, but for creating ways to bring funds to its subjected population, whose hearts and minds Islamic State is trying win.

Islamic State has been dubbed the world’s richest terror army.  And the illegal antiquities trade is one income stream which gives the group significant strategic advantage against existing counter-terror finance efforts. The trade’s main target buyers are, ironically, history enthusiasts and art aficionados in the United States and Europe – representatives of the Western societies which IS has pledged to destroy. This poses several challenges to policy makers, as well as opportunities. This testimony explores how IS exploits this trade and offers suggestions as to how Washington and its partners may stem the flow of this important financial stream to the world’s most dangerous terrorist organization.

A STRATEGIC REVENUE SOURCE

IS, in the midst of the collapse of state authority in Syria and much of Iraq, has made headlines through its destruction of heritage sites. While a casual observer might conclude that IS takes sledgehammers to every non-Islamic artifact, the group is in fact deeply involved in antiquities looting. IS has access to roughly 5,000 archaeological sites and probably has earned several millions of dollars from antiquities trafficking.  Some of the looting appears to be conducted by local populations, who amid the economic devastation of war resort to combing archaeological sites for materials they can sell. Since gaining control of more territory in the region, however, IS has leveraged this black market and become a key facilitator in the looting, taxing, and marketing of antiquities.

The importance of the antiquities trade for IS lies not just in the funding it generates, but in the market’s strategic and operational benefits. The illegal trade of artifacts does not generally risk provoking outside military disruption or a local rebellion. Unlike oil facilities, excavation sites are not likely to be targeted by missile strikes. Moreover, criminal and financial methods such as extortion, kidnapping, taxing, or the outright takeover of private and public establishments embitter locals in ways that antiquities looting typically does not.

Antiquities trafficking is now more important to Islamic State, particularly as some of its other revenue sources have become more difficult to manage. For example, U.S.-led airstrikes have significantly squeezed IS oil profits since 2014.

Although the earnings from antiquities are less robust than those from oil revenue, looting represents a stable, less capital-intensive revenue stream. With plenty of local knowledge and no shortage of civilians to dig for artifacts, the trade is rampant in the region. Even in non-IS-held territory, many unemployed locals excavate and sell antiquities to earn income.

Testimony

Terror in Europe: Safeguarding U.S. Citizens at Home and Abroad

Testimony for Senate Committee on Homeland Security & Governmental Affairs
5th April 2016

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Chairman Johnson, Ranking Member Carper, and distinguished members of the committee, on behalf of the Foundation for Defense of Democracies, it is an honor to appear before you to discuss the heinous terrorist attacks in Brussels, and their implications for U.S. security.

The Brussels attacks and their aftermath have exposed several key weaknesses in Europe’s security infrastructure that leave the continent vulnerable to terrorism and inhibit European states’ ability to effectively counter threats posed by the Islamic State (popularly known by the acronym ISIS) and al-Qaeda. These weaknesses also endanger our own homeland security and U.S. interests in Europe. Some of the most significant challenges facing Europe include:

  • European authorities’ capacity to manage the dual challenges posed by migrant inflows and foreign fighters. Europe’s migrant crisis has overwhelmed European law enforcement and security agencies, which are struggling to police migrant communities, prevent and contain crime against migrants and other manifestations of a nativist backlash, and gather intelligence on incoming migrants. At the same time, thousands of European nationals have joined ISIS and other jihadist factions in Syria and Iraq, and dozens to hundreds of these foreign fighters have returned to Europe, with some infiltrating migrant inflows to gain entry to the continent. European security agencies are ill equipped to manage these dual challenges.

  • Security coordination in Europe. Intelligence sharing between European countries continues to be inadequate, as bureaucratic obstacles and turf battles inhibit governments from sharing critical information with one another. Some European governments also struggle to share information even within their own intelligence community. These problems can be exacerbated by the lack of border controls within the Schengen Zone, which has helped jihadist operatives move between countries undetected.

  • Security at civilian nuclear facilities in Belgium. Though the Belgian government has made progress in recent years in securing its nuclear facilities, concerns remain about the country’s ability to protect its nuclear material, as well as personnel who work at these facilities. ISIS has demonstrated an interest in gaining access to Belgian nuclear facilities and acquiring nuclear material.]

  • Threats to transportation infrastructure and soft targets. ISIS has instructed its operatives to carry out mass casualty attacks against civilians in Europe, and the group has sought to cripple the European economy by striking tourist sites and transportation infrastructure.

European states will need to address these issues head-on in order to prevent large-scale attacks in the future. The U.S. government can play an important role in providing a roadmap for European states to follow, supporting European security reforms, and bolstering European states’ ability to combat jihadist threats.

Testimony

Hezbollah’s Growing Threat Against U.S. National Security Interests in the Middle East

Testimony for House Foreign Affairs Committee; Subcommittee on Middle East and North Africa
22nd March 2016

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Chair Ros-Lehtinen, Ranking Member Deutch, I'd like to thank you for the opportunity to testify before the Middle East and North Africa Subcommittee.

The Syrian uprising constitutes one of the greatest challenges that Iran and Hezbollah have faced in decades. The collapse of the Assad regime would have, in the words of then-Commander of U.S. Central Command General James Mattis, dealt Iran “the biggest strategic setback in 25 years.” It would have cut Iran’s only land bridge to Lebanon, and deprived Hezbollah of its strategic depth.

Unfortunately, the situation in Syria has resulted in the opposite effect. While many, perhaps most, observers have tended to view Syria as a bloody quagmire that will erode Iranian ambitions, Tehran has deftly exploited the conflict, turning the strategic challenge it faces into an opportunity to expand its influence throughout the region.

In doing so, Iran has followed a well-developed template. It is building up Shiite militias, which it recruits from around the Greater Middle East, on the model of Hezbollah. This means it places the militias under the operational command of the Iranian Revolutionary Guard Corps (IRGC), and demands from them full allegiance to the Iranian regional project. The template goes back to the earliest days of the Islamic Revolution, but in recent years Iran has expanded its use to an extent never-before seen, with the biggest growth being in Iraq. Hezbollah, however, is the crown jewel of this region-wide network, with nodes in Syria, the Arab Gulf states, and, of course, Yemen.

This is arguably the most significant and most under-appreciated development in the region over the past five years. Iran’s expansionist drive, through its legion of Shiite militias based on the model of Hezbollah and often trained by the group, has not been opposed by the U.S. If anything, Washington has effectively acquiesced to it, viewing it as a means to affect a new regional “equilibrium.”

This has forced traditional U.S. regional allies – from Israel to Saudi Arabia – to look for measures to try and stop this emerging shift in the regional balance of power, which directly impacts their national security interests.

Although the effects are region-wide, this Iranian strategy has played out most consequentially in Syria. Five years into the uprising against the Assad regime, Iran and Hezbollah have secured their core interests in Syria. Hezbollah has taken significant losses at the tactical level but those have been offset by significant gains: Hezbollah is now better equipped and more operationally experienced than ever before.

The first-order priority for Hezbollah and Iran was to secure Assad’s rule in Damascus and Western Syria. Maintaining control over key real estate in order to ensure territorial contiguity with Lebanon was essential. In fact, the Iran-Assad-Hezbollah axis showed a willingness to forgo ancillary territory relatively early in the conflict in order to secure the corridor between what might be called Assadistan and Hezbollahstan. Specifically, Hezbollah and Iran were determined to hold the areas adjacent to Lebanon’s eastern border and secure the routes to Damascus. This is essential for safeguarding arms transfers from Iran to Lebanon, as well as for protecting weapons storage depots on Syrian soil. Hezbollah is now reportedly also working to ethnically cleanse these areas.

The campaign to create the security corridor has ensured that Hezbollah’s supply lines have remained open and uninterrupted. In fact, shipments into Lebanon from Syria may have even accelerated, and they may have included the transfer of certain strategic weapons systems that were kept on Syrian soil, as evident from the list of reported Israeli airstrikes over the last three years.

As part of its effort to secure the border, Hezbollah deepened its partnership with the Lebanese Armed Forces (LAF), whose cooperation has been vital – and not only on the Syrian front. As Hezbollah began to face backlash in the form of car bombs in Beirut over its involvement in Syria in 2013, it looked to the LAF for support in protecting its domestic flank.

The partnership between the LAF and Hezbollah has grown to such an extent that it is now meaningful to speak of the LAF as an auxiliary force in Hezbollah’s war effort. Indeed, in explaining the recent decision by Saudi Arabia to pull its $3 billion grant to the LAF, Saudi columnist Abdul Rahman al-Rashed wrote, “Hezbollah has started to use the army as its auxiliary in the war against the Syrians, which protects its lines and borders.”

In certain instances, LAF troops and Hezbollah forces have deployed troops jointly, such as during street battles with the followers of a minor Sunni cleric in Sidon in 2013. The LAF routinely raids Syrian refugee camps and Sunni cities in Lebanon, rounding up Sunni men and often detaining them without charges. In a number of cases, it has arrested defected Syrian officers in the Free Syrian Army, either handing them back to the Assad regime, or, in some cases, delivering them to Hezbollah, which then uses them in prisoner swaps with the Syrian rebels.

The LAF-Hezbollah synergy is broadly recognized in the region, with strategic implications that have been only dimly perceived in the United States. The Saudis, as I noted above, have reacted by withdrawing their aid to the LAF – and they are by no means alone. The Israelis have no choice to but expect that if war should break out between them and Hezbollah, the LAF will come to the direct aid of the latter. The Israel Defense Forces (IDF) have therefore warned that in the next war, they will certainly target the LAF. In contrast to the policies of Israel and Saudi Arabia, the U.S. is not making its aid to the LAF contingent on it severing its operational ties with Hezbollah – a policy which many in the Middle East see as facilitating the partnership between the two.

Hezbollah’s influence in Lebanon is by no means limited to its partnership with the LAF. Hezbollah exploits the weak and dysfunctional Lebanese state in order to advance its interests. It exerts direct influence over, for example, the Lebanese customs authority and the financial auditor’s office in order to protect its criminal enterprises, and uses Lebanese territory for the training of Shiite militias in the Iranian network. As Lebanon’s Interior Minister observed earlier this month, Lebanon is now the IRGC’s “external operations room for training and sending fighters all over the world.” Through Hezbollah, Iran has made the Lebanese state complicit in its activities.

In his address to the United Nations General Assembly last October, Israeli Prime Minister Benjamin Netanyahu revealed that despite Israel’s interdiction efforts, and in violation of UNSCR 1701, Iran had managed to bring advanced weapons systems into Lebanon, specifically the Russian-made Yakhont anti-ship cruise missiles, SA-22 (Pantsyr-S1) air defense system, and precision-guided surface-to-surface missiles – which presumably includes the upgraded Iranian Fateh-110 missiles with integrated GPS navigation.

The Yakhont and the precision-guided missiles pose serious threats to Israel because they are capable of hitting strategic installations and targets deep inside the country as well as offshore. These advanced systems are, of course, in addition to the estimated 100,000 rockets and missiles that Hezbollah has already stored in Lebanon – mainly in civilian areas. When one considers that Hezbollah has the capability to rain down 1,500 rockets a day on Israel, it becomes clear that civilian casualties in the next war will be much higher on both sides than in any of the previous wars.

IDF officers believe that Hezbollah has amassed valuable tactical experience in Syria. The military capabilities of the Syrian opposition do not compare to those of the IDF; nevertheless, Hezbollah’s units are mastering the use of diverse weapons systems, in both urban and rural settings. Over the past year, this experience has included working together with the Russian military, which has introduced new weapons systems and combined arms operations to the Syrian theater. In fact, Hezbollah, Iranian, and Russian officers have worked together on planning operations, and a joint operations room was reportedly also established in Iraq last year.

Iran and Hezbollah clearly intend to leverage their success in Syria to change the balance of power with Israel. Specifically, they have set their sights on expanding into the Golan Heights, and on linking it to the south Lebanon front. They signaled the importance they attached to this effort by sending a group of high-ranking Iranian and Hezbollah officers on a mission to Quneitra in January 2015. The Israelis destroyed that particular group, but we can be certain that they will resume their push there at a later date.

Iran and Hezbollah have invested in local Syrian communities to create a Syrian franchise of Hezbollah. Besides developing Alawite militias, they have also invested in Syria’s Shiite and Druze communities. The Druze, by virtue of their concentration in southern Syria, are particularly attractive as potential partners. Hezbollah has cultivated recruits from the Druze of Quneitra and has used them in a number of attacks in the Golan over the past couple of years. In addition to recruitment to Syrian Hezbollah or other Shiite militias in Quneitra, there have also been some efforts with the Druze of Suwayda province near the Jordanian border.

As a result, the IDF is preparing for offensive incursions by Hezbollah into northern Israel in the next conflict. For Israel, Hezbollah’s use of Lebanon as an Iranian forward missile base, its expansion into Syria with an aim to link the Golan to Lebanon, and the prospect of this reality soon getting an Iranian nuclear umbrella, creates an unacceptable situation which, under the right circumstances, could easily trigger a major conflict.

It is hardly surprising, then, that Israeli officials have been loudly voicing the position that any settlement in Syria cannot leave Iran and Hezbollah in a position of dominance, and certainly not anywhere near the Golan. Unfortunately, this position is directly at odds with current U.S. policy. President Obama has stated that any solution in Syria must respect and protect so-called Iranian “equities” in Syria. When one actually spells out what these “equities” are – namely preserving the Syrian bridge to Hezbollah in Lebanon – it becomes clear that U.S. policy in Syria inadvertently complicates Israel’s security challenge.

It also complicates the challenges of other critical U.S. allies, such as Jordan and Saudi Arabia. Indeed, Hezbollah’s expansion has also spurred a Saudi-led campaign targeting the group, culminating in its designation as a terrorist organization by the Gulf Cooperation Council and the Arab League. The Saudis have also announced measures to freeze the accounts of any citizen or expatriate suspected of belonging to or supporting Hezbollah. Supporters would be prosecuted, jailed, and deported. Bahrain and the United Arab Emirates have followed suit, deporting a number of Lebanese expatriates with connections to Hezbollah.

There is talk – or perhaps a threat – that the Saudis might go after not just Shiite supporters, but also Christian businessmen who support the group or are part of its financial schemes, and who are seen as weak links because of their financial interests in the Gulf. The potential impact of Saudi measures against Hezbollah could be significant if followed through. However, as noted earlier regarding Hezbollah’s relationship with the LAF, the Saudis have come to recognize that the Lebanese state itself is in Hezbollah’s grip.

This is a bleak picture, but there are steps that Congress can take to help steer U.S. policy in the right direction.

First, Congress should push the administration on the implementation of H.R. 2297, targeting Hezbollah’s criminal and financial activities. It’s important not to be dissuaded by the argument that pushing too hard would break Lebanon’s economy. It is critical to realize that Hezbollah’s position in the Lebanese state and economy increasingly resembles that of the IRGC in the Iranian state. Moreover, it would be worthwhile to use the Arab League and Gulf Cooperation Council designation of Hezbollah to encourage the European Union to follow their lead in designating all of Hezbollah as a terrorist organization.

Second, security assistance to the LAF should be, at a minimum, reviewed. Although the Obama administration is said to be unhappy with the Saudi decision to suspend its aid to the LAF, it is a sound decision and should push the U.S. to reconsider its own policies. The United States cannot, under the pretext of combating Sunni jihadism, align with Iranian assets and Iranian-dominated “state institutions.” Using this pretext, the U.S. has looked the other way from, if not condoned, the partnership between the LAF and Hezbollah. The result has been that U.S. military support and intelligence sharing has helped Hezbollah, if only indirectly.

Finally and more broadly, the United States must conduct comprehensive realignment in the Middle East away from Iran and back towards its traditional allies. The place to begin that realignment is Syria. Instead of pushing for an endgame in Syria which preserves so-called Iranian “equities,” or which creates cantons that function as Iranian protectorates, the United States should be working with its allies to impose severe costs on Hezbollah for its Syrian adventure.

Obviously, the White House holds the keys to such a realignment, but Congress can certainly help. It can, for example, hold the administration to its promise to “push back” against Iranian regional expansionism. Our Israeli, Jordanian, and Saudi allies have voiced their deep concerns about how a Syrian endgame that leaves Iran entrenched in Syria threatens their security. The U.S. response should not be to tell them to “share the region” with Iran. Rather, it should be to help them roll back the threat posed by Iran and Hezbollah.

Testimony

The Role of Iranian Dual Nationals in Sanctions Evasion

Testimony for House Committee on Oversight and Government Reform; Subcommittee on National Security and Subcommittee on Government Operations
10th February 2016

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Chairmen DeSantis and Meadows, ranking members Lynch and Connolly, members of the committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to testify.

Entry into the United States under the Visa Waiver Program is a privilege, not a right, bestowed on foreign nationals wishing to visit from a select group of countries. Those countries earned this privilege based on specific criteria, and may lose it if they fail to meet those conditions – as has happened to Argentina and Uruguay in the past.

Today we are here to discuss not whether Congress unreasonably deprived countries of this privilege, but whether it is reasonable to deny it to a select group of visitors from Visa Waiver countries on the basis that they are dual nationals of the Islamic Republic of Iran.

I contend that the exception for dual nationals of Iran and Visa Waiver countries is, on balance, a sound and not unduly burdensome measure. Dual nationals may still come to the United States, but now need to apply in person for a visa. This measure should not be undermined for fear that Iran may view it as a violation of the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement or because of fears of retaliatory measures from Visa Waiver countries. As I indicate in my testimony, the added layer of due diligence – requiring a visit to a U.S. consular section and an interview with an official – is critical to the national security of the United States.

Tehran, after all, has long relied on Iranian nationals who are dual passport holders to pursue illegal activities, including terrorism, illicit finance, and procurement of technology for its ballistic-missile and nuclear-weapons programs. Clearly, not every dual national is an Iranian agent. But virtually all agents of the Iranian regime who over the past decade were involved in conspiracies to commit acts of terrorism, illicit financial activities, nuclear and ballistic procurement, were dual passport holders. The Visa Waiver exception will make it more difficult for them to enter the United States and engage in criminal activities on American soil.

Testimony

Trading with the Enemy: Trade-Based Money Laundering is the Growth Industry in Terror Finance

Testimony for House Financial Services Committee Task Force to Investigate Terrorism Financing
3rd February 2016

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Chairman Fitzpatrick, Ranking Member Lynch and members of the Task Force to Investigate Terrorism Financing, thank you for the opportunity to testify today.  It is an honor for me to be here. 

Not long after the September 11 attacks, I had a conversation with a Pakistani entrepreneur.  This businessman could charitably be described as being involved in international grey markets and illicit finance.  We discussed many of the subjects addressed in this hearing including trade-based money laundering, terror finance, value transfer, hawala, fictitious invoicing, and counter-valuation.  At the end of the discussion, he looked at me and said, “Mr. John, don’t you know that your adversaries are transferring money and value right under your noses?  But the West doesn’t see it.  Your enemies are laughing at you.”

The conversation made a profound impact on me.  I knew he was right.  At the time of the conversation, the U.S. government and the international community had not focused attention or resources on the misuse of international trade to launder money, transfer value, avoid taxes, commit commercial fraud, and finance terror.  It was completely under our radar screen.  Our adversaries − terrorists, criminals, kleptocrats, and fraudsters − were operating in these areas with almost total impunity.  And unfortunately, many years after that conversation and the tremendous expenditure of resources to counter illicit finance, trade-based money laundering and value transfer are still not recognized as significant threats.  Perhaps as the Pakistani businessman inferred, it is because the subterfuges are “hiding in plain sight.”

The Financial Action Task Force (FATF) has declared that there are three broad categories for the purpose of hiding illicit funds and introducing them into the formal economy.  The first is via the use of financial institutions; the second is to physically smuggle bulk cash from one country or jurisdiction to another; and the third is the transfer of goods via trade.    The United States and the international community have devoted attention, countermeasures, and resources to the first two categories.  Money laundering via trade has for the most part been ignored.

Trade-based money laundering and value transfer (TBML) is a very broad topic. FATF defines TBML as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.”    The key word in the definition is value.

Testimony

Missouri State Senate Committee on Jobs, Economic Development, and Local Government

Testimony for Missouri State Senate Committee on Jobs, Economic Development, and Local Government
27th January 2016

Download the full testimony here

Despite the fanfare over the July 2015 nuclear deal, the Iranian regime remains involved in a range of destabilizing activities and illicit conduct. In October and again in November, Iran tested ballistic missiles capable of carrying nuclear warheads in violation of a key UN Security Council resolution.  At the same time, Iran increased its crackdown on its citizens,  expanded its support for Syria’s Assad regime and terrorist organizations like Hezbollah and Hamas,  and remains the leading state sponsor of terrorism.

Iran’s belligerency did not abate even as Implementation Day of the nuclear agreement approached. Less than a week before receiving significant sanctions relief and access to about $100 billion in frozen assets, Iran detained 10 U.S. Navy sailors. Legal and maritime experts state that the seizure contravenes international standards of innocent passage and the intent of the Geneva Convention. 

In the shadow of Implementation Day (which occurred on January 16), Iran released five Americans who had been imprisoned illegally for years. While everyone should be relieved that these innocent victims have returned home, the price paid for their release was high. America pardoned seven Iranians and Iranian Americans who had been charged with or convicted of procuring sensitive technology and equipment for Iran in violation of U.S. law.  The United States also dropped the charges and removed the Interpol red notices against 14 Iranians, including two Mahan Air officials accused of supplying weapons to the Assad regime.  Iran may have learned a dangerous lesson from this exchange: Additional hostages will block new sanctions and prosecutions.

While the Obama administration has repeatedly made it clear that the Joint Comprehensive Plan of Action (JCPOA) does not prevent the imposition of non-nuclear sanctions,  it has done little to respond to the Iranian regime’s threatening behavior. When the administration finally responded to Iran’s provocative ballistic missile tests, it issued sanctions against a procurement network that Tehran can easily reconstitute,  as the regime has done time and again. These designations have minimal, if any, economic impact on Iran.

The JCPOA does not address the full range of Iran’s illicit activities but lifts many of the most impactful sanctions. It also fails to achieve the stated goal of the P5+1: blocking all pathways to an Iranian nuclear bomb. Iran has merely agreed to certain limitations on its nuclear activities – a departure from the original U.S. policy goal of dismantling Iran’s illicit nuclear infrastructure. Unfortunately, even these modest restrictions are fatally flawed because they disappear over time. Iran will mothball certain equipment and reduce enriched uranium stockpiles for 10 to 15 years, after which Tehran can expand its nuclear activities, build an industrial-scale infrastructure powered by easier-to-hide advanced centrifuges, and develop an intercontinental ballistic missile program.

As the United States and its partners dismantle the global sanctions regime, Iran can build greater economic resiliency against future sanctions pressure. The deal provides extensive sanctions relief to Iran, and the impact of this relief will expand over time. Economic forecasts estimate that Iran’s economic growth will expand to 4-5 percent annually for the next three years.  The IMF estimates that Iran’s real GDP growth may reach 5.5 percent in FY 2016/17 and FY 2017/18.  This is a significant rebound from Iran’s negative growth rate of 6 percent in FY 2012/13.

Despite wishful thinking that the nuclear deal will empower the moderate forces in Iran, the deal is more likely to enrich the most dangerous elements of the regime, in particular Iran’s Islamic Revolutionary Guard Corps (IRGC), as well as the massive business interests of Supreme Leader Ali Khamenei. An early indication came last week when the Guardian Council, which vets candidates for Iran’s (flawed and undemocratic) elections, disqualified 99 percent of all reformist candidates for the February parliamentary elections.

Outside the political realm, the IRGC and other radical revolutionaries are positioned to be the primary recipients of the economic benefits in the nuclear deal. The Revolutionary Guards not only direct Iran’s external regional aggression, its nuclear and ballistic missile programs, and its vast system of domestic repression, but they also control a vast business empire.

The IRGC controls large swaths of Iran’s economy. “The IRGC is Iran’s most powerful economic actor,” the U.S. Treasury Department explained, “dominating many sectors of the economy, including energy, construction, and banking”  – precisely those sectors which have received sanctions relief under the JCPOA. Likewise, Supreme Leader Ali Khamenei controls a vast business empire, estimated to be worth at least $95 billion, through a holding company called the Execution of Imam Khomenei’s Order (EIKO, or Setad in Farsi). Sanctions on EIKO were removed by the U.S. government on Implementation Day. It is difficult to image a significant business transaction in the key sectors of Iran’s economy where the IRGC or EIKO won’t be in on the deal. The financial gains from the JCPOA will enable these radical revolutionaries to expand their dangerous activities.

While the JCPOA lifts sanctions on Iran’s nuclear activities, it does not preclude the United States from using economic tools to address the full range of Iran’s illicit activities – despite statements from Iran that it will view any imposition of sanctions, nuclear or non-nuclear, as a violation of the deal. Giving into that interpretation would significantly undermine Washington’s ability to use non-military tools to address national security threats. Instead, American lawmakers – at both the federal, state, and local levels – should take the lead and impose measures to target Iran’s support for terrorism, ballistic missile program, support for the Assad regime in Syria, human rights abuses, and systemic corruption. These steps are not a violation of the JCPOA, but rather an affirmation of the stated U.S. policy to “oppose Iran’s destabilizing policies with every national security tool available.” 

There are significant “non-nuclear” measures that lawmakers should consider to prevent the enrichment of those in the Iranian regime who continue to engage in terrorism and other activities inimical to U.S. interests. At the state level, lawmakers have important levers that they can deploy. My specific recommendations in this testimony are:

1. Reaffirm the authority of state governments to divest public retirement funds from companies that invest in the Iranian energy sector.

2. Expand state-level sanctions efforts by banning government contracts with, and state government procurement from, companies doing business with Iran. State governments should also require divestment of funds from companies doing business with state sponsors of terrorism.

3. Create a watch list of Iranian companies linked to the Revolutionary Guards, the Supreme Leader’s business empire, and/or the Iranian government. State governments could then sanction any company that engages in business with firms included on the watch list.

Testimony

Missouri State Senate Committee on Jobs, Economic Development, and Local Government

Testimony for Missouri State Senate Committee on Jobs, Economic Development, and Local Government
27th January 2016

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Chairman Schmitt, members of the Senate Committee on Jobs, Economic Development and Local Government, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to testify.

Today, as you hold this important hearing on Missouri’s investment policies and the leading state sponsor of terrorism, Iran, Iran’s President Hassan Rouhani is touring Europe, accompanied by a large, high-profile delegation of Iranian corporate executives. They are there to reap the great economic benefits of the Joint Comprehensive Plan of Action (JCPOA). Numerous contracts worth billions of dollars are being signed as you debate whether this house should pass legislation to defund corporations doing business with state sponsors of terrorism. Iran is the foremost state sponsor of terrorism and Iran’s Islamic Revolutionary Guard Corps (IRGC) is the principal instrument through which Tehran trains, finances, arms, equips, and spreads terror across the Middle East and beyond. The IRGC is also the custodian of Iran’s best-kept military secrets, including its clandestine nuclear military program and ballistic missile program. As the regime’s Praetorian Guard, it is also charged with defending the Islamic Revolution from enemies at home and spreading the revolution abroad. Over the years, the IRGC has zealously fulfilled these tasks, quashing pro-democracy protesters inside Iran and sponsoring terrorism and Islamist movements abroad.

The IRGC is also a dominant player in Iran’s economy and the likeliest beneficiary of the JCPOA. This testimony will focus on the JCPOA impact on the IRGC and its dominant position in Iran’s economy. The JCPOA dismantles specific United Nations and European Union sanctions, and significantly diminishes the scope and reach of U.S. sanctions. In doing so, the JCPOA creates a major “stimulus package” for Iran’s economy. The IRGC derives much of its domestic clout from its position of dominance within Iran’s economy. Thus, the IRGC and the supreme leader’s business empire will be the main beneficiaries. Their economic ascendance will fortify their domestic political influence.

As export and trade restrictions are lifted, previously prohibited Western technology will make its way back to Iran. The challenge of denying the IRGC access to banned technology – including dual-use technology and equipment for monitoring dissidents – will become even more arduous. The demise of sanctions will also facilitate the acquisition of advanced weaponry that will improve Tehran’s conventional military capabilities, as well as its support for the Bashar al-Assad regime in Syria, Hamas in the Gaza Strip, Hezbollah in Lebanon, and Houthi rebels in Yemen.

To be clear, the United States is set to maintain its sanctions on the IRGC. The JCPOA does not alter them. Moreover, the European Union will not delist most IRGC entities on its sanctions list until Transition Day, roughly eight years from now. But as this testimony explains, after the bulk of Iran sanctions were lifted on Implementation Day on January 16, the remaining measures against the IRGC are insufficient. They will not isolate the Guards and the supreme leader’s business interests from the benefits that the JCPOA will generate. Instead, additional sanctions, regulations, and due diligence efforts are needed from both governments and the private sector.

First, on Implementation Day, the JCPOA required the European Union, United States, and United Nations to lift or suspend sanctions against entire sectors of the Iranian economy. The IRGC and the supreme leader’s business interests are active in many sectors – some of which they dominate almost completely. IRGC companies will get the lion’s share of public contracts and business opportunities.

Second, numerous companies, which have served as accessories to IRGC nuclear and ballistic missile programs and its support for the Assad regime and its crimes against humanity, were removed from sanctions lists. De-listed entities include the entire network of companies and subsidiaries controlled by the supreme leader, as well as Iran’s aviation industry and state-owned shipping firms, and companies where the IRGC has a significant ownership interest.

The delisting was not the result of a demonstrable change in these entities’ patterns of behavior. Now that these companies are delisted, there are no guarantees they will cease the illicit conduct that caused them to be sanctioned in the first place – instead, there is ample reason to believe they will redouble that activity.

Third, and most critically, companies owned or controlled by the IRGC that have until now eluded designation by the U.S., EU, or UN are likely to benefit from the post-JCPOA windfall, as the business community will accept them as legitimate business partners. The same is true for IRGC senior executives that eluded sanctions until now.

This testimony will explain the IRGC’s role in the Iranian economy, demonstrate how the IRGC uses profits from its “legitimate” businesses to fund its illicit activities, and provide recommendations to mitigate the risk for state pension funds to invest in companies tainted by business ties with the IRGC. State governments’ steps to defund Iran will send a strong signal to the international business community: those who enter contractual relations with economic players of a state sponsor of terrorism risk becoming an accomplice to terror financing. It is imperative for state legislatures to shield their own investments from such companies.

Testimony

Iran and the IRGC: Fueling Conflict in the Middle East

Testimony for House Foreign Affairs Committee
2nd December 2015

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Thank you Chairman Royce, Ranking Member Engel, and members of this committee for the opportunity to appear before you today.

Iran’s regional goals remain inimical to U.S. national interests and the security of U.S. allies. The emergence of President Hassan Rouhani,  his promise of engaging in bilateral talks with the United States,  the nuclear agreement between the Islamic Republic of Iran and the P5+1,  and the rise of the Islamic State have led some in the West to hope for a new alignment of strategic interests between Washington and Tehran.

To this end, Secretary of State John Kerry formally invited Foreign Minister Mohammad-Javad Zarif to participate in negotiations at the end of October in Vienna to resolve the war in Syria.

President Rouhani and Foreign Minister Zarif, however, command little influence over the Islamic Republic’s regional policies. The Islamic Revolutionary Guard Corps (IRGC) owns this portfolio,  and beyond a fleeting tactical convergence of interests, the Revolutionary Guards and Washington do not have aligning strategic goals in Syria. Washington wants to resolve conflicts in the Middle East; the IRGC benefits most by seeing these conflicts continue.

According to the recent testimony of Ambassador Anne W. Patterson, assistant secretary of state for near eastern affairs, the United States is pursuing four objectives in Syria:

“(1) defeat ISIL [Islamic State of Iraq and the Levant] militarily in both Syria and Iraq; (2) develop a political transition that gives Syria a future without Bashar al-Asad; (3) ease the suffering of the Syrian people; and (4) stabilize our regional allies and help European partners as they cope with a massive refugee crisis.”

If one examines the public statements of the IRGC leadership and the activities of the IRGC in Syria, it’s clear that the Islamic Republic is pursuing the exact opposite goals. For the Guards, the primary objectives are to: (1) keep Assad in power by deploying IRGC forces and non-Iranian Shiite militias in Syria; (2) highlight ISIL as a worse alternative to Assad while making no serious military effort against the Islamic State; and (3) concentrate Iran’s military resources against Syrian rebel forces threatening the Assad regime, including the secular opposition, which might offer an acceptable alternative to Assad.

Major General Mohammad-Ali Jafari, the Corps’ chief commander,  and Major General Qassem Suleimani, head of the expeditionary Quds Force (IRGC-QF),  have repeatedly expressed their support for Assad and his regime. Brigadier General Hossein Hamadani, the field commander of the Iranian forces in Syria who was killed in the suburbs of Aleppo on October 7,  has not only praised Assad as “more obedient to the leader of the revolution [Ayatollah Ali Khamenei] than some of our statesmen,” but also recalled the supreme leader stressing the importance of the “strategic depth” Syria provides to Iran. 

In Jafari’s words, Hamadani’s mission had been to “transfer experiences from the sedition of 2009” to Assad. That “sedition” is a reference to the Revolutionary Guards’ suppression of the anti-government, pro-democracy rallies in Tehran in the wake of the fraudulent June 2009 presidential elections.  In that capacity, Hamadani not only reorganized Syrian paramilitary forces using Iran’s Basij militia as a model,  but he also served as the most senior field commander in charge of IRGC units and non-Iranian Shiite militias deployed in Syria.

Iranian officials often deny their military involvement in Syria and insist that IRGC forces there are volunteers guarding Shiite pilgrimage sites in Damascus.  Yet this author’s survey of funeral services for Iranian, Afghan, and Pakistani Shiite fighters killed in the war (since the first recorded Iranian combat fatality in Syria in January 2012) provides proof of the Islamic Republic's military engagement. (See Addenda, Tables 1-3. Iraqi and Lebanese Shiite combat fatalities in Syria since the beginning of the war in Syria are not included in this survey.)

According to open-source data, 201 Iranian nationals, 178 Afghan nationals, and 33 Pakistani nationals—all Shiites, with the exception of two Iranian nationals—were killed in combat in Syria from January 2012 to November 30, 2015. 

Public accounts indicate that all 201 Iranians served in the IRGC. Breaking down the casualties by IRGC branches, 40 served in the IRGC Ground Forces, 24 fought for the Quds Force, and 10 served in the Basij militia. Funeral photos and online biographical materials suggest that the remaining 127 were identified as generic active-duty IRGC members, though it is not known in which units they served. For some of these individuals, the lack of information may reflect the IRGC’s attempt to obscure their service in the Quds Force or to cover up the deployment of IRGC Ground Forces. Deployment of the Ground Forces seems to have spiked since October 2015, in the wake of mounting casualties among the Quds Force, a relatively small unit within the Corps. This left Guard commanders with no other choice but to deploy mainline IRGC forces to Syria.

Testimony

The Paris Attacks: A Strategic Shift by ISIS?

Testimony for House Committee on Foreign Affairs, Subcommittee on Terrorism, Nonproliferation, and Trade
2nd December 2015

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Chairman Poe, Ranking Member Keating, and distinguished members of the committee, on behalf of the Foundation for Defense of Democracies, it is an honor to appear before you to discuss the implications of the Paris attacks, and the broader questions that they raise about U.S. policy toward Syria.

In the immediate wake of the terrorist attack that brought down a Metrojet plane in Egypt’s Sinai Peninsula and the recent urban warfare-style attacks in Paris, many analysts concluded that these events marked a significant strategic shift on the part of the Islamic State (referred to hereafter as ISIS).  The most prominent articulation of the argument that ISIS had undertaken a strategic shift held that until the most recent wave of attacks, ISIS focused almost exclusively on establishing a caliphate and expanding the boundaries of its state in Syria, Iraq, and the surrounding regions. Thus, this view held that unlike al-Qaeda, which had long focused on planning terrorist attacks against the “far enemy” (the United States and other Western countries), ISIS confined its operations outside of its immediate region to inspiring attacks by sympathizers and adherents living in the West.

The view that ISIS has undertaken a major shift in its use of terrorist attacks abroad is fundamentally flawed. Rather than marking a strategic shift by ISIS, the Paris and Sinai attacks represent the culmination of the group’s long-standing ambitions to carry out mass-casualty, high-profile attacks in Western states. For over a year, ISIS’s top propagandists have made clear the group’s intentions to strike the West. And the group has tried to make good on its threats: Since the beginning of 2015, ISIS operatives in Syria and Iraq have been involved in planning several high-profile plots against Western targets even prior to the most recent attacks.

ISIS’s Attacks on the “Far Enemy”: Not a Strategic Shift

A close reading of ISIS’s propaganda reveals its longstanding intentions to cause mass destruction in the West. In January 2015, ISIS spokesman Abu Mohammed al-Adnani released a statement praising ISIS sympathizers for carrying out plots in Australia, Belgium, Canada, and France, and called on Muslims to use any weapon available to inflict damage on the “crusaders.”  After encouraging more lone wolf attacks in the West, Adnani issued a more ominous threat, saying that “what lies ahead will be worse—with Allah’s permission—and more bitter, for you haven’t seen anything from us just yet.” While Adnani’s statement divulged little about ISIS’s operational plans, it suggested that the group harbored grander ambitions for striking the West.

Statements in Dabiq, ISIS’s English-language online magazine, also provide a window into the organization’s intentions toward the West. In the fourth issue (released October 2014), ISIS noted that it is “very important that attacks take place in every country that has entered into the alliance against the Islamic State, especially the US, UK, France, Australia, and Germany.”  This declaration, unlike Adnani’s, was unambiguous.

If any further proof of ISIS’s global terrorist aspirations is needed, the group provided it in the eighth issue of Dabiq, released in March 2015. In an article bearing the byline of John Cantlie, a British hostage and a gruesomely conscripted ISIS propagandist, a provocative question was posed: “How many more Westerners will die? The way things are going at the moment, the answer is many. France, Belgium, Denmark, Australia, and Canada, have all been the targets of mujahidin attacks over the last three months alone, and as more Islamic fighters ... pledge allegiance to the Islamic State, such attacks will surely only become more numerous and better-executed.”

Though ISIS has frequently threatened to attack the West, many analysts have long argued that the group’s rhetoric did not match its actual ambitions. Some experts reasoned that the organization’s central leadership was concentrating on fighting local regimes and non-state Shiite forces, and was thus unwilling to invest serious resources in plotting complex attacks against the West. According to this view, ISIS instead relied heavily on its social media capabilities to inspire sympathizers to carry out opportunistic attacks in the West. If its Western strategy were based primarily on lone wolf attacks, ISIS’s threat to the homeland would be manageable—and, most likely, minimal. As noted by Juliette Kayyem, former Assistant Secretary for Intergovernmental Affairs in the U.S. Department of Homeland Security: “We can withstand random guys with low-level attacks and minimal consequences.”

But ISIS also possessed grander and deadlier ambitions. The group’s efforts to inspire lone wolf attacks did not preclude it from pursuing a parallel track of planning large-scale operations. Indeed, the preoccupation that previously existed with the lone wolf phenomenon caused analysts to underestimate the threat of an ISIS-directed terrorist attack against the West.

ISIS’s external operations capabilities have significantly evolved since the group declared its caliphate in June 2014. In the early months of the caliphate, the group’s external operations were relatively limited, and lone wolves were indeed the primary means through which ISIS could strike the West. But by early 2015, ISIS had scaled up its external operations capabilities, thanks in large part to the involvement of several key European ISIS fighters, including the British nationals Reyaad Khan and Junaid Hussain (the latter of whom was linked to several plots in the United Kingdom and United States, including the May 2015 shooting at a Garland, Texas venue hosting a “Draw Muhammad” contest).  Another key player was Salim Benghalem, a French jihadist described as the commander of ISIS’s French foreign fighter network, whom Western intelligence agencies have implicated in the recent Paris attacks.

The group soon began plotting high-profile attacks on Europe. The first concrete sign of ISIS’s European ambitions came just days after the notorious January 2015 Charlie Hebdo attack, when Belgian police killed two militants and arrested another in a raid in the town of Verviers.  Investigations revealed that all three men had fought with ISIS in Syria, and were using a house in the town to store weapons and build explosives.  Belgian officials warned that the cell was preparing for a major attack in their country.  They also learned that the Verviers cell was in contact with Belgian ISIS member Abdelhamid Abaaoud, who is believed to have served as the key intermediary between ISIS’s senior leadership and the Verviers cell, and also played a central role in the Paris attacks.

In an interview published in Dabiq in February 2015, Abaaoud revealed that he and two other Belgian ISIS members had traveled from Syria to Belgium to “terrorize the crusaders waging war against the Muslims.”  Abaaoud explained that his foreign fighter cell had managed to “obtain weapons and set up a safe house while [they] planned operations against the crusaders.” Though the Verviers plot was a clear indication of ISIS’s ambitions to strike the West, it went largely unnoticed amid the tumult that followed the Charlie Hebdo attack.

In the months between the Verviers plot and the Russian plane crash, several more plots demonstrated the geographic reach—though not necessarily the competence—of ISIS’s external operations. In April 2015, several teenagers were arrested in Melbourne, Australia in police described as a “major counterterrorism operation.”  Australian authorities later revealed that the Melbourne cell had planned a gruesome attack on Anzac Day (Australia and New Zealand Army Corps Day), in which the plotters would run over a police officer, behead him, and use his weapon to carry out a shooting spree in Melbourne.  Investigators concluded that the plot’s ringleaders had been in contact with Australian ISIS member Neil Prakash, who had attended Melbourne’s al-Furqan center (a mosque that the Melbourne operatives had also frequented) before he left for Syria.  Prakash reportedly maintained relationships with al-Furqan attendees after he arrived in Syria, directing them to carry out domestic attacks.

Prakash was not the only ISIS foreign fighter with aspirations to strike his homeland. As previously mentioned, Junaid Hussain, a British citizen, was involved in several plots against the United Kingdom. Hussain, who was killed by a U.S. air strike in August 2015, was also involved in organizing what could have been a major attack in the United States. In the weeks prior to the Fourth of July holiday, the FBI publicly voiced concerns about an increase in chatter related to an ISIS attack. At least ten U.S. citizens were arrested in the lead-up to the July 4 weekend, and intelligence officials later revealed that strikes had been planned across the country, with ISIS recruiters based in Syria identifying potential operatives in the United States, and encouraging them to strike around the holiday weekend.

After months of failed and foiled plots against Western targets, a confluence of factors enabled ISIS to succeed in Paris. Luck was certainly involved, as is the case for any successful terrorist attack. However, luck typically favors terrorists, especially if they make consistent efforts. More important than luck, however, was the ability of ISIS operatives to learn from their mistakes and to exploit holes in European security and intelligence capabilities. The Paris attacks provided definitive proof that European intelligence agencies are overwhelmed by the scale of the challenge posed by foreign fighters and domestic radicals. At least five of the operatives involved in the Paris attack had traveled to Syria to fight for ISIS. Abaaoud, the plot’s ringleader, managed to move back and forth between Europe and Syria even after he was implicated in the Verviers plot, and was thus a highly wanted man.

When viewed against the backdrop of nearly a year’s worth of ISIS-directed plots against Western targets, the Paris and Sinai attacks seem less like a shift and more an indication of strategic continuity. These two attacks mark a shift not in intention but in outcome. However, if ISIS continues to lose ground in Syria and Iraq—as it has done lately—it may undertake a strategic shift of another variety, investing more resources in terrorist attacks to maintain its image of victory and momentum.

ISIS has several goals in attacking the West. There is no question its competition with al-Qaeda for supremacy over the global jihadist movement has factored into ISIS’s strategic calculus. By carrying out high-profile attacks against Western targets, ISIS can increase its appeal to jihadist foot soldiers and impatient affiliates who may be tiring of al-Qaeda’s strategic patience and pragmatism. In the days following the Paris attacks, ISIS released at least two videos directed at supporters of al-Qaeda in the Arabian Peninsula, both of which highlighted ISIS’s attacks as a reason that AQAP members should join its ranks. In considering U.S. policy toward Syria, it is important to understand not only ISIS’s posture but also al-Qaeda’s, as both are key players in that theater.

Testimony

The Impact of ISIS on the Homeland and Refugee Resettlement

Testimony for Senate Committee on Homeland Security and Governmental Affairs
19th November 2015

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Chairman Johnson, Ranking Member Carper, and distinguished members of the committee, on behalf of the Foundation for Defense of Democracies, it is an honor to appear before you to discuss the Islamic State’s (IS) impact on Syrian refugee resettlement in the United States.

In the aftermath of the Paris attacks, there has been much discussion about the security challenges associated with admitting Syrian refugees. I offer several overarching conclusions that I will discuss at greater length in this testimony:

  • If a jihadist group like IS wants to place terrorists in the United States through the current refugee resettlement program, the risk is very low, though it is non-zero.
  • The biggest barrier to terrorist operatives entering the United States in this way is the selection process rather than the screening process. The existing selection process for admitting refugees into the United States is rigorous and time-consuming, and the odds are significantly against any one refugee’s admission: only 10,000 of an estimated 2.1 million Syrians registered by UNHCR will be admitted. Further, the United States privileges the “most vulnerable” refugee populations in its admission process, a cohort that includes single mothers, children, and individuals with medical needs but excludes populations—like teenage and young adult males—that are most likely to be infiltrated by violent extremist groups. This makes it difficult for extremist groups to plant operatives in the admitted refugee population. Moreover, the resettlement process for refugees entering the United States takes 18 to 24 months on average.  However, the refugee screening process is highly unlikely to uncover an operative who can be considered a “clean skin” (someone connected with a jihadist organization whose connections to the group are not known by American intelligence), and the U.S.’s intelligence penetration into Syria is limited.
  • A significant expansion of the Syrian refugee resettlement program in the U.S. would increase the risk of militant infiltration. Significantly increasing the number of Syrian refugees who will be resettled might expand the parameters of the selection process beyond “most vulnerable” populations, and could make the infiltration of operatives in this manner more attractive to militant groups.
  • IS views the refugee outflows from Syria as a major challenge to the legitimacy of its caliphate, and the group has exhorted Syrian refugees to return. At the same time, it is in IS’s interest to create a backlash against Syrian refugees in Europe or the United States, which would then allow militant organizations to recruit from within the ranks of disaffected refugee populations. A backlash could also deter future waves of refugees from leaving Syria. Such a move is central to IS’s playbook.
  • It is counterproductive for U.S. governors to publicly announce their opposition to admitting refugees into their states. Governors do not have control over where refugees are placed, but this hard line marginalizes refugee populations even before they arrive, and creates the perception that they are not welcome, thus complicating and threatening integration and assimilation processes. While it is their prerogative to express their legitimate concerns to the Obama administration, the very public announcements that have been made recently are counterproductive.

The Islamic State’s Strategic Outlook Toward Refugees

The iconic images of thousands of Syrians fleeing their homes for Europe are terrible publicity for IS. IS has sought to foster the perception that the caliphate is a refuge and safe haven for Muslims from across over the world; this narrative is essential to the group’s foreign fighter recruitment efforts. But the refugee crisis directly undercuts this narrative. If Syrians choose to flee for thousands of miles rather than joining the caliphate next door or remaining in it, the caliphate’s political legitimacy is called into question. Prospective foreign fighters may be less inclined to join IS after witnessing the flood of refugees into Europe, and hearing horror stories about life in the caliphate.

IS has utilized its propaganda apparatus in an effort to dissuade Syrians from fleeing to Europe.  Between September 16 and 19, IS media outlets released twelve videos addressing the refugee crisis. IS’s strategy in this propaganda blitz was twofold: underscore the dangers of life in Europe for refugees while painting the caliphate as a safe haven for Muslims. One theme that emerged in this propaganda was the idea that Muslim refugees who flee to Europe will suffer oppression at the hands of secular and Christian governments, and will be forced to abandon their faith.  IS also warned of the dangerous journey to Europe, in one video montage incorporating the image of Aylan Kurdi, the young Syrian refugee who washed up dead on a beach in Turkey as his family was attempting to travel to Greece.   Another theme that pervaded IS’s refugee propaganda was that the caliphate was preferable to Europe. IS juxtaposed the experiences that refugees would encounter in Europe with images and videos portraying the caliphate as an Islamic utopia, where refugees are cared for and all Muslims can find religious salvation.

While IS sees the Syrian refugee crisis as a challenge to its legitimacy, it also perceives strategic opportunities. One possibility is that IS may attempt to embed militants into refugee populations. In January 2015, an IS supporter released a short article that discussed opportunities for IS militants to use migrant and refugee flows from Libya to gain entry to Europe.  Further, an al-Qaeda operative who had served time in prison in Italy before being extradited to his home country of Tunisia was arrested in October 2015 after traveling from Libya to the Italian island of Lampedusa.  Placing operatives among the Syrian refugees would advance IS’s strategic objectives. IS believes that if it can drive a wedge between Muslim populations in Europe and the rest of European society, it can present itself as a protector of European Muslims, thus building its base of support in Europe. This strategic logic is clearly articulated in issue seven of Dabiq, IS’s English-language online magazine, in which IS predicts that jihadist attacks in Europe will “compel the crusaders to actively destroy the grayzone,” forcing Muslims in the West to make one of two choices: “apostatize and adopt the [infidel] religion” or migrate to the caliphate to “escape persecution from the crusader governments and citizens.”  This strategy—in which the group carries out attacks to accelerate societal schisms, then steps in to defend the group against whom its attacks triggered discrimination—is one that IS utilized to great effect in Iraq in the mid-2000s. During that period, IS’s predecessor, al-Qaeda in Iraq, launched attacks against Shia populations in order to trigger revenge killings against Iraqi Sunnis.

It now appears that the passport of a Syrian citizen that had been stamped in Greece, Serbia and Croatia—three typical way-stations for refugees making the trip to western Europe—was on one of the Paris attackers in an effort to incite anti-refugee backlash.  (It is possible that IS planted a stolen or forged passport on one of the attackers, and as of this writing its authenticity has not been determined.)

Testimony

Terrorist Financing: Kidnapping, Antiquities Trafficking, and Private Donations

Testimony for House Committee on Foreign Affairs; Subcommittee on Terrorism, Nonproliferation, and Trade
17th November 2015

Download full testimony here

Chairman Poe, Ranking Member Keating, and distinguished Members of the Subcommittee, thank you on behalf of the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance for the chance to testify before you today.

As a think tank analyst who focuses on the Arab Gulf monarchies, I have concluded that several of America’s allies in the Middle East – namely, Qatar, Turkey, Kuwait, and Saudi Arabia – are best characterized as America’s frenemies on the issue of terror finance: important partners on some issues that pursue problematic or adversarial positions over terror finance emanating from their territories. As such, I will devote a significant portion of my testimony today to documenting these countries’ negligence on combating private terror finance and recommending steps that Washington can take to highlight and disincentivize such harmful conduct.

However, because we are joined by Diane Foley here today, I would first like to take the opportunity to seriously grapple with the challenge posed to American interests by the problem of non-state terrorists who increasingly use kidnapping for ransom to fund their violent activities.

The toll that kidnapping takes on victims, families, employers, and their communities is immense. Perhaps because the magnitude of this toll is so difficult for the rest of us to fully comprehend, I believe that there is a tendency for policymakers to be somewhat callous or even Pollyannaish by presuming that this problem can be addressed without a serious new investment of resources and rethinking of U.S. policies in this issue area. And all this must be done without letting the heinous crimes of terrorists exert control over our decisions by forcing under- or over-reactions in American foreign policy.

I believe that the Obama administration’s new policies for addressing hostage issues are a big step in the right direction that should be applauded. However, they fall short in one critical area by failing to articulate a coherent and viable new strategy to deter foreign governments, in both Europe and the Gulf, from allegedly continuing to pay direct or indirect state ransoms to terrorists on a massive scale.

I believe I witnessed a starker version of such wishful thinking as a one-time staffer on this Committee. I watched with astonishment as my boss and mentor, the late Chairman Tom Lantos (D, CA), put his arm around the wife of an Israeli soldier kidnapped by Hezbollah and inaccurately promised her that America would help bring her husband home alive. Sadly, we later learned that her husband had already passed away, having succumbed to wounds incurred when he was captured.

Rather than letting ourselves be blinded by optimism or idealism, we must recognize that U.S. policy today is failing to deter our own allies from fueling the terrorist threat by irresponsibly rewarding kidnapping for ransom at a state level.

Finally, while this hearing will also focus on the terror finance challenge of antiquities trafficking by violent groups such as the Islamic State (IS), I will defer to the other witnesses in this regard. I would also like to note that FDD’s Center on Sanctions and Illicit Finance has a forthcoming comprehensive report in which coauthors Yaya Fanusie and Alex Joffe analyze the strategic role of antiquities trafficking in financing the Islamic State.

Testimony

Iran’s Power Projection Capability

Testimony for House Committee on Oversight and Government Reform,Subcommittee on National Security
5th November 2015

Chairman DeSantis, Ranking Member Lynch, members of this subcommittee on national security, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

I will focus my testimony today on Iran’s ability to project power through the financing of its proxies around the Middle East, including terrorist groups, destabilizing insurgencies, and rogue regimes. To be clear, Iran has long maintained these capabilities. Deploying these dangerous forces has been a crucial source of regional power for the Islamic Republic dating back to its founding. More recently, this strategy has figured prominently in Iran’s plans for regional hegemony.

The Joint Comprehensive Plan of Action (JCPOA), signed by Iran and six world powers over the summer, will now provide Iran with deeper pockets to pursue this activity. To make matters worse, the agreement will significantly hobble Washington’s ability to target Iran’s illicit actors with financial sanctions as long as the JCPOA is in place. I will address these issues and conclude with some recommendations.

Iran and the JCPOA

Mr. Chairman, Iran is the number one terrorist-sponsoring country in the world. The U.S. Department of State labeled Iran a State Sponsor of Terrorism in 1984.  Three decades later, the designation is still apt. The regime backs a wide range of terrorist groups, including Hamas, Hezbollah, Palestinian Islamic Jihad, the Houthi rebels in Yemen, Shi’ite militias in Iraq, and militants in Afghanistan. Iran also maintains its own terrorism apparatus: the Islamic Revolutionary Guard Corps (IRGC).

In recent years, Iran’s ability to support the IRGC and these other terror proxies has diminished somewhat, thanks to the sanctions that the United States and its allies imposed on Iran’s illicit financial activities, with a particular focus on Tehran’s attempts to build a nuclear weapon. Most of these were not strictly “nuclear sanctions,” but rather hybrid sanctions linked to Iran’s support for terrorism, proliferation, and human rights violations.

But those sanctions have been eroded in recent years. Even before the JCPOA was inked, pursuant to the interim nuclear agreement known as the Joint Plan of Action, the international community ceded some $12 billion to Iran in cash transfers.  This does not include other forms of sanctions relief and tens of billions of dollars in indirect economic gains.  Some of these funds undoubtedly found their way to terrorist groups.

Now, more cash is on the way. Under the sanctions regime, an estimated $90 to $120 billion in Iranian oil sales was withheld in semi-restricted accounts in China, India, Japan, South Korea, and Turkey. Now, thanks to the nuclear deal signed this summer, those funds could be remitted directly back to Iran over time.  With this huge windfall, the Islamic Republic’s theocratic leaders could have the flexibility to disperse the funds they receive from the nuclear deal as they see fit, and that will almost certainly include funding terrorist groups.

To make matters worse, Iran will soon be able to sell its oil on the open market. Iran is believed to have 30 million barrels of oil in floating storage.  It is likely that Iran, which currently sells one million barrels per day under heavy restrictions, will be able to return to pre-sanctions levels of 2.2 million barrels per day within a year or so. 

The math is simple: An extra one million barrels per day at $50 per barrel is $50 million per day, or $18 billion annually, which could flow to terrorists’ coffers. And that doesn’t include the aforementioned escrowed oil revenues of $120 billion. Add to that the ability for Iran to access banks around the world according to the terms of the JCPOA, and it will be easier for Iran to bankroll its proxies worldwide.

 

Testimony

How the Federal Government Fails American Victims of Iranian and Palestinian Terrorism

Testimony for U.S. Senate Committee on the Judiciary Subcommittee on Oversight, Agency Action, Federal Rights, and Federal Courts
4th November 2015

Watch the full testimony here

Mr. Chairman, I am honored to testify before you and your colleagues today. I commend you for calling this hearing to discuss what more the federal government can and should do to promote justice for American victims of Iranian and Palestinian terrorism. I will begin with an overview of the challenge, and conclude with several specific recommendations. I will focus my remarks on Iran, including those acts of Palestinian terrorism which it has sponsored, because that is an area of expertise for me and I know there are other witnesses who will focus on Palestinian terrorism not sponsored by Iran.

Iran has long been the world’s leading state sponsor of terrorist attacks. Iran has typically acted through Palestinian or other proxies. These terrorist attacks have frequently killed U.S. citizens. Iran has rarely paid a price for these terrorist attacks.

That assessment is reflected in a remarkable record of federal court judgments against Iran. Over the last two decades, U.S. federal courts have issued some 85 judgments finding Iran liable for specific acts of terrorism which claimed American victims.1 These judgments have resulted in the award of some $20 billion in compensatory damages and some $24 billion in punitive damages against Iranian entities and officials.2 Iran has, to my knowledge, never willingly paid a penny of these judgments. Victims and families of victims have received a total of about $225 million in judgments thanks to Iranian assets blocked by the U.S. government.3 Some $43.5 billion in judgments against Iran remain outstanding.4 Interestingly, over $1 billion of these damages were awarded against Iran’s current Supreme Leader Ayatollah Ali Khamenei himself.

The list of U.S. federal court judgments against Iran, and the cases underlying them, make for remarkable reading.

Over the decades, there has been a persistent tension regarding these judgments between Congress (which has passed laws facilitating them), the judiciary (which has applied those laws to the facts and repeatedly found Iran liable), and administrations of both parties (which typically see these lawsuits as depriving them of control over aspects of foreign policy). I describe this tension in great detail in my book titled Lawfare: Law as a Weapon of War, which will be published by Oxford University Press on December 1.  

and their material supporters have been notably effective at times in achieving various objectives. These include: (a) seizing assets of and otherwise putting financial pressure on terrorist-supporting states, including Iran; (b) deterring private individuals and NGOs from contributing to terrorist groups; (c) deterring banks from providing financial services to terrorist groups; (d) compensating victims; (e) bringing public and governmental attention to the harm done by terrorists to Americans; and (f) using the American judicial system to find facts and make determinations as to the connections between countries such as Iran and terrorist attacks by groups such as Hezbollah. I conclude that the U.S. executive branch, rather than treating such lawsuits mostly as a nuisance, ought to see them as an opportunity, and engage with them in a much more sophisticated, systematic, and proactive manner, including, in some cases, through public/private partnerships between the executive branch and terror victims’ families.

Testimony

Iran Terror Financing and the Tax Code

Testimony for House Ways and Means Committee Subcommittee on Oversight
4th November 2015

Despite the fanfare over the recently reached Iran deal, the Iranian regime remains involved in a range of destabilizing activities and illicit conduct. Recently, Iran tested a missile capable of carrying a nuclear warhead in violation of a key U.N. Security Council resolution,  increased its crackdown on its citizens,  and expanded its support for Syria’s Assad regime and terrorist organizations like Hezbollah and Hamas.  Meanwhile, Iran remains the leading state sponsor of terrorism,  and is currently holding as hostages four Iranian-American citizens (Siamak Namazi, Jason Rezaian, Saeed Abedini, and Amir Hekmati) and refuses to give information on a missing American citizen (Robert Levinson) who vanished after traveling to Iran over eight years ago. While the Obama administration repeatedly has made it clear that the Joint Comprehensive Plan of Action (JCPOA) does not prevent the imposition of non-nuclear sanctions,  the administration has done little to respond to the Iranian regime’s threatening behavior.

The JCPOA does not address the full range of Iran’s record of illicit activities and lifts many of the most impactful sanctions on Iran. It also fails to achieve the stated goal of the P5+1: blocking all pathways to an Iranian nuclear bomb. Iran has merely agreed to certain limitations on its nuclear activities—a departure from the original U.S. policy goal of dismantling Iran’s illicit nuclear infrastructure. Unfortunately, even these modest restrictions are fatally flawed because they disappear over time. Iran, instead, will mothball certain equipment and reduce enriched uranium stockpiles for ten to fifteen years, after which Tehran can expand its nuclear activities, build an industrial-scale infrastructure powered by easier-to-hide advanced centrifuges, and develop an intercontinental ballistic missile program.

As the United States and its partners dismantle the global sanctions regime, Iran can build greater economic resiliency against future sanctions pressure. The deal will provide extensive sanctions relief to Iran, and the impact of this relief will expand over time. Economic forecasts estimate that Iran’s economic growth will expand to 4-5 percent annually for the next three years.  The IMF estimates that Iran’s real GDP growth may reach 5.5 percent in FY 2016/17 and FY 2017/18.  This is a significant rebound from Iran’s negative growth rate of 6 percent in FY 2012/13.

Despite wishful thinking that the nuclear deal will empower the moderate forces in Iran, the deal is more likely to enrich the most dangerous elements of the regime, in particular Iran’s Islamic Revolutionary Guard Corps (IRGC), as well as the massive business interests of Supreme Leader Ali Khamenei. The IRGC controls a vast business empire which is positioned to reap the benefits of sanctions relief. The IRGC directs Iran’s external regional aggression, its nuclear and ballistic missile programs, and its vast system of domestic repression.

The IRGC also controls large swaths of Iran’s economy. “The IRGC is Iran’s most powerful economic actor,” the U.S. Treasury Department explained, “dominating many sectors of the economy, including energy, construction, and banking” —precisely those sectors set to receive sanctions relief under the JCPOA. Likewise, Supreme Leader Ali Khamenei controls a vast business empire estimated to be worth at least $95 billion through a holding company called the Execution of Imam Khomenei’s Order (EIKO, or Setad in Farsi). EIKO will be de-designated by the U.S. government on Implementation Day under the JCPOA. It is difficult to image a significant business transaction in these key sectors where the IRGC or EIKO won’t be in on the deal. The financial gains from the JCPOA will enable the IRGC and EIKO to expand their dangerous activities.

While the JCPOA lifts sanctions on Iran’s nuclear activities, it does not preclude the United States from using economic tools to address the full range of Iran’s illicit activities—despite statements from Iran that it will view any imposition of sanctions, nuclear or non-nuclear, as a violation of the deal. Giving into that interpretation would significantly undermine Washington’s ability to use non-military tools to address national security threats. Instead, Congress should take the lead and impose measures to target Iran’s support for terrorism, ballistic missile program, support for the Assad regime in Syria, human rights abuses, and systemic corruption. An important first step in this approach is to designate the IRGC as a terrorist organization and to sanction those Iranian entities like EIKO where the nexus between corruption and sponsorship of terrorism is clear. These steps are not a violation of the JCPOA, but rather an affirmation of the stated U.S. policy to “oppose Iran’s destabilizing policies with every national security tool available.” 

Congress should act to defend the sanctions architecture established to address the full range of Iran’s illicit activities. Even within the confines of the JCPOA, there are significant “non-nuclear” measures, including through the use of the tax code, that Congress should consider to prevent the enrichment of those in the Iranian regime who continue to engage in terrorism and other activities inimical to U.S. interests. 

My specific recommendations in this testimony are:

1. Designate the IRGC for terrorism;

2. Designate additional IRGC entities and individuals and foreign companies that do business with the IRGC;

3. Sanction the Supreme Leader’s financial empire for its use of funds from corruption to support terrorism;

4. Prevent tax breaks for companies doing business in Iran;

5. Prevent the re-opening of the U.S. parent-foreign subsidiary loophole;

6. Develop a rehabilitation program for designated Iranian banks that relies on a change in illicit financial conduct; and,

7. Legislate criteria for the lifting of the Section 311 finding.

Testimony

Radicalization: Social Media and the Rise of Terrorism

Testimony for House Committee on Oversight and Government Reform,Subcommittee on National Security
28th October 2015

Download full testimony here.

Chairman DeSantis, Ranking Member Lynch, and distinguished members of the committee, on behalf of the Foundation for Defense of Democracies, it is an honor to appear before you to discuss how violent extremist organizations use social media and other tools to radicalize and mobilize supporters.

This testimony focuses primarily on the propaganda and recruitment strategy of the Islamic State (IS), which has justifiably moved to the top of the U.S.’s national security agenda. IS has shocked the world not only with its utter barbarity, but also with the quality and quantity of its propaganda output, particularly on social media. The proficiency of IS and its supporters as communicators can be discerned from the group’s creation of tightly choreographed and slickly produced videos, its apparently deep understanding of how to catch the Western media’s attention, and IS’s coordinated distribution of its content on platforms like Twitter.  Through the strength of its communications, IS has helped inspire unprecedented numbers of young Muslims from across the globe—around 30,000—to flock to the battlefields of Syria and Iraq to fight on behalf of jihadist organizations. IS has provoked a wave of terrorist attacks in the West that raises legitimate questions about whether extremists’ savvy use of social media might produce a permanent rise in so-called lone-wolf terrorism.

But IS’s propaganda machine is not indestructible. Beneath the hard shell that IS has cultivated through its propaganda campaign there is a soft underbelly: IS relies on cultivating an image of perpetual success and momentum, and should this image of a successful organization be disrupted, IS’s “brand” may precipitously decline. IS’s flawed military strategy has left it surrounded by foes, fighting wars on multiple fronts. As IS fights a range of foes, from the nation-states bombing its convoys to the shadowy vigilantes killing IS officials in the group’s territory,  IS’s propaganda has become the key to recruiting new fighters in order to prevent IS’s overstretched caliphate from experiencing even greater setbacks.

IS’s grotesque propaganda and battlefield successes have also had a significant impact on al-Qaeda. In many ways that impact has been negative, as al-Qaeda has lost both leaders and affiliates—including Ansar Bayt al-Maqdis in Egypt’s Sinai and Boko Haram in Nigeria—to IS. But in other ways al-Qaeda has been able to benefit by playing itself against IS’s more overt brutality, adopting a propaganda strategy that stands in contrast to IS’s hyper-violent and highly public approach. Al-Qaeda has quietly engaged in an image makeover. Using IS’s over-the-top brutality as a foil, al-Qaeda has depicted itself as a more reasonable and controllable entity, one that represents an extension of the aspirations of people in the areas it operates, rather than being purely imposed by force. This rebranding campaign, which al-Qaeda has sought to implement ever since the defeat of al-Qaeda in Iraq (IS’s predecessor) in the 2007-09 period, has gained traction among local Sunni populations and some Sunni states, which have come to see al-Qaeda as a potential bulwark against expansion by both IS and Iran. But behind this façade, al-Qaeda’s core objectives remain the same: to weaken and overthrow impious regimes in the Middle East and North Africa, and to reestablish a global caliphate.

This testimony first explores two core elements of IS’s propaganda strategy: projecting and maintaining an image of strength, and presenting the caliphate as a religiously legitimate utopia. It then illustrates how IS, using its propaganda machine, has inspired significant numbers of individuals living in the West to migrate to the caliphate or to carry out violent attacks on its behalf. The testimony then explores al-Qaeda’s rebranding strategy, and the early successes it has attained. Finally, the testimony examines policies that legislators can consider to undercut jihadists’ propaganda efforts.

IS’s Propaganda Strategy: The Victorious Caliphate

The central theme of IS’s propaganda strategy is that the group is extraordinarily powerful, constantly gaining new territory, and in perpetual possession of momentum. Indeed, IS has based its legitimacy on its ability to establish, defend and expand the caliphate’s territory. The group’s slogan, baqiya wa tatamaddad—remaining and expanding—speaks to the importance of defending and enlarging the caliphate.

IS relies on three primary sources of external support: “foreign fighters” from outside the Syria/Iraq theater, likeminded jihadist organizations outside Iraq and Syria who may pledge allegiance to IS or otherwise support it, and other rebel factions in Syria and Iraq who can bolster IS’s local capabilities. IS’s propaganda machine—which emphasizes its strength, and thus can be understood as a “winner’s messaging”—is critical to the group’s efforts to attract these kinds of support, particularly from individuals who might never come into physical contact with IS fighters.

The military campaign against the Islamic State has been confused, disjointed, and slow to find success. Nonetheless, as the group comes under increasing military pressure due to the war it is fighting on multiple fronts, its winner’s narrative is challenged. IS’s victories in Ramadi and Palmyra in May 2015 were highly significant, but came in the context of a broader trajectory of slow decline. Put simply, IS took on too many enemies too quickly, and refused to cooperate with potential allies, which has hampered the group’s ability to sustain its gains. IS is now in a defensive position in most theaters. In the months following the Palmyra and Ramadi offensives, IS has made only incremental gains while ceding other territory, such as the cities of Ain Issa and Tal Abyad in Syria’s Raqqa Province, and the Bayji oil refinery in northern Iraq.

For this reason, IS has systematically exaggerated its gains and its capabilities, particularly in Africa. In October 2014, a group of militants in the eastern Libyan city of Derna openly pledged bayat (an oath of allegiance) to IS, and declared that they had established an emirate in the city. Soon after the bayat pledge, IS flooded social media with videos and pictures of IS militants in Derna, including a video showing a parade of militants waving IS flags as they drove down a thoroughfare in the city. This show of force led many observers to conclude that the Islamic State controlled Derna, and numerous major media outlets reported IS’s control of Derna as an objective fact.  But in reality, control of Derna was divided between a number of militant groups, including some al-Qaeda-linked groups that opposed IS’s expansion into Libya.

Recent developments demonstrate that IS’s reported control over Derna was highly exaggerated. In early June, Islamic State militants killed Nasir Atiyah al-Akar, a senior leader in the Derna Mujahedin Shura Council (DMSC) with longstanding ties to al-Qaeda. Clashes broke out between the Islamic State and DMSC immediately after Akar’s death. On June 9, Islamic State militants killed Salim Darbi, the commander of the Abu Salim Martyrs Brigade and the head of the DMSC. In response, the DMSC launched an offensive to oust the Islamic State from the city. Without drawing upon outside reinforcements, the DMSC defeated IS in most of Derna, swiftly confining the group to limited areas in and around the city. The fact that IS was so easily forced out of Derna suggests that it did not control Derna to begin with.

In addition to exaggerating its gains, IS has sought to downplay, or deflect attention from, its military losses. Relatively little media attention has been devoted to IS’s losses in Derna—which is actually justifiable, as IS came to control the city of Sirte, which is a significant victory for the caliphate. But an even more under-publicized IS setback has been its losses in Algeria.

An IS branch emerged in Algeria in mid-2014, when the “center zone” of al-Qaeda in the Islamic Maghreb, which was based in the Kabylie coastal mountain region, announced that it was defecting and joining the Islamic State. The commander of the unit, Gouri Abdelmalek, declared that al-Qaeda had deviated “from the true path,” and announced that his group would now be known as Jund al-Khilafa (Soldiers of the Caliphate). Days after Jund al-Khilafa was formed, the group posted a video of its beheading of Hervé Gourdel, a French hiker whom it had kidnapped. The Islamic State’s Algeria branch was never well-positioned to endure a great deal of attrition because, even at its peak, Jund al-Khilafa only had around thirty fighters. In December 2014, the Algerian army killed Gouri Abdelmalek and two other militants in a raid in the Boumerdès region east of Algiers. But an even deadlier blow occurred in May 2015, when Algerian security forces launched a large-scale military operation against a high-level meeting of Jund al-Khilafa militants in the Bouira region. The Algerian operation not only killed about two dozen fighters at minimum, but also new emir Abdullah Othman al-Asimi and five of Jund al-Khilafa’s six military commanders. Algerian security forces were able to kill three more Jund al-Khilafa fighters the following day. The May 2015 operation imposed significant attrition on the Islamic State’s Algerian branch at the leadership and foot soldier level, and at this point IS is essentially irrelevant in Algeria from a strategic perspective unless it can rebuild its in-country capabilities.

Overall, IS’s winner’s message is prone to disruption and reversal. IS’s claim that the group is defeating its opponents on the battlefield is not a simple matter of opinion: It is either objectively true or not. Yet IS’s opponents have done little to publicize the group’s most significant losses.

Testimony

Words Have Consequences: Palestinian Authority Incitement to Violence

Testimony for House Foreign Affairs Committee
22nd October 2015

Download full testimony here.

Chairman Royce, Ranking Member Engel, members of the committee, on behalf of the Foundation for Defense of Democracies, thank you for the opportunity to testify.

My testimony will analyze the current wave of Palestinian violence in the West Bank and Israel, with a focus on the recent campaign by the Palestinian Authority to draw attention to the Temple Mount. I will then analyze the role and calculus of the various Palestinian players in the current violence. Finally, I will provide some policy recommendations for this committee to consider.

A Third Intifada?

Mr. Chairman, the Palestinian-Israeli conflict has flared again. The violence can best be characterized as a concerted campaign of knife attacks against Israeli civilians and military personnel, peppered with other attempts at vehicular homicide and even bombings. Since October 1, eight Israelis have been killed while dozens have been wounded in no less than 44 attacks.  It’s unclear yet whether we can call this a third intifada. For it to be characterized as such, it would require the full backing of Palestinian leaders across the political spectrum. Despite the incitement of both the Fatah and Hamas factions, it’s safe to say that neither has committed fully to an all-out conflict right now with Israel. I will explain below why they are holding back.

Temple Mount Tensions

Mr. Chairman, the Palestinian narrative right now focuses on their rage over purported Israeli attempts to change the status quo on the Temple Mount/Haram ash-Sharif, the site holy to both Jews and Muslims. There are troubling signs that this unrest was premeditated. Indeed, it looks like the resumption of the unrest that erupted in June 2014 before last summer’s 50-day war between Israel and Hamas. The name given to the unrest, then as today, was the “Jerusalem Intifada.” The epicenter of that violence, then as today, was the Temple Mount.

The Temple Mount is one of the thorniest issues in the Palestinian-Israeli conflict. It is a deeply meaningful and holy site to both Muslims and Jews. Keeping the peace at this site has been a delicate issue since Israel conquered the Old City in 1967. The Israelis control the territory, but they have allowed for Jordan, with input from Palestinian religious authorities, to administer the site.  For years, Israeli law prohibited Jews from praying on the site, but Israel’s Supreme Court overruled this in 1993.  In recent years, the number of Jews that have gained access to the site during hours proscribed by Israel and the administering authorities has increased. This includes some Israeli politicians and religious groups who seek to assert Israeli sovereignty.  But according to Israel’s Ministry of Foreign Affairs, access to the Temple Mount compound is still overwhelmingly Muslim. Indeed, over the last year, there have been approximately four million entries by Muslims, 200,000 by Christians, and just 12,000 by Jews.

To be clear, the status quo has not changed. Israel controls access to the site as a means to maintain the delicate peace, but it does not involve itself in matters of religious practice or prayer. Yet, over the last year, a disturbing pattern has developed. Palestinian elements, apparently led by the PLO, have led an effort to stoke religious tensions at the sensitive site with wild reports that Israel is trying to “Judaize” or undermine Muslim rights to pray there. At the forefront of this campaign to foment hate is WAFA, a news agency effectively controlled by the PLO. As one Arab newspaper noted, WAFA is one of the Palestinian “governmental media institutions.” 

In January of this year, the chairman of the PLO’s Jerusalem Affairs Department, Ahmed Qurei, warned of an Israeli plan to register the al-Aqsa Mosque as an Israeli state property to be officially run by the so-called Tabu (land registration) office. The Al-Aqsa Foundation for Endowment and Heritage (AFEH) claimed this was setting the stage for a Jewish synagogue over parts of the holy Mosque. Qurei further stated that Israel was “Judaizing” the mosque and re-building the “alleged” Jewish Temple. “This is the most serious [action taken by Israel] that jeopardizes the future of the holy city,” he said.

The following month, WAFA cited Qurei warning about assessments made by Israeli engineers and contractors for new archeological excavations under the Temple Mount. In a press release, Qurei said that the Israeli government was trying to “empty the area [of] its indigenous citizens as a prelude to take over the land for the sake of settlement expansion.”  The PLO news agency, WAFA, added to the tensions claiming that nearly a thousand Israelis “stormed” the al-Aqsa compound during the previous month.

In March, WAFA issued a report stating that Jewish settlers were preparing to storm the al-Aqsa compound. The report alleged, “Jewish groups that define itself by the name of the alleged ancient Temple are preparing for the Jewish holiday Passover by mobilizing the largest number of settlers to enter Al-Aqsa Mosque and perform religious prayers in its yards.”  This was followed by a report that Israeli police, “physically assaulted and beat up [a ten-year-old girl], who along with other worshipers chanted religious slogans against a group of Jewish fanatics who entered the Mosque to perform religious rituals.” 

The wild and unsubstantiated charges continued through the spring. WAFA in April claimed that, “Jewish settlers…broke into Al-Aqsa Mosque Compound through [the Dung Gate] bridge, and toured its yard under the heavy protection of Israeli police units.” In May, the PLO mouthpiece claimed several Palestinians were arrested “at the gates of al-Aqsa Mosque compound in the Old City for chanting religious slogans to fend off settlers’ attempts to tour the mosque’s yards. The two elders…were physically assaulted by the police before they were arrested.”

During the summer, the Palestinian leadership called for an emergency Islamic summit “in light of latest Israeli escalations at al-Aqsa mosque compound in Jerusalem.”  This came on the heels of reports that Israel had seized land adjacent to the eastern wall of the al-Aqsa mosque,  and that settlers were continuing “attacks against al-Aqsa mosque,”  and insulting the Prophet Mohammed while on the al-Aqsa compound.

In September, Mahmoud Abbas complained to the UN General Assembly that, “extremist Israeli groups are committing repeated, systematic incursions upon Al-Aqsa Mosque, aimed at imposing a new reality and dividing Al-Haram Al-Sharif.”  Soon after, Hamas declared a “day of rage” in the West Bank. Several Palestinians were wounded in clashes with Israelis.  Abbas took this as a cue to warn of an “intifada that we don’t want” if escalations at al-Aqsa continue. 

As violence gripped Jerusalem, WAFA continued to complain that, “Jewish fanatics resumed their provocative visits to al-Aqsa Mosque.”  The rhetoric has only increased, fanning the flames of conflict as Palestinians have taken to lone-wolf style attacks to stab Israelis on the streets.

In an effort to calm tensions, Israeli Prime Minister Benjamin Netanyahu recently ordered police to prevent Israeli ministers and members of Knesset from entering the Temple Mount.  The Israelis continue to make it clear that even when Jews visit the Temple Mount, they are not to pray there. Israeli security personnel enforce this strictly. However, the PLO continues to fan the flames of conflict. Their problem appears to be the very presence of Israelis and Jews on the Temple Mount.

Testimony

U.S. Counterterrorism Efforts in Syria: A Winning Strategy?

Testimony for House Committee on Foreign Affairs; Subcommittee on Terrorism, Nonproliferation, and Trade
29th September 2015

Download the full testimony here

Chairman Poe, Ranking Member Keating, and other members of the committee, thank you for inviting me here today to speak about America’s counterterrorism efforts in Syria.

The war in Syria is exceedingly complex, with multiple actors fighting one another on the ground and foreign powers supporting their preferred proxies. Iran and Hezbollah are backing Bashar al Assad’s regime, which is also now receiving increased assistance from Russia. The Islamic State (often referred to by the acronyms ISIS and ISIL) retains control over a significant amount of Syrian territory. Despite some setbacks at the hands of the U.S.-led air coalition and Kurdish ground forces earlier this year in northern Syria, Abu Bakr al Baghdadi’s organization has not suffered anything close to a knockout blow thus far. Sunni jihadists, led by Al Nusrah Front and its closest allies, are opposed to both the Islamic State and the Assad regime. Unfortunately, they have been the most effective anti-Assad forces for some time, as could be seen in their stunning advances in the Idlib province earlier this year. Turkey, Qatar, Saudi Arabia and other nations are all sponsoring proxies in the fight.

Given the complexity of the war in Syria, it should be obvious that there are no easy answers. We were asked to assess whether or not the U.S. and its allies have a winning strategy. I would argue that there currently is no comprehensive strategy in place. The West’s involvement is ad hoc, tactical and reactionary. Consider the recent news, confirmed by CENTCOM, that some of the equipment and ammunition supplied to U.S.-backed rebels has been turned over to the Al Nusrah Front, which is an arm of al Qaeda. These provisions were supposed to be used in the fight against the Islamic State, Al Nusrah’s bitter jihadist rival. But Al Nusrah interfered in the plan. And this isn’t the first time al Qaeda got in the way. In July, Al Nusrah quickly disbanded a small cadre of more than 50 fighters who were inserted into Syria to fight the Islamic State. In both cases, U.S. officials either did not know that Al Nusrah was likely to move against America’s proxies, or assumed that Al Nusrah wouldn’t. This demonstrates a lack of strategic thinking, as the train and equip program was so focused on the Islamic State that U.S. officials had not properly accounted for Al Nusrah’s entirely predictable actions.

My testimony below is focused on the ideas that I think should inform our strategic thinking about the Syrian war. It is far from comprehensive. To my mind, three main points stand out:

(1)   Any strategy for truly defeating the Islamic State needs to incorporate plans for clearing and holding large areas currently under its control. Thus far, no ground forces have been capable of doing this in cities such as Raqqa and Mosul, which are key to the Islamic State’s “caliphate” claim. There is opposition to the Islamic State in these areas. For instance, the Kurds have delivered some significant losses on the Islamic State in northern Syria and have come within 30 miles of its de facto capital this year.

(2)   Iran has escalated the conflict and Iranian influence is inherently destabilizing the entire region. Iran supports both Bashar al Assad’s regime and the Iraqi government, but it does so by sponsoring Shiite extremism, which is no bulwark against Sunni extremism. Instead, the increasing role of Shiite extremists backed by Iran is driving more Sunnis into the jihadists’ arms. This is precisely the opposite of what any strategist should want. Iran’s proxies are not capable of clearing and holding territory from the Islamic State or al Qaeda. And even if they were, this would only further strengthen the hand of Iran’s virulent anti-American revolution.

(3)   Some have advocated working with Sunni jihadists in Syria, but this would play right into al Qaeda’s hands. Groups such as Al Nusrah Front and Ahrar al Sham have long been working to inculcate jihadism within the Syrian population. They are using the vicious war to spread their radical ideology, which is a different strain of jihadism from the Islamic State’s belief system, but no less of a threat. In some ways, in fact, their version of jihadism may be a bigger long-term threat.     

Testimony

Major Beneficiaries of the Iran Deal: IRGC and Hezbollah

Testimony for House Foreign Affairs Subcommittee on the Middle East and North Africa
17th September 2015

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Introduction

Iran is Hezbollah's primary benefactor, giving the Lebanese political party and militant group some $200 million a year in addition to weapons, training, intelligence, and logistical assistance. Over the past eighteen months, however, Iran has cut back its financial support to Hezbollah -- a collateral benefit of the unprecedented international sanctions regime targeting Iran's nuclear program, as well as the fall in oil prices.

The cutback has mostly curtailed Hezbollah's political, social, and military activities inside Lebanon. Its social-service institutions have cut costs, employees have received paychecks late or been laid off, and funding for civilian organizations, such as the group's satellite television station, al-Manar, has been reduced. By contrast, Hezbollah's Syria command, which has been a priority for Tehran given its commitment to defending Bashar al-Assad's regime, has shown no sign of financial hardship.

As a result of the sanctions relief due Tehran under the Iran deal, Hezbollah expects additional funds will come its way, which will enable Hezbollah to push back against Lebanese political and social movements that are uncomfortable with its intervention in Syria. Lebanon's political crises, from its inability to select a president to its failure to collect garbage, are a result of this deep sectarian division. An influx of radicalized Sunnis from Syria is already setting the stage for still further instability in Lebanon.

Increased Iranian spending will also benefit Hezbollah's regional and international operations. The group is no longer limited to jockeying for political power in Lebanon and fighting Israel. With more money, it could step up its aid to Shia militias in Iraq and Yemen in cooperation with Iran, sending small numbers of skilled trainers to bolster local forces and, in some cases, fight alongside them. In Iraq, Hezbollah is training and fighting with Shia militias. Though they are fighting on behalf of the government, their tactics exacerbate sectarian tensions. Its footprint in Yemen is small, but it could expand with additional resources. Hezbollah is already trying to find long-term support for these operations. In Iraq, for example, it is investing in commercial front organizations.

Finally, increased funding could help Hezbollah reconstitute its capabilities beyond the Middle East. The group has expanded its terrorist operations in countries as disparate as Cyprus, Peru, and Thailand.

Hezbollah is busier than ever, especially in Syria, where it is engaged in expensive militant operations and support activities. Meanwhile, the group has expanded its regional activities further afield, straining its coffers even as it has had to cut back its activities in Lebanon. A newly enriched Hezbollah would be more aggressive at home and abroad, challenging less-militant parties across the Lebanese political spectrum and boosting its destabilizing activities outside of Lebanon.

Testimony

The Iran Deal and its Impact on Iran’s Islamic Revolutionary Guard Corps

Testimony for House Committee on Foreign Affairs, Subcommittee on the Middle East and North Africa
17th September 2015

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Chairman Ros-Lehtinen, Ranking Member Deutch, members of the committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to testify.

This testimony will focus on the impact of the Joint Comprehensive Plan of Action (JCPOA) on Iran’s Islamic Revolutionary Guard Corps (IRGC) and its dominant position in Iran’s economy.

The IRGC is the custodian of Iran’s best-kept military secrets, including its clandestine nuclear military program and ballistic missile program. As the regime’s Praetorian Guard, it is also charged with defending the Islamic Revolution from enemies at home and spreading the revolution abroad. Over the years, the IRGC has zealously fulfilled these tasks, quashing pro-democracy protesters inside Iran and sponsoring terrorism and Islamist movements abroad.

The JCPOA dismantles specific United Nations and European Union sanctions, and significantly diminishes the scope and reach of U.S. sanctions.

In doing so, the JCPOA creates a major “stimulus package” for Iran’s economy. The IRGC derives much of its domestic clout from its position of dominance within Iran’s economy. Thus, the IRGC and the supreme leader’s business empire will be the main beneficiaries. Their economic ascendance will fortify their domestic political influence.

As export and trade restrictions are lifted, previously prohibited Western technology will make its way back to Iran. The challenge of denying the IRGC access to banned technology – including dual-use technology and equipment for monitoring dissidents – will become even more arduous. The demise of sanctions will also facilitate the acquisition of advanced weaponry that will improve Tehran’s conventional military capabilities, as well as its support for the Bashar al-Assad regime in Syria, Hamas in the Gaza Strip, Hezbollah in Lebanon, and Houthi rebels in Yemen.

To be clear, the United States is set to maintain its sanctions on the IRGC. The JCPOA does not alter them. Moreover, the European Union will not delist most IRGC entities on its sanctions list until Transition Day, roughly eight years from now. But as this testimony explains, once the bulk of Iran sanctions are lifted, the remaining measures against the IRGC are insufficient. They will not isolate the Guards and the supreme leader’s business interests from the benefits that the JCPOA will generate.

First, on Implementation Day – likely several months from now – the JCPOA requires the European Union, United States, and United Nations to lift or suspend sanctions against entire sectors of the Iranian economy. The IRGC and the supreme leader’s business interests are active in many sectors – some of which they dominate almost completely. IRGC companies will get the lion’s share of public contracts and business opportunities.

Second, on Implementation Day, numerous companies will be delisted that have served as accessories to IRGC nuclear and ballistic missile programs, as well as support for the Assad regime and its crimes against humanity. This includes the entire network of companies and subsidiaries controlled by the supreme leader, as well as Iran’s aviation industry and state-owned shipping firms, and companies where the IRGC has a significant ownership interest.

The delisting is not the result of a demonstrable change in these entities’ patterns of behavior. Rather, they are being delisted because the JCPOA requires the wholesale lifting of sanctions on entire sectors. There are no guarantees these entities will, once delisted, cease the illicit conduct that caused them to be sanctioned in the first place – instead, there is ample reason to believe they will redouble that activity.

Third, companies owned or controlled by the IRGC that have until now eluded designation by the U.S., EU, or UN are now likely to benefit from the post-JCPOA windfall, as the business community will accept them as legitimate business partners. The same is true for IRGC senior executives that eluded sanctions until now.

Meanwhile, Tehran will challenge every attempt to impose new sanctions, as it did with designations announced by the U.S. Treasury following the November 2013 interim nuclear deal.1 New sanctions will trigger an Iranian request for consultation with the United States, potentially followed by a referral to the Joint Commission’s Working Group, as stipulated under section 7.3 of Annex IV of the JCPOA. Tehran may also challenge new sanctions under Section 2.1.14. This clause states that the Joint Commission (of which Iran is a member) will review “any issue that a JCPOA participant believes constitutes nonperformance by another JCPOA participant.”

Testimony

The Implications of Sanctions Relief Under the Iran Agreement

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
5th August 2015

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Some sanctions-related portions of the Iran deal are quite strong, though they are not crystal clear in the agreement itself and for reasons unknown the administration has not taken the opportunity to make these clear to the public.  But others present fatal flaws which, if refined, could make a negotiated settlement with Iran over its nuclear program far more likely to succeed.

“Snap Back”

Several problems are fairly evident and have already received some attention, including the deeply flawed “snap back” mechanism.  In the first instance, even if the snap back mechanism works as a means of avoiding multilateral debate over whether to re-impose sanctions, and which to re-impose, there will be no quick snap back since the international debate will simply move to what constitutes a violation, whether the action in question really qualifies as a violation, and then whether it is worth putting the whole deal at risk over such small issues.

Moreover, while the U.S. may have flexibility in the unilateral sanctions in chooses to snap back into place, it is not clear from the language of the deal that such nuance exists regarding international sanctions.  And since re-imposing U.N. and European sanctions would upend the deal, there is a built in disincentive to snapping them back.  Moreover, Iran is sure to cheat on the deal—a point administration officials concede—but it will take only small steps over the line at a time.  The snap-back mechanism is poorly suited to deal with small violations because when the only sentence available is capital punishment, only capital crimes will be prosecuted.  Privately, administration officials maintain that the thirty day notification period would allow time to convince Iran to cease whatever violations were raised, and claim that this time could also be used to negotiate a partial sanctions snap back.  That, however, is not at all clear in the text of the deal.

And while it is true that the U.S. can demonstrate all kinds of nuance in deciding which of its own, unilateral sanctions to re-impose, this puts the sanctions onus specifically on the United States instead of maintaining the international sanctions coalition built over the past decade.  Iran has worked hard to find ways of chipping away at this international consensus, and in this agreement, as it stands, it has succeeded.  In the future, the response to small-scale Iranian violations of the deal could very well be met by U.S. sanctions alone, assuming the administration is willing to act on its prerogative of re-imposing unilateral sanctions.


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Testimony

The Implications of Sanctions Relief Under the Iran Agreement

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
5th August 2015

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Unfortunately, this is a flawed agreement. I have not been asked today to delineate all the gaps, problems, or challenges in the JCPOA, nor would I be qualified to do so. But I do want to point out three fundamental problems with the deal that frame my analysis:

1.      Problematic End State: Iran as a Nuclear Power. The JCPOA does not ultimately constrain the Iranian nuclear program, but instead helps to expand and to legitimize it. The JCPOA moves fundamentally away from the agreed-upon baseline restrictions and demands of Iran that were long the basis of UN Security Council Resolutions (UNSCRs). Ultimately, the JCPOA stalls, enables, and then validates an Iranian nuclear program. After 10 years, the program will not be subject to any United Nations Chapter 7 scrutiny, and after 15 years, many of the key restrictions imposed will end. The provisions enabling advanced research and development, uranium enrichment activities, evolution toward the use of more sophisticated centrifuges, and the sunset provisions embedded in the agreement all contribute to a legitimated Iranian nuclear program.

These provisions are agreed absent clarity on Iran’s prior attempts at militarization – “possible military dimensions” (PMDs) – and without a stricter inspection protocol or the allowance for American inspectors to be included on international inspection teams. Moreover, the arms and ballistic missile sanctions are scheduled to be lifted automatically after five and eight years, respectively, on the back of the JCPOA without account for Iran’s belligerence, proliferation, or other dangerous behaviors, now or later.

With strategic patience, Iran can march toward a weaponized program with greater capabilities, breakout capacity, and more economic resources, resilience, and connectivity to the global oil markets and commercial system. Even if Iran complies with all elements of this deal, Iran will end up with an unfettered opportunity to break out and weaponize its nuclear program, overtly or covertly, along with an ability to arm itself and its allies more openly and aggressively. The end state of the agreement takes us far afield from the declared goal of successive administrations at the start of negotiations.

2.      Problematic Construct: Iran as Co-Equal. The presumptions and processes of the JCPOA embed and define Iran as an equal party in pursuit of a peaceful nuclear program. Though a negotiating party should be treated fairly and with respect, it does not mean that the construct of the agreement should treat the parties equally. Iran has been the suspect party in the eyes of the international community, subject to strict UNSCRs and caught on several occasions in the past hiding elements of its nuclear program and its weaponization efforts. Iran should be required to prove the peaceful nature of its program and activities whenever challenged. It also does not mean that Iran should be treated as an aggrieved party when restrictions are placed on its program or questions asked. Instead, it should remain the suspect party in the eyes of the world’s powers for the purposes of any deal.

Iran has been given a right to object, question, and stall any challenge to its nuclear program or application of sanctions. For example, it must be presented with evidence by the International Atomic Energy Agency (IAEA) and others if an inspection is requested; it can interrogate the information or object to “re-imposition” of sanctions; it sits on the new JCPOA appellate body, the “Joint Commission,” and can use procedural hurdles to delay; and it has the agreed-upon right to walk away from the deal unilaterally based on its perception that the JCPOA is not being honored.

Iran should be required to present information to answer legitimate questions and rebut reasonable assertions. The burden of persuasion and proof should always lie with Iran. The United States and her partners should not be put in the position of having to prove ab initio its concern or the basis for its question, having then to calculate whether and how to reveal sensitive information and intelligence to Iran (along with China and Russia). The structure, processes, and nature of this agreement give Iran the benefit of the doubt that it is pursuing a peaceful program, when the onus should remain with Iran throughout to prove the peaceful nature of its program, as constructed in the relevant UNSCRs. Importantly, Iran should not be given the unilateral right to withdraw from the deal when the world powers’ actions are subject to review and appeal under the JCPOA.

3.      Problematic Sanctions Relief: Constraints on U.S. Financial and Economic Power. The sanctions relief provided is too front-loaded, does not account for the increased risks stemming from Iranian commercial and financial activity, and broadly constrains the U.S. government’s ability to use effective financial power against Iranian “non nuclear” national security risks. Despite the attempts to phase out various sanctions lists and retain a “snapback” provision, the JCPOA contemplates early relief by allowing for frozen Iranian funds (upwards of $150 billion) to be released after Implementation Day without constraint and for many of the financial, oil, and commercial sanctions and restrictions to be lifted.

Though there will be reticence by legitimate actors to jump back into Iranian markets too quickly, the sanctions architecture that has been put in place methodically over the course of many years will be unwound in swaths and will be difficult to maintain once momentum grows to do business with and in Iran. Instead of targeted unwinding and control of related risks, the sanctions unwinding framework appears to be driven by a desire to help reintegrate and rehabilitate the Iranian economy. The cost of this deal was the dismantling of the sanctions architecture and the defanging of America’s financial and economic power against Iran.

I will focus my testimony on this sanctions relief framework and why this presents a fundamental flaw in the structure of the JCPOA. Fundamentally, the Iranian nuclear deal sacrifices the ability of the United States to use its financial and economic power and influence to isolate and attack rogue and problematic Iranian activity – beyond the nuclear program. Beyond simple sanctions relief, we have negotiated away one of our most important tools of statecraft – the very financial and economic coercion that helped bring the Iranian regime to the table.


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Testimony

The Implications of Sanctions Relief Under the Iran Agreement

Testimony for Senate Committee on Banking, Housing, and Urban Affairs
5th August 2015

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SUMMARY

Patient Path to Nuclear Weapons

The JCPOA provides Iran with patient paths to a nuclear weapon and intercontinental ballistic missile (ICBM) capability over the next decade and a half. As I explain below in Parts 1 and 2 of the testimony, Tehran has to simply abide by the agreement to emerge as a threshold nuclear power with an industrial-size enrichment program; near-zero breakout time; an easier clandestine sneak-out pathway; an advanced long-range ballistic missile program, including ICBMs; access to advanced heavy weaponry; and a more powerful economy increasing immunized against Western sanctions.

First, on so-called “Implementation Day,” Iran will receive substantial sanctions relief with which it can defend its economy against future sanctions pressure. Iran may also use sanctions relief to increase its support for terrorism and other rogue regimes and to expand its conventional military power. The JCPOA front-loads sanctions relief, providing Iran with access to around $100 billion in restricted oil revenues and reconnecting Iranian banks, including the Central Bank of Iran, back into the global financial system. Sanctions on Iran’s crude oil export transactions will be lifted, as will sanctions on key sectors of the Iranian economy including upstream energy investment and energy-related technology transfers, the auto industry, petrochemicals, and shipping, as well as the precious metals trade. This sanctions relief will enable Iran to build greater economic resilience against future pressure—both sanctions aimed at isolating other illicit financial conduct and so-called “snapback” sanctions in the event of Iranian nuclear non-compliance.

Then, after five years, or earlier if the International Atomic Energy Agency (IAEA) reaches a broader conclusion that Iran’s nuclear program is only for peaceful purposes, the international arms embargo will be lifted, meaning that Iran can also expand its conventional military capabilities and those of its proxies. Former Under Secretary of State for Political Affairs Nicholas Burns, one of the other witnesses at this hearing, noted one week before the announcement of the JCPOA that lifting the arms embargo “would be a great mistake. Iran is selling arms, giving arms, fueling civil wars in Yemen, in Lebanon, in Syria and Iraq, and so those arms prohibitions on Iran are very important.” He also has explained that the arms embargo was put in place “for very good reason.” He continued that it is not in the interest of the United States “to see these arms embargos lifted from Iran. It is an issue that should not be part of these negotiations. … I think we ought to maintain these U.N. embargos.” In five years, however, they will disappear, giving Iran access to combat aircraft, attack helicopters, battle tanks, among other advanced weapons systems.

After eight years, and even earlier if the IAEA reaches a broader conclusion, restrictions on Iran’s ballistic missile development will lapse, despite recommendations from Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey that “nder no circumstances should we relieve pressure on Iran relative to ballistic missile capabilities and arms trafficking.”

Between years eight and 15, restrictions on Iran’s nuclear activities will begin to lapse whether or not the IAEA has concluded that Iran’s nuclear program is entirely peaceful.

After ten years, the U.N. Security Council will close the Iranian nuclear portfolio and no longer be “seized” on the issue. The file will return to the IAEA, and Iran will be considered to have a normal, legal nuclear program. Iran will be converted from one-time nuclear pariah to nuclear partner. At that time, and especially after year 15 when Iran’s nuclear program will be poised for much greater expansion to industrial-size, Iran will be better positioned to stymie IAEA verification and monitoring and to avoid cooperating with IAEA inspections. The United States will have a greatly diminished economic sanctions capability to force the Iranian government back into compliance on remaining obligations and to enforce the deal against Iranian stonewalling of the IAEA. Indeed, the only choice at that point may be the use of U.S. military force against a much more powerful Iran to prevent it from building nuclear weapons.

Nuclear Snapback vs Sanctions Snapback

In addition to this “patient pathway,” the JCPOA also creates an Iranian “nuclear snapback” instead of an effective economic sanctions snapback. Throughout the negotiations, the Obama Administration assured the public and Congress that if Iran violated its nuclear commitments under the final deal, sanctions could be “snapped back” into place. This reflects a too-optimistic assessment of the following: the lag-time between the imposition of sanctions and market and Iranian reaction; the willingness of companies to terminate business relationships; the extent to which “grandfather” provisions would immunize international investments from snapback sanctions; and, the eventual impact on Iran’s economy. Given these factors, there is likely very little “snap” in snapback sanctions.

The current United Nations sanctions snapback architecture in the JCPOA further limits Washington’s ability to re-impose sanctions by creating a drawn out dispute resolution mechanism. The mechanism creates a 60-plus day delay between the time that the United States (or another P5+1 member) announces that a violation has occurred and the time that U.N. sanctions may be re-imposed.

The process is governed by a Joint Commission on which Iran sits as an equal voting member. The Obama Administration presumes that even if Russia and China were to take Iran’s side in a dispute, Washington could count on the votes of France, Britain, and Germany as well as the EU representative. This 5-3 vote breakdown assumes no geopolitical or domestic political changes in European countries. Is it not just as plausible that the United States will find itself on the Joint Commission not with President Holland and Chancellor Merkel but with new European leaders less amenable to a new U.S. president’s demands to snap back U.N. sanctions? Even though the U.N. snapback sanctions mechanism permits the United States to move unilaterally at the U.N. Security Council to overcome Chinese and Russian objections to snapbacks, it is difficult to imagine that Washington would act without the support of its key European allies.

Furthermore, as international companies reengage in the Iranian market, European countries may experience domestic economic pressure not to re-impose sanctions. These companies may have invested billions of dollars back into Iran and may be unwilling to walk away from those investments despite Iranian nuclear non-compliance.

As a result, in a scenario of Iranian non-compliance, Washington may face European leaders less supportive of U.S. positions, European companies heavily invested in and less willing to leave Iran, and the specter of Iran threatening to walk away from its nuclear commitments (the Iranian “nuclear snapback,” as discussed below). If Washington subsequently loses a vote in the Joint Commission, will Washington be willing to unilaterally escalate the matter to the U.N. Security Council for further consideration?

Instead of an effective sanctions snapback, the JCPOA provides Iran with a powerful “nuclear snapback.” In three places, the JCPOA makes it clear that using snapback sanctions may lead to a cancelling of the agreement, with Iran walking away from its commitments and resuming its nuclear program. In short, it will be difficult to persuade our P5+1 partners to punish Iran for any violations short of the most flagrant and egregious because any punishment of a small-to-medium level violation may lead Iran to stop complying with the agreement. As discussed, Iran may also use an implicit—or explicit—threat of nuclear escalation to pressure U.S. allies not to support efforts to address Iranian non-compliance

The United States may be left with a choice of either not addressing examples of minor-to-medium levels of cheating—notwithstanding that Iran historically has used incremental cheating to expand its nuclear program—or allowing Iran to walk away from the deal as the aggrieved party if Washington tries to re-impose sanctions.

Sanctions Relief Benefits Hardliners

The sanctions relief provided for under the JCPOA will benefit the most hardline element of the regime: Iran’s Islamic Revolutionary Guard Corps (IRGC) and Supreme Leader Ali Khamenei’s financial empire—a “shadowy network of off-the-books front companies,” according to the U.S. Treasury. The network, headed by an organization known as the Execution of Imam Khomeini’s Order (EIKO) or Setad, is reportedly worth $95 billion. EIKO and its subsidaries will be de-listed by both the EU and United States on Implementation Day. Rather than benefit independent Iranian businesses, the sanctions relief may reinforce IRGC and state control of key sectors of Iran’s economy and the empowerment of Iranian oligarchs.

The European Union will lift sanctions against major IRGC-controlled entities like the IRGC Cooperative Foundation (the Guard’s investment arm) and Khatam Al Anbiya (the construction conglomerate); the United States will de-list four IRGC-linked banks on Implementation Day: Arian Bank, Bank Kargoshaee, Bank Melli, and Future Bank. In reference to Bank Melli, the U.S. Treasury Department has stated:

“Bank Melli also provides banking services to the IRGC and the Qods Force. Entities owned or controlled by the IRGC or the Qods Force use Bank Melli for a variety of financial services. From 2002 to 2006, Bank Melli was used to send at least $100 million to the Qods Force. When handling financial transactions on behalf of the IRGC, Bank Melli has employed deceptive banking practices to obscure its involvement from the international banking system. For example, Bank Melli has requested that its name be removed from financial transactions.”


Lifting sanctions on Bank Melli, among others, will provide the IRGC and Qods Force with renewed access to the international financial systems and an easier ability to finance their illicit activities. De-listed banks, including the Central Bank of Iran, will be allowed back onto the SWIFT financial messaging system, and Europe may increasingly become the economic destination of choice for regime-connected, corrupt, IRGC oligarchs.

Hampering Our Ability to Address Iran’s Other Illicit Conduct

This “nuclear snapback” not only provides Tehran with the ability to immunize itself against both political and economic pressure and block the enforcement of the agreement, it also diminishes the ability of the United States to apply any sanctions, including non-nuclear sanctions, against the full range of Iran’s illicit conduct.

The JCPOA effectively dismantles the U.S. and international economic sanctions architecture, which was designed to address the full range of Iran’s illicit activities. As a result of these illicit activities, Iranian banks including the Central Bank of Iran (CBI) were banned from SWIFT. The JCPOA severely undermines these measures, but not because Iran has halted its financial crimes. If the United States finds, for example, that Iran is using its central bank to facilitate terror financing, as it has done in the past, will Washington be able to impose new sanctions? The JCPOA appears to provide Iran with grounds to walk away from the deal if any sanctions are imposed. Iran has already stated that it may “reconsider its commitments” under the JCPOA if “new sanctions [are imposed] with a nature and scope identical or similar to those that were in place prior to the implementation date, irrespective of whether such new sanctions are introduced on nuclear related or other grounds.” It seems improbable that the United States would be willing to reimpose sanctions on Iran’s central bank, and pressure Europe to expel CBI from SWIFT, under any scenario short of the most egregious—especially if Iran threatens to walk away from the agreement and resume its nuclear activities.

The current JCPOA is deeply-flawed because it fails to permanently block the Islamic Republic’s pathways to nuclear weapons; it is also dangerous for American national security because it degrades Washington’s ability to use non-military means to protect its national security interests and its allies against a range of Iranian illicit and destabilizing activities. If the United States cannot use economic pressure effectively to address future Iranian nuclear non-compliance or to target the full range of Iran’s illicit nuclear activities, military force may become the only means available to U.S. policymakers. As a result, the JCPOA may make war with Iran more not less likely, and when that war comes, Iran will be stronger and the consequences will be more severe.


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Testimony

Sanctions and the JCPOA

Testimony for Senate Foreign Relations Committee
30th July 2015

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Chairman Corker, Ranking Member Cardin, and distinguished members of the Senate Foreign Relations Committee, I am honored to testify before your Committee to discuss the sanctions implications of the recently announced Joint Comprehensive Plan of Action (JCPOA) between the P5+1 and Iran. I am especially privileged to speak to the sanctions-related elements and dimensions of the JCPOA.

I take this responsibility seriously given the gravity, stakes, and implications of this agreement and Congress’s role in reviewing the JCPOA on behalf of the American people. The question of a nuclear-armed Iran is a critical security issue for the United States, our allies, the broader Middle East, the global non-proliferation regime, and has serious implications for the potential and future use of American power in all its forms.

I come to this issue with views born from relevant experience – as the first-ever assistant secretary of the treasury for terrorist financing and financial crimes until May 2005, and then as the deputy assistant to the President and deputy national security advisor for combatting terrorism (2005-2009). While in these positions, we shaped the financial constriction campaign against Iran starting in 2005, and confronted the world’s leading state sponsor of terror.

I also come to this issue now as an outside expert, having written, taught, and spoken extensively about the use of sanctions and financial power in national security; counterterrorism and transnational threats, strategy, and policies; and legal principles and constructs in national security decision-making, including in our coercive statecraft and diplomacy.

The task of negotiating a deal of this nature and complexity – with multiple parties and against an avowed enemy of the United States – has been a daunting and lengthy task. I know that those involved from the United States government – from multiple agencies and across two Administrations – have worked tirelessly on this issue.

And I know that all involved have been seeking a peaceful solution to the Iranian nuclear problem – through painstaking strategies of coercion, sanctions, and diplomacy. The financial and economic constriction campaign has been built methodically over the course of a decade to help drive the Iranian regime to the table and change the course of their nuclear program. Indeed, these efforts built on over three decades of sanctions against the Iranian regime for its support of terrorism, quest for a nuclear program, human rights abuses, and other dangerous activities.

These efforts have also been designed to constrain and isolate rogue Iranian behavior and protect the integrity of the U.S. and international financial systems. This was a monumental task, and there is no silver bullet that will get us everything we want in a deal.

Unfortunately, this is a flawed agreement. I have not been asked today to delineate all the gaps, problems, or challenges in the JCPOA, nor would I be qualified to do so. But I do want to point out three fundamental problems with the JCPOA that frame my analysis:

1. Problematic End State: Iran as a Nuclear Power.

2. Problematic Construct: Iran as Co-Equal.

3. Problematic Sanctions Relief: Constraints on U.S. Financial and Economic Power.

Testimony

The Joint Comprehensive Plan of Action

Testimony for Senate Foreign Relations Committee
29th July 2015

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Chairman Corker, Ranking Member Cardin, members of the Senate Foreign Relations Committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

I would like to address two areas in which the Joint Comprehensive Plan of Action (JCPOA) contains major design flaws: 1) the limitations (or lack thereof) on Iran’s nuclear program and 2) the precipitous sanctions relief disconnected from changes in Iranian behavior that prompted the sanctions. More specifically:

1. The JCPOA provides Iran with a patient path to a nuclear weapon over the next decade and a half. Tehran has to simply abide by the agreement to emerge as a threshold nuclear power with an industrial-size enrichment program; near-zero breakout time; an easier clandestine sneak-out pathway; an advanced long-range ballistic missile program, including intercontinental ballistic missiles (ICBMs); and hundreds of billions of dollars in sanctions relief to immunize its economy against future economic snapback sanctions, increase its conventional military power, and support terrorism and other rogue regimes.

2. The JCPOA also creates an Iranian “nuclear snapback” instead of an effective economic sanctions snapback. This “nuclear snapback” provides Tehran with the ability to immunize itself against both political and economic pressure, block the enforcement of the agreement, and diminish the ability of the United States to apply any sanctions, including even non-nuclear sanctions, against the full range of Iran's illicit conduct;

3. The JCPOA effectively dismantles the U.S. and international economic sanctions architecture, which, in key areas, was designed to address the full range of Iran’s illicit activities. Iranian banks will be allowed back onto the SWIFT financial messaging system without evidence that their illicit conduct no longer poses risks to the global financial system. Once they return to SWIFT, it’s difficult for me to image a scenario where they will again be expelled in great numbers, particularly given the deterrent power of Iran’s nuclear snapback; and,

4. The JCPOA also emboldens the most hardline element of the regime, Iran’s Islamic Revolutionary Guard Corps (IRGC) and Supreme Leader Ali Khamenei's financial empire, which will be a major beneficiary of this agreement.

After discussing the flaws in this JCPOA, I will provide recommendations on what Congress can do to improve the deal with Iran. This analysis, parts 3 and 4 of this testimony, begins on page 28. In these sections, I will discuss the precedents for congressional disapproval of treaties and executive agreements, analyze the likely outcomes of a congressional vote of disapproval of this nuclear deal with Iran, and provide recommendations for specific amendments to the JCPOA. I will conclude by discussing how Congress can defend the sanctions architecture against its precipitous unraveling under the JCPOA so that the U.S. can provide peaceful economic leverage to enforce this deal in the future.

Testimony

The Iran-North Korea Strategic Alliance

Testimony for Joint House Foreign Affairs Subcommittee Hearing
28th July 2015

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Chairman Poe, Ranking Member Keating, distinguished members of the committee, thank you for the invitation to testify at this hearing on the Iran- North Korea Strategic Alliance, and how it will likely be affected by the nuclear deal with Iran.

This is a question with serious implications for the security of America and our allies, not only in the Middle East, but in Asia, and around the globe. I wish the answer were reassuring.

The Administration tells us that the Joint Comprehensive Plan of Action cuts off all Iran’s pathways to the nuclear bomb. That is not true. This deal will not cut off the pathways between Iran and nuclear-proliferating North Korea.

Worse. the JCPOA creates conditions and incentives that are highly likely to result in the expansion of what is already an extensive and profoundly dangerous Iran-North Korea partnership in proliferation.

In the context of the Iran-North Korea alliance, I am listing here four of the most egregious features of the JCPOA. There are many provisions of this deal that are profoundly troubling in any context, but I have focused on those most likely to be exploited by Iran and North Korea working in partnership. I shall then provide further background on the nature of the Iran-North Korea alliance, and why, on this front, the JCPOA is likely to contribute not to peace, but to proliferation.

1) The “snapback” sanctions mechanism, which will actually make it safer for Iran to cheat. In theory, this provision will keep Iran in check. But the snapback is structured in such a way that it provides disincentives for the U.S., or its partners, to confront Iran in the event Iran does cheat (which it has a long record of doing, and has done even during the recent nuclear talks). The JCPOA expressly forbids individual countries to unilaterally impose or reimpose nuclear-related sanctions. If Iran is caught cheating, the penalty must come via the United Nations Security Council, where it would be binary -- either nothing, or the official reimposition of all previous U.N. sanctions. In practice, that could take years to implement, if possible at all. But under the JCPOA, Iran could immediately scrap its commitments, pocket its gains, and walk away. The JCPOA itself notes that “if sanctions are reinstated in whole or in part, Iran will treat that as grounds to cease performing its commitments under this JCPOA in whole or in part.”

The disincentive to finger Iran for cheating is already evident in the most recent report from the UN Panel of Experts on Iran sanctions, released this June. The U.N. panel noted that during the year since its previous report, in June, 2014, not a single U.N. Member State had submitted a formal report of Iran’s non-compliance -- despite “numerous reports in the media” that Iran’s arms transfers “have actively continued.” The U.N. experts noted that this lack of reporting was unusual, and speculated that while it might be linked to a decrease (they did not suggest an absence) of prohibited Iranian activities, it might also be due to “restraint” by the Member States, “so as not to affect the negotiations process.”

If the Member States were that conspicuously restrained during the talks, we can expect historic inertia in reporting under the deal itself.

What does that mean for North Korea, which is under international sanctions? Given the  incentives the snapback mechanism creates for the world to ignore cheating by Iran, it will actually become safer for North Korea to do illicit business with Iran. Any country wishing to report or penalize North Korea for clear evidence of forbidden traffic with Iran could be left grappling with the large knock-on prospect of potentially triggering the collapse of the entire JCPOA -- and the pressure of the international community to show “restraint.”

2) Money. With the lifting of sanctions, Iran obtains access to an estimated $100 billion or more upfront, in unfrozen oil revenues, plus the freedom to sell oil in the world market, without the cost of dodging sanctions. At the margin, this is likely to generate many billions more for Tehran in coming years.

That leaves Iran’s regime with a lot more hard cash not only to fund terrorist proxies such as Hezbollah and Hamas, but also to go shopping in North Korea. Iran has done plenty of illicit business in Pyongyang, maintains a large embassy there, and for Iran, a major benefit of shopping for weapons and weapons technology in North Korea is that the authorities won’t protest. They will be partners on the other side of the deal.

For North Korea, Iran’s JCPOA jackpot may well augur boom times for the proliferation racket. While North Korea economics statistics are elusive, to say the least, political economist Nicholas Eberstadt, of the American Enterprise Institute, estimates North Korea’s total merchandise trade exports for 2011 at about $4 billion, most of that to China. As Mr. Eberstadt wrote to me in a recent email: North Korea’s merchandise trade “is tiny compared to the prospectively unfrozen Iran funds. No less important -- North Korea is on a permanent hunt for foreign subventions, and even a very small share of those unlocked monies would be a huge windfall for Pyongyang.”

3) Procurement. Under the JCPOA, Iran obtains access to world markets and the world financial system. While the JCPOA proposes to restrict and supervise Iran’s nuclear procurement, and retains the arms and missile embargoes for five and eight years, respectively, Iran will be broadly free of strictures on commerce. Much of the resulting trade may be legitimate. But the smuggler’s art -- in which Iran and North Korea are both well versed -- is to hide the illicit wares amid the legitimate goods and transactions. While the snapback mechanism leaves U.N. Member States more reluctant to report violations by Iran, it will become easier for Iran to deal in forbidden goods and services abroad, and harder to detect such traffic -- including any weapons-related deals with North Korea. Such deals often run through fronts in third countries, such as China, or multiple cut-outs around the globe.

For an example of how Iran and North Korea’s networks mesh, take the case of a company called Hong Kong Electronics, which was designated by the U.S. Treasury in 2009. If it sounds like a company in Hong Kong, it is not. Hong Kong Electronics was designated as a North Korean front, moving millions in proliferation-related funds, which had “facilitated the movement of money from Iran to North Korea” on behalf of another designated major North Korean proliferator, KOMID.  The address of Hong Kong Electronics is on Kish Island, Iran.

4) Easy access to modern nuclear technology, including defense against nuclear sabotage. Under the JCPOA, developed countries are encouraged to assist Iran with civilian nuclear research. This will involve the transfer of advanced technologies and skills, which Iran, with its personnel pipelines to Pyongyang, could easily pass along to North Korea -- potentially for mutual benefit in work that would be well out of sight of any inspectors in Iran.

Not least, the JCPOA envisages “training and workshops” to strengthen Iran’s security against “nuclear security threats, including sabotage.” This is to be provided via cooperation between the P5+1 (the U.S., U.K. France, Russia, China and Germany) “and possibly other states as appropriate.” There can be little doubt that advanced modern training to thwart sabotage would be of interest not only to Iran, but to the North Korea -- which, in return, could most easily pay in its own special coin of weapons and weapons technology.

Testimony

Impact of the Boycott, Divestment, and Sanctions Movement

Testimony for Committee on Oversight and Government Reform, Subcommitee on National Security
28th July 2015

Download the full testimony here. 

Mr. Chairman, America and its allies must prepare for an increasingly dangerous era. It will be marked by political, economic, and financial warfare. It will not only target the United States. Our allies also will be in the crosshairs. As always, Israel is the canary in the coalmine. With the so-called “Boycott, Divest and Sanctions” (BDS) movement, we are getting a glimpse of an economic and financial weapon that could soon be turned against us and other vital allies, with serious consequences for the national and economic security of the United States and our allies.

Many of our allies are involved in territorial disputes in the Middle East, Europe, Asia and elsewhere. We may agree or disagree with their positions in these disputes. But our support for defensive structures to protect them from conventional military, missile, cyber, WMD, and terrorist threats, among others, must never be dependent on our policies with respect to these territorial disputes. Neither should our defenses against economic and financial threats.

The U.S. must create a defense economic and financial shield to protect the United States and our allies against economic and financial warfare, and Congress is well placed to lead that effort.

BDS and Economic and Financial Warfare

The BDS movement is a tool of political, economic, and financial warfare against Israel. Those waging this war seek to first isolate and delegitimize Israel and to turn it into an international pariah. From there, doing economic damage to Israel becomes an easier task.

This is not the first time economic war has been waged upon Israel. The Arab Boycott, first enacted in 1945 before the creation of the state of Israel, was an instrument of raw economic power. The Arab states wielded oil and market access to put companies to a fundamental choice between doing business with Israel and doing business with the Arab world. Israel’s chamber of commerce estimates that the Arab boycott has cost the Israeli economy $45 billion. And the boycott was not only costly to Israel. On a global scale, the Arab oil embargo following the 1973 Yom Kippur War is estimated to have caused a 4.7 percent decline in America’s GDP and a 7 percent and 2.5 percent decline in Japan’s and Europe’s GDP, respectively.

The BDS movement is only the most recent iteration of the Arab boycott, with many naturalized American citizens now leading the charge. The movement, purportedly supported by a grass roots constituency, is a highly organized campaign of political de-legitimization designed to lay the predicate for a broader economic and financial warfare campaign. Not only is the goal to pressure Israel to make political and territorial concessions, but it also seeks to convey to countries and companies that there is increased market risk and reputational consequences for Western companies that do business with Israel. Never mind that investment in Israel is among the safest in the Middle East.3 The boycotters understand that if Israel is delegitimized, it becomes easier to pass Western sanctions against companies doing business with Israel or, at the very least, pressuring them into cutting their business ties with the Jewish state.

While many in this country are focused on the threatening atmosphere that the BDS movement has created for pro-Israel students on campus, FDD’s research has determined that the economic and financial warfare campaign currently targeting Israel’s economic and financial relationships with Europe is far more dangerous. Europe is Israel’s largest trading partner. In 2014, EU-Israel trade was valued at $30 billion.

In 2012, the EU’s consuls general in east Jerusalem and Ramallah issued a Heads of Mission report recommending sanctions on Israeli settlements, and in January 2014, PGGM, a large Dutch pension fund, withdrew its investments from Israel’s five largest banks because they have branches in the West Bank. In November 2014, an internal EU document was leaked to the press. The document included an assessment of what economic sanctions against Israel could possibly include.

In March 2015, reports suggested that the EU was considering sanctions against Israel in an effort to force Israel to “comply with EU law” and to compel a peaceful settlement between the Israelis and Palestinians. These sanctions would target Israeli products produced by Israelis and Palestinians in the settlements, with a focus on raising awareness among European businesses about the risks of doing business in Israeli settlements located in the disputed territories of the West Bank or east Jerusalem. Reports also indicate that the EU document came on the heels of a request from Palestinian Negotiator Saeb Erekat to Federica Mogherini, the current High Representative of the European Union for Foreign Affairs and Security Policy, asking that the EU hold Israel accountable for “[v]iolations of International law.” Additionally, reports indicate that France was mulling ways to single out Israel at the United Nations and to blame it for stalled peace talks with the Palestinians.

International organizations, religious institutions, private businesses, sovereign wealth funds, and universities have joined in supporting BDS in recent years. Most of them are European. Some are not. Some have reportedly re-entered the Israeli market. Some have not. They should all be identified publicly as having joined the economic and financial war against Israel.

Testimony

Implications of a Nuclear Agreement with Iran

Testimony for House Committee on Foreign Affairs
23rd July 2015

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Chairman Royce, Ranking Member Engel, members of the Committee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

This morning, I would like to address three of the major design flaws in the Joint Comprehensive Plan of Action (JCPOA):

1. The JCPOA effectively dismantles the U.S. and international economic sanctions architecture, which, in key areas, was designed to address the full range of Iran’s illicit activities. The JCPOA also emboldens the most hardline element of the regime, Iran’s Islamic Revolutionary Guards Corps (IRGC), which will be a major beneficiary of this agreement;

2. The JCPOA creates an Iranian “nuclear snapback” instead of an effective economic sanctions snapback. This “nuclear snapback” provides Tehran with the ability to immunize itself against both political and economic pressure, block the enforcement of the agreement, and diminish the ability of the United States to apply any sanctions, including even non-nuclear sanctions, against the full range of Iran’s illicit conduct; and,

3. The JCPOA provides Iran with a patient path to a nuclear weapon over the next decade and a half. Tehran has to simply abide by the agreement to emerge as a threshold nuclear power with an industrial-size enrichment program; near-zero breakout time; an easier clandestine sneak-out pathway; an advanced long-range ballistic missile program, including intercontinental ballistic missiles (ICBMs); and hundreds of billions of dollars in sanctions relief to immunize its economy against future economic snapback sanctions, increase its conventional military power, and support terrorism and other rogue regimes.

ALTERNATIVES TO THIS NUCLEAR AGREEMENT
 
Instead of this current JCPOA, Congress should work with the Obama Administration to amend and strengthen the agreement so that it much more effectively “cut[s] off every single one of Iran’s pathways” to a nuclear bomb and retains tools of effective and peaceful sanctions enforcement against Iranian illicit behavior on multiple fronts. President Obama and his Cabinet have repeatedly said, “No deal is better than a bad deal. In making this commitment, the president clearly had an acceptable alternative path in mind during the negotiations or he would not have threatened to walk away from the table if Iran didn’t come to an agreement. It is reasonable to assume that no president would enter negotiations, especially over something as fundamental to American national security as preventing Iran from developing nuclear weapons, unless that president had a well-developed best alternative to a negotiated agreement.
 
That alternative path of American coercive diplomacy still exists as a viable alternative, and includes: 1) leveraging the power of U.S. secondary sanctions to persuade international financial institutions and companies to stay out of Iran; 2) the use of military power, either directly or through the support of allies, against Iranian regime interests in Syria, Iraq, Yemen; and 3) the credible threat of conventional and cyber-enabled force against Iran’s nuclear program.
 
If the president believes in the power of U.S. sanctions to maintain an effective economic snapback a decade or more in the future, then such an option exists today when the Iranian economy is still fragile and international investors have yet to return to Iran. If the president believes, however, that the multilateral sanctions regime cannot withstand a renewed commitment to negotiate an improved agreement, then he is admitting that the United States does not have sufficient peaceful economic leverage to enforce this agreement in the future when Iran’s nuclear program will be much bigger, Iran can leverage its “nuclear snapback” against the re-imposition of sanctions, and the regime’s economy will be much stronger.
 
If economic leverage is unavailable, then a future president will be left with only two options: concede Iran’s nuclear weapons development or use military force against a much stronger Iran when its nuclear breakout or sneak-out options will be much greater, and the consequences of force will be much more severe.
 
Congress should insist on an alternative to this deeply flawed deal and keep the president to his commitment that such alternatives always did—and continue to—exist. An agreement that gives Iran patient pathways to a nuclear weapon, access to heavy weaponry and ICBM technology, while enriching the leading state sponsor of terrorism, should be unacceptable. An agreement that undermines the use of peaceful economic leverage should be unacceptable. An agreement that leaves military force as the only effective option for a future president to stop Iran’s nuclear weapons development should be unacceptable.
 
This testimony now turns to an analysis of the fundamental flaws in the construction of the JCPOA.

Testimony

Heading Toward An EMP Catastrophe

Testimony for Senate Homeland Security and Governmental Affairs Committee
22nd July 2015

For over a decade now, since the Congressional EMP Commission delivered its first report to Congress eleven years ago in July of 2004, various Senate and House committees have heard from numerous scientific and strategic experts the consensus view that natural and manmade electromagnetic pulse (EMP) is an existential threat to the survival of the American people, that EMP is a clear and present danger, and that something must be done to protect the electric grid and other life sustaining critical infrastructures--immediately.

Yet this counsel and the cost-effective solutions proposed to the looming EMP threat have been ignored. Continued inaction by Washington will make inevitable a natural or manmade EMP catastrophe that, as the Congressional EMP Commission warned, could kill up to 90 percent of the national population through starvation, disease, and societal collapse.

Indeed, some actions taken by the Congress, the White House, and the federal bureaucracy are impeding solutions, making the nation more vulnerable, and helping the arrival of an EMP catastrophe.  More about that later.

Why has Washington failed to act against the EMP threat? A big part of the problem is that policymakers and the public still fail to understand that EMP, and the catastrophic consequences of an EMP event, are not science fiction. 

The EMP threat is as real as the Sun and as inevitable as a solar flare.

The EMP threat is as real as nuclear threats from Russia, China, North Korea, and Iran.  Nuclear EMP attack is part of the military doctrines, plans and exercises of all of these nations for a revolutionary new way of warfare that focuses on attacking electric grids and civilian critical infrastructures--what they call Total Information Warfare or No Contact Wars, and what some western analysts call Cybergeddon or Blackout Wars.

The nuclear EMP threat is as real as North Korea's KSM-3 satellite, that regularly orbits over the U.S. on the optimum trajectory and altitude to evade our National Missile Defenses and, if the KSM-3 were a nuclear warhead, to place an EMP field over all 48 contiguous United States.

The EMP threat is as real as non-nuclear radiofrequency weapons that have already been used by terrorists and criminals in Europe and Asia, and no doubt will sooner or later be used here against America.

A Clear And Present Danger

EMP, while still inadequately understood by policymakers and the general public, has been the subject of numerous major scientific and strategic studies.  All of these warn by consensus that a natural or nuclear EMP, in the words of the Congressional EMP Commission, "Is one of a small number of threats that has the potential to hold our society seriously at risk" and "Is capable of causing catastrophe for the nation."  Such is the warning not only of the Congressional EMP Commission, but of studies by the Congressional Strategic Posture Commission, the National Academy of Sciences, the Department of Energy, the National Intelligence Council, a U.S. Federal Energy Regulatory Commission report coordinated with the Department of Defense and Oak Ridge National Laboratory, and numerous other reports.

Yet a recent Wall Street Journal article (May 1, 2015) on NORAD moving back into Cheyenne Mountain and spending $700 million to further harden the mountain against a nuclear EMP attack from North Korea, received hundreds of comments from shocked readers, half of whom still think that EMP is science fiction.

Nuclear EMPWe know that EMP is not science fiction but an existential threat that would have catastrophic consequences for our society because of high-altitude nuclear tests by the U.S. and Russia during the early Cold War, decades of underground nuclear testing, and over 50 years of tests using EMP simulators.  For example, in 1961 and 1962, the USSR conducted several EMP tests in Kazakhstan above its own territory, deliberately destroying the electric grid and other critical infrastructures over an area larger than Western Europe.  The Congressional EMP Commission based its threat assessment partially on using EMP simulators to test modern electronics--which the Commission found are over one million times more vulnerable than the electronics of the 1960s.

One prominent myth is that a sophisticated, high-yield, thermonuclear weapon is needed to make a nuclear EMP attack.  In fact, the Congressional EMP Commission found that virtually any nuclear weapon--even a primitive, low-yield atomic bomb such as terrorists might build--would suffice.  The U.S. electric grid and other civilian critical infrastructures--for example, communications, transportation, banking and finance, food and water--have never been hardened to survive EMP.  The nation has 18 critical infrastructures--all 17 others depend upon the electric grid.

Another big myth is that a sophisticated long-range missile is needed to deliver an EMP attack.  The iconic EMP attack detonates a single warhead about 300 kilometers high over the center of the U.S., generating an EMP field over all 48 contiguous United States. 

However, any warhead detonated 30 kilometers high anywhere over the eastern half of the U.S. would collapse the Eastern Grid.  The Eastern Grid generates 75 percent of U.S. electricity and supports most of the national population.  Such an attack could be made by a short-range Scud missile launched off a freighter, by a jet fighter or small private jet doing a zoom climb, or even by a meteorological balloon.

According to a February 2015 article by President Ronald Reagan's national security brain trust--Dr. William Graham who was Reagan's Science Advisor and ran NASA, Ambassador Henry Cooper who was Director of the Strategic Defense Initiative, and Fritz Ermarth who was Chairman of the National Intelligence Council--North Korea and Iran have both practiced the iconic nuclear EMP attack against the United States.  Both nations have orbited satellites on south polar trajectories that evade U.S. early warning radars and National Missile Defenses.  North Korea and Iran have both orbited satellites at altitudes that, if the satellites were nuclear warheads, would place an EMP field over all 48 contiguous United States. 

Dr. Graham and his colleagues in their article warn that Iran should already even be regarded as having nuclear weapons and missiles capable of making an EMP attack against the U.S., or against any nation on Earth. 

North Korea and Iran have also apparently practiced making a nuclear EMP attack using a short-range missile launched off a freighter.  Such an attack could be conducted anonymously to escape U.S. retaliation--thus defeating nuclear deterrence.

Natural EMP.  We know that natural EMP from the Sun is real.  Coronal mass ejections traveling over one million miles per hour strike the Earth's magnetosphere, generating geomagnetic storms every year.  Usually these geo-storms are confined to nations at high northern latitudes and are not powerful enough to have catastrophic consequences.  In 1989, the Hydro-Quebec Storm blacked-out half of Canada for a day causing economic losses amounting to billions of dollars.

However, we are most concerned about the rare solar super-storm, like the 1921 Railroad Storm, which happened before American civilization became dependent for survival upon electricity and the electric grid.  The National Academy of Sciences estimates that if the Railroad Storm were to recur today, there would be a nationwide blackout with recovery requiring 4-10 years, if recovery is possible at all.

The most powerful geomagnetic storm on record is the 1859 Carrington Event.  Estimates are that Carrington was about 10 times more powerful than the 1921 Railroad Storm and 100 times more powerful than the 1989 Hydro-Quebec Storm.  The Carrington Event was a worldwide phenomenon, causing forest fires from flaring telegraph lines, burning telegraph stations, and destroying the just laid intercontinental telegraph cable at the bottom of the Atlantic Ocean.

If a solar super-storm like the Carrington Event recurred today, it would collapse electric grids and life-sustaining critical infrastructures worldwide, putting at risk the lives of billions.

NASA in July 2014 reported that two years earlier, on July 23, 2012 , the Earth narrowly escaped another Carrington Event.  A Carrington-class coronal mass ejection crossed the path of the Earth, missing our planet by just three days.  NASA assesses that the resulting geomagnetic storm would have had catastrophic consequences worldwide.

We are overdue for recurrence of another Carrington Event.  The NASA report estimates that likelihood of such a geomagnetic super-storm is 12 percent per decade.  This virtually guarantees that Earth will experience a catastrophic geomagnetic super-storm within our lifetimes or that of our children.

Radio-Frequency Weapons (RFWs). Just as nuclear and natural EMP are not science fiction, we also know that the EMP threat from non-nuclear weapons, commonly called Radio-Frequency Weapons, is real.  Terrorists, criminals, and even disgruntled individuals have already made localized EMP attacks using RFWs in Europe and Asia.  Probably sooner rather than later, the RFW threat will come to America.  

RFWs typically are much less powerful than nuclear weapons and much more localized in their effects, usually having a range of one kilometer or less.  Reportedly, according to the Wall Street Journal, a study by the U.S. Federal Energy Regulatory Commission warns that a terrorist attack that destroys just 9 key transformer substations could cause a nationwide blackout lasting 18 months. 

RFWs offer significant advantages over guns and bombs for attacking the electric grid.  The EMP field will cause widespread damage of electronics, so precision targeting is much less necessary.  And unlike damage from guns and bombs, an attack by RFWs is much less conspicuous, and may even be misconstrued as an unusual accident arising from faulty components and systemic failure.

Some documented examples of successful attacks using Radio Frequency Weapons, and accidents involving electromagnetic transients, are described in the Department of Defense Pocket Guide for Security Procedures and Protocols for Mitigating Radio Frequency Threats (Technical Support Working Group, Directed Energy Technical Office, Dahlgren Naval Surface Warfare Center):

--"In the Netherlands, an individual disrupted a local bank's computer network because he was turned down for a loan.  He constructed a Radio Frequency Weapon the size of a briefcase, which he learned how to build from the Internet.  Bank officials did not even realize that they had been attacked or what had happened until long after the event."

--"In St. Petersburg, Russia, a criminal robbed a jewelry store by defeating the alarm system with a repetitive RF generator.  Its manufacture was no more complicated than assembling a home microwave oven."

--"In Kzlyar, Dagestan, Russia, Chechen rebel commander Salman Raduyev disabled police radio communications using RF transmitters during a raid."

--"In Russia, Chechen rebels used a Radio Frequency Weapon to defeat a Russian security system and gain access to a controlled area."

-- "Radio Frequency Weapons were used in separate incidents against the U.S. Embassy in Moscow to falsely set off alarms and to induce a fire in a sensitive area."

--"March 21-26, 2001, there was a mass failure of keyless remote entry devices on thousands of vehicles in the Bremerton, Washington, area...The failures ended abruptly as federal investigators had nearly isolated the source.  The Federal Communications Commission (FCC) concluded that a U.S. Navy presence in the area probably caused the incident, although the Navy disagreed."

--"In 1999, a Robinson R-44 news helicopter nearly crashed when it flew by a high frequency broadcast antenna."

 --"In the late 1980s, a large explosion occurred at a 36-inch diameter natural gas pipeline in the Netherlands.  A SCADA system, located about one mile from the naval port of Den Helder, was affected by a naval radar.  The RF energy from the radar caused the SCADA system to open and close a large gas flow-control valve at the radar scan frequency, resulting in pressure waves that traveled down the pipe and eventually caused the pipeline to explode."

--"In June 1999 in Bellingham, Washington, RF energy from a radar induced a SCADA malfunction that caused a gas pipeline to rupture and explode."

--"In 1967, the USS Forrestal was located at Yankee Station off Vietnam.  An A4 Skyhawk launched a Zuni rocket across the deck.  The subsequent fire took 13 hours to extinguish.  134 people died in the worst U.S. Navy accident since World War II.  EMI [Electro-Magnetic Interference] was identified as the probable cause of the Zuni launch."

--North Korea used an Radio Frequency Weapon, purchased from Russia, to attack airliners and impose an "electromagnetic blockade" on air traffic to Seoul, South Korea's capitol.  The repeated attacks by RFW also disrupted communications and the operation of automobiles in several South Korean cities in December 2010; March 9, 2011; and April-May 2012 as reported in "Massive GPS Jamming Attack By North Korea" (GPSWORLD.COM, May 8, 2012).    

All Hazards Strategy.  The Congressional EMP Commission recommended an "all hazards" strategy to protect the nation by addressing the worst threat--nuclear EMP attack.  Nuclear EMP is worse than natural EMP and the EMP from RFWs because it combines several threats in one.  Nuclear EMP has a long-wavelength component like a geomagnetic super-storm, a short-wavelength component like Radio-Frequency Weapons, a mid-wavelength component like lightning--and is potentially more powerful and can do deeper damage than all three. 

Thus, protecting the electric grid and other critical infrastructures from nuclear EMP attack will also protect against a Carrington Event and RFWs.  Moreover, protecting against nuclear EMP will also protect the grid and other critical infrastructures from the worst over-voltages that may be generated by severe weather, physical sabotage, or cyber-attacks.

EMP--The Ultimate Cyber Weapon

Ignorance of the military doctrines of potential adversaries and a failure of strategic imagination is setting America up for an EMP Pearl Harbor that could easily be avoided--if we would only heed that terrorist sabotage of electric grids and cyber-attacks are early warning indicators.  In fact, in the military doctrines, planning, and exercises of Russia, China, North Korea and Iran, nuclear EMP attack is the ultimate weapon in an all-out cyber operation aimed at defeating nations by blacking-out their electric grids and other critical infrastructures.

For example, Russian General Vladimir Slipchenko in his military textbook No Contact Wars describes the combined use of cyber viruses and hacking, physical attacks, non-nuclear EMP weapons, and ultimately nuclear EMP attack against electric grids and critical infrastructures as a new way of warfare that is the greatest Revolution in Military Affairs (RMA) in history.  Like Nazi Germany's Blitzkrieg ("Lightning War") Strategy that coordinated airpower, armor, and mobile infantry to achieve strategic and technological surprise that nearly defeated the Allies in World War II, the New Blitzkrieg is, literally and figuratively an electronic "Lightning War" so potentially decisive in its effects that an entire civilization could be overthrown in hours.  According to Slipchenko, EMP and the new RMA renders obsolete modern armies, navies and air forces.  For the first time in history, small nations or even non-state actors can humble the most advanced nations on Earth.

China's military doctrine sounds an identical theme.  According to People's Liberation Army textbook World War, the Third World War--Total Information Warfare, written by Shen Weiguang (allegedly the inventor of Information Warfare), "Therefore, China should focus on measures to counter computer viruses, nuclear electromagnetic pulse...and quickly achieve breakthroughs in those technologies...":

With their massive destructiveness, long-range nuclear weapons have combined with highly sophisticated information technology and information warfare under nuclear deterrence....Information war and traditional war have one thing in common, namely that the country which possesses the critical weapons such as atomic bombs will have "first strike" and "second strike retaliation" capabilities....As soon as its computer networks come under attack and are destroyed, the country will slip into a state of paralysis and the lives of its people will ground to a halt.  Therefore, China should focus on measures to counter computer viruses, nuclear electromagnetic pulse...and quickly achieve breakthroughs in those technologies in order to equip China without delay with equivalent deterrence that will enable it to stand up to the military powers in the information age and neutralize and check the deterrence of Western powers, including the United States.

Iran in a recently translated military textbook endorses the theories of Russian General Slipchenko and the potentially decisive effects of nuclear EMP attack some 20 times.  An Iranian political-military journal, in an article entitled “Electronics To Determine Fate Of Future Wars,” states that the key to defeating the United States is EMP attack and that, “If the world's industrial countries fail to devise effective ways to defend themselves against dangerous electronic assaults, then they will disintegrate within a few years.":

Advanced information technology equipment exists which has a very high degree of efficiency in warfare.  Among these we can refer to communication and information gathering satellites, pilotless planes, and the digital system....Once you confuse the enemy communication network you can also disrupt the work of the enemy command and decision-making center. Even worse, today when you disable a country’s military high command through disruption of communications you will, in effect, disrupt all the affairs of that country....If the world’s industrial countries fail to devise effective ways to defend themselves against dangerous electronic assaults, then they will disintegrate within a few years... American soldiers would not be able to find food to eat nor would they be able to fire a single shot.  (Tehran, Nashriyeh-e Siasi Nezami, December 1998 -January 1999)

North Korea appears to have practiced the military doctrines described above against the United States--including by simulating a nuclear EMP attack against the U.S. mainland.  Following North Korea's third illegal nuclear test in February 2013, North Korean dictator Kim Jong-Un repeatedly threatened to make nuclear missile strikes against the U.S. and its allies.  In what was the worst ever nuclear crisis with North Korea, that lasted months, the U.S. responded by beefing-up National Missile Defenses and flying B-2 bombers in exercises just outside the Demilitarized Zone to deter North Korea.  On April 9, 2013, North Korea's KSM-3 satellite orbited over the U.S. from a south polar trajectory, that evades U.S. early warning radars and National Missile Defenses, at the near optimum altitude and location to place an EMP field over all 48 contiguous United States.  On April 16, 2013, the KSM-3 again orbited over the Washington, D.C.-New York City corridor where, if the satellite contained a nuclear warhead, it could project the peak EMP field over the U.S. political and economic capitals and collapse the Eastern Grid, which generates 75 percent of U.S. electricity.  On the same day, parties unknown used AK-47s to attack the Metcalf transformer substation that services San Francisco, the Silicon Valley, and is an important part of the Western Grid.  Blackout of the Western Grid, or of just San Francisco, would impede U.S. power projection capabilities against North Korea.  In July 2013, a North Korean freighter transited the Gulf of Mexico with two nuclear capable SA-2 missiles in its hold, mounted on their launchers hidden under bags of sugar, discovered only after the freighter tried to return to North Korea through the Panama Canal.  Although the missiles were not nuclear armed, they are designed to carry a 10 kiloton warhead, and could execute the EMP Commission's nightmare scenario of an anonymous EMP attack launched off a freighter.  All during this period, the U.S. electric grid and other critical infrastructures experienced various kinds of cyber-attacks, as they do every day and continuously.

North Korea appears to have been so bold as to use the nuclear crisis it deliberately initiated to practice against the United States an all-out cyber warfare operation, including computer bugs and hacking, physical sabotage, and nuclear EMP attack.

Just as Nazi Germany practiced the Blitzkrieg in exercises and during the Spanish Civil War (1936-1939), before surprising the Allies in World War II, so terrorists and state actors appear to be practicing now.  For example:

--On October 27, 2013, the Knights Templars, a criminal drug cartel, blacked-out Mexico's Michoacan state and its population of 420,000, so they could terrorize the people and paralyze the police.  The Knights, cloaked by the blackout, entered towns and villages and publicly executed leaders opposed to the drug trade.

--On June 9, 2014, Al Qaeda in the Arabian Peninsula used mortars and rockets to destroy transmission towers, plunging into darkness all of Yemen, a country of 16 cities and 24 million people.  It is the first time in history that terrorists put an entire nation into blackout, and an important U.S. ally, whose government was shortly afterwards overthrown by terrorists allied to Iran.

--In July 2014, according to press reports, a Russian cyber-bug called Dragonfly infected 1,000 electric power-plants in Western Europe and the United States for purposes unknown, possibly to plant logic bombs in power-plant computers to disrupt operations in the future. 

--On January 25, 2015, terrorists blacked-out 80 percent of the electric grid in Pakistan, a nation of 185 million people, and a nuclear weapons state.

--On March 31, 2015, most of Turkey's 75 million people experienced a widespread and disruptive blackout, the NATO ally reportedly victimized by a cyber-attack from Iran.

On June 20, 2015, the New York Times reported that administration officials in a classified briefing to Congress on a cyber-attack from China, that stole sensitive U.S. Government data on millions of federal employees, was information warfare "on a scale we've never seen before from a traditional adversary."  Yet this and the other ominous threats described above are already forgotten, or relegated to back page news, as policymakers and the public stumble on, seemingly shell-shocked and uncomprehending, to the latest cyber crisis.

We as a nation are not "connecting the dots" through a profound failure of strategic imagination.  Like the Allies before the Blitzkrieg of World War II, we are blind to the unprecedented existential threat that is about to befall our civilization--figuratively and literally, from the sky, like lightning. 

Washington Dysfunction

The Congressional EMP Commission recommended a plan to protect the national electric grid from nuclear EMP attack, that would also mitigate all lesser threats--including natural EMP, RFWs, cyber bugs and hacking, physical sabotage, and severe weather--for about $2 billion, which is what the U.S. gives away every year in foreign aid to Pakistan.  About $10-20 billion would protect all the critical infrastructures from nuclear EMP attack and other threats. 

There are other plans that cost much less, and much more, because there are different technologies and strategies for protecting against EMP, and to different levels of risk.  Any or all of these plans are commendable.  There is no such thing as being over-prepared for an existential threat.

Unfortunately, none of these plans has been implemented.  The U.S. electric grid and other civilian critical infrastructures remain utterly vulnerable to EMP because of lobbying by the electric utilities in Congress, the federal bureaucracy, and the White House. 

Lobbying by the electric power industry and their North American Electric Reliability Corporation (NERC) has, so far, thwarted every bill by the U.S. Congress to protect the grid from EMP.  For example, in 2010, the House passed unanimously the GRID Act--which was denied a vote in the Senate, because a single Senator on the Energy and Natural Resources Committee put a hold on the bill.  If the GRID Act passed in 2010, the national electric grid would already be protected from EMP, a process the EMP Commission estimated would take about 3-5 years.   

The SHIELD Act, another bipartisan bill to protect the electric grid, has been stalled in the House Energy and Commerce Committee for years, due to lobbying by the electric utilities.

Even worse, the U.S. Federal Energy Regulatory Commission, which has a too deferential and too cozy relationship with NERC, has approved a NERC proposed standard for protecting the grid from solar storms that has been condemned by the best scientific experts.  Dr. William Radasky and John Kappenman, who both served on the Congressional EMP Commission, and other independent experts have written scientific critiques proving that the NERC standard for natural EMP (also called GMD for Geo-Magnetic Disturbance) is based on "junk science" that grossly underestimates the threat from natural EMP.    

For example, Kappenman and Radasky, who are among the world's foremost scientific and technical experts on geomagnetic storms and grid vulnerability, warn that NERC's GMD Standard consistently underestimates the natural EMP threat from geo-storms:  "When comparing...actual geo-electric fields with NERC model derived geo-electric fields, the comparisons show a systematic under-prediction in all cases of the geo-electric field by the NERC model."

Dr. Radasky, who holds the Lord Kelvin Medal for setting standards for protecting European electronics from natural and nuclear EMP, and John Kappenman, who helped design the ACE satellite upon which industry relies for early warning of geomagnetic storms, conclude that the NERC GMD Standard so badly underestimates the natural EMP threat that "its resulting directives are not valid and need to be corrected."  Kappenman and Radasky:

These enormous model errors also call into question many of the foundation findings of the NERC GMD draft standard.  The flawed geo-electric field model was used to develop the peak geo-electric field levels of the Benchmark model proposed in the standard.  Since this model understates the actual geo-electric field intensity for small storms by a factor of 2 to 5, it would also understate the maximum geo-electric field by similar or perhaps even larger levels.  Therefore, the flaw is entirely integrated into the NERC Draft Standard and its resulting directives are not valid and need to be corrected.

The excellent Kappenman-Radasky critique of the NERC GMD Standard represents the consensus view of all the independent observers who participated in the NERC GMD Task Force. 

Perhaps most revelatory of U.S. FERC's failures, by approving the NERC GMD Standard that grossly underestimates the natural EMP threat from geo-storms--U.S. FERC abandoned its own much more realistic estimate of the natural EMP threat from geo-storms.  It is incomprehensible why U.S. FERC would ignore the findings of its own excellent interagency study, one of the most in depth and meticulous studies of the EMP threat ever performed, that was coordinated with Oak Ridge National Laboratory, the Department of Defense, and the White House. 

U.S. FERC's preference for NERC's "junk science" over U.S. FERC's own excellent scientific assessment of the geo-storm threat is indefensible.  

The White House has not helped matters by issuing a draft executive order for protecting the national grid from natural EMP--but that trusts NERC and the electric utilities to set the standards. 

Nor has the White House or the U.S. FERC challenged NERC's assertion that it has no responsibility to protect the electric grid from nuclear EMP or Radio-Frequency Weapons. 

Nor has the White House or the U.S. FERC done anything to prevent NERC and the utilities from misinforming policymakers and the public about the EMP threat and their lack of preparedness to survive and recover from an EMP catastrophe. 

Consequently, policymakers in the States who are alarmed by the lack of progress in Washington on EMP preparedness, find themselves seriously disadvantaged in efforts to protect their State electric grids by the utilities and their well-funded lobbyists who falsely claim Washington and the utilities are making great progress partnering on the EMP problem.  So far in 2015, State initiatives to protect their electric grids have been defeated by industry lobbyists in Maine, Colorado, and Texas.

Texas State Senator Bob Hall, a former USAF Colonel and himself an EMP expert, characterizes as "equivalent to treason" the behavior of the electric utilities and their lobbyists:

As a Texas State Senator who tried in the 2015 legislative session to get a bill passed to harden the Texas grid against an EMP attack or nature's GMD, I learned firsthand the strong control the electric power company lobby has on elected officials. We did manage to get a weak bill passed in the Senate but the power companies had it killed in the House.  A very deceitful document which was carefully designed to mislead legislators was provided by the power company lobbyist to legislators at a critical moment in the process.  The document was not just misleading, it actually contained false statements.  The EMP/GMD threat is real and it is not "if" but WHEN it will happen.  The responsibility for the catastrophic destruction and wide spread death of Americans which will occur will be on the hands of the executives of the power companies because they know what needs to be done and are refusing to do it.  In my opinion power company executives, by refusing to work with the legislature to protect the electrical grid infrastructure are committing an egregious act that is equivalent to treason.  I know and understand what I am saying.  As a young US Air Force Captain, with a degree in electrical engineering from The Citadel, I was the project officer who led the Air Force/contractor team which designed, developed and installed the modification to "harden" the Minuteman Strategic missile to protect it from an EMP attack.  The American people must demand that the power company executives that are hiding the truth stop deceiving the people and immediately begin protecting our electrical grid so that life as we know it today will not end when the terrorist EMP attack comes.

Ironically, while electric power lobbyists are fighting against EMP protection in Washington, Texas, Maine, Colorado and elsewhere, the Iranian news agency MEHR recently reported that Iran is violating international sanctions and going full bore to protect itself from a nuclear EMP attack:

Iranian researchers...have built an Electromagnetic Pulse (EMP) filter that protects country's vital organizations against cyber-attack.  Director of Kosar Information and Communication Technology Institute Saeid Rahimi told MNA correspondent that the EMP (Electromagnetic Pulse) filter is one of the country's boycotted products and until now procuring it required considerable costs and various strategies.  "But recently Kosar ICT...has managed to domestically manufacture the EMP filter for the very first time in this country," said Rahimi.  Noting that the domestic EMP filter has been approved by security authorities, Rahimi added "the EMP filter protects sensitive devices and organizations against electromagnetic pulse and electromagnetic terrorism."  He also said the domestic EMP filter has been implemented in a number of vital centers in Iran.  (MEHR News Agency, "Iran Builds EMP Filter for 1st Time" June 13, 2015) 

What Is To Be Done?

Congress should pass the Critical Infrastructure Protection Act (CIPA), which requires the Department of Homeland Security to adopt a new National Planning Scenario focused on EMP; to develop plans to protect the critical infrastructures; and for emergency managers and first responders to plan and train to protect and recover the nation from an EMP catastrophe.  CIPA will enable DHS to draw upon the deep expertise within the Department of Defense and the Intelligence Community to help protect the critical infrastructures from EMP.  Do not let the electric power lobby defeat CIPA or weaken its provisions, as they are presently trying to do.

Reestablish the Congressional EMP Commission.  The greatest progress was being made when the EMP Commission existed to advance EMP preparedness.  Progress stopped when the EMP Commission terminated in 2008.  Currently, the struggle to advance national EMP preparedness is being carried on by a handful of patriotic individuals and Non-Government Organizations who have no official standing and extremely limited resources.  Bring back the EMP Commission with its deep expertise to advise Congress, government at all levels, and the private sector on how best to protect the nation, and to serve as a watchdog and leader for national EMP preparedness.

Pass the SHIELD Act or the GRID Act to establish adequate regulatory authority within the U.S. Government to achieve timely protection of the electric grid--and watch U.S. FERC like a hawk to make sure that regulatory authority is exercised.

Include in the National Defense Authorization Act the simple two-sentence provision below, that could rapidly reverse the trend of America's increasing vulnerability to EMP, by directing the Secretary of Defense to help State governments and the electric utilities protect themselves from an EMP catastrophe:

Energy Security For Military Bases And Critical Defense Industries

Whereas 99 percent of the electricity used by CONUS military bases is supplied by the national electric grid; whereas the Department of Defense has testified to Congress that DoD cannot project power overseas or perform its homeland security mission without electric power from the national grid; whereas the Congressional EMP Commission warned that up to 9 of 10 Americans could die from starvation and societal collapse from a nationwide blackout lasting one year; therefore the Secretary of Defense is directed to urge governors, state legislators, public utility commissions of the 50 states, the North American Electric Reliability Corporation (NERC) and the utilities that supply electricity to CONUS military bases and critical defense industries, to protect the electric grid from a high-altitude nuclear electromagnetic pulse (EMP) attack, from natural EMP generated by a solar super-storm and from other EMP threats including radiofrequency weapons, and to help the states, NERC, public utilities commissions, and electric utilities by providing DoD expertise on EMP and other such support and resources as may be necessary to protect the national electric grid from natural and manmade EMP threats. The Secretary of Defense is authorized to spend up to $2 billion in FY2017 to help protect the national electric grid from EMP.

Testimony

The Iran Nuclear Deal and its Impact on Terrorism Financing

Testimony for House Financial Services Committee, Task Force to Investigate Terrorism Financing
22nd July 2015

Download full testimony here 

Chairman Fitzpatrick, Ranking Member Lynch, members of the Task Force to Investigate Terrorism Financing, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, thank you for the opportunity to testify.

This afternoon, I would like to address the flaws in the Joint Comprehensive Plan of Action (JCPOA) by examining the sanctions relief and so-called “snapback” sanctions in the deal. The JCPOA dismantles the U.S. and international economic sanctions architecture, which was put in place to address the full range of Iran’s illicit activities. In its place, the JCPOA creates not an effective economic sanctions snapback but rather an Iranian “nuclear snapback” which undermines America’s ability to peacefully prevent Iran from acquiring a nuclear weapons capability. Instead of this current JCPOA, Congress should work with the administration to amend and strengthen the agreement so that it much more effectively blocks Iran’s pathways to a nuclear bomb and retains tools of effective and peaceful sanctions enforcement against Iranian illicit behavior on multiple fronts. 

JCPOA & CHALLENGE TO CONDUCT-BASED FINANCIAL SANCTIONS

The Iran sanctions regime was designed to respond to the full range of Iran’s illicit activities, not only the development of Iran’s illicit nuclear program. The United States has spent the last decade building a powerful yet delicate sanctions architecture to punish Iran for its nuclear mendacity, its illicit ballistic missile development, its vast financial support for terrorist groups, its backing of other rogue states like Bashar Assad’s Syria, its human rights abuses, and the financial crimes that sustain these illicit activities. More broadly, a primary goal of the sanctions on Iran, as explained by senior Treasury Department officials over the past decade, was to “protect the integrity of the U.S. and international financial systems” from Iranian illicit financial activities and the bad actors that facilitated these. 

The goal of sanctions was to provide the president with the tools to stop the development of an Iranian nuclear threshold capacity and also to protect the integrity of the U.S.-led global financial sector from the vast network of Iranian financial criminals and the recipients of their illicit transactions. This included brutal authoritarians, terrorist funders, weapons and missile proliferators, narco-traffickers, and human rights abusers.

Tranche after tranche of designations issued by the Treasury, backed by intelligence that often took months, if not years, to compile, isolated Iran’s worst financial criminals. And designations were only the tip of the iceberg. Treasury officials traveled the globe to meet with financial leaders and business executives to warn them against transacting with known and suspected terrorists and weapons proliferators.  This campaign was crucial to isolating Iran in order to deter its nuclear ambitions and also to address the full range of its illicit conduct.

Following years of individual designations of Iranian and foreign financial institutions for involvement in the illicit financing of nuclear, ballistic missile, and terrorist activities,  Treasury issued a finding in November 2011 under Section 311 of the USA PATRIOT Act that Iran, as well as its entire financial sector including the Central Bank of Iran (CBI), is a “jurisdiction of primary money laundering concern.”  Treasury cited Iran’s “support for terrorism,” “pursuit of weapons of mass destruction,” including its financing of nuclear and ballistic missile programs, and the use of “deceptive financial practices to facilitate illicit conduct and evade sanctions.”  The entire country’s financial system posed “illicit finance risks for the global financial system.”  Internationally, the global anti-money laundering and anti-terror finance standards body the Financial Action Task Force (FATF) also warned its members that they should “apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran.”

As recently as June 26, 2015, FATF issued a statement warning that Iran’s “failure to address the risk of terrorist financing” poses a “serious threat … to the integrity of the international financial system.”

The Section 311 finding was conduct-based; it would be appropriate, therefore, to tie the lifting of sanctions on all designated Iranian banks, especially the legislatively-designated Central Bank of Iran, and their readmission onto SWIFT and into the global financial system, to specific changes in the conduct of these Iranian entities across the full range of Iran’s illicit financial activities. However, the JCPOA requires the lifting of financial sanctions—including the SWIFT sanctions—prior to a demonstrable change in Iran’s illicit financial conduct.

In the past, Washington has given “bad banks” access to the global financial system in order to secure a nuclear agreement. In 2005, Treasury issued a Section 311 finding against Macau-based Banco Delta Asia,  and within days, North Korean accounts and transactions were frozen or blocked in banking capitals around the world. North Korea refused to make nuclear concessions before sanctions relief and defiantly conducted its first nuclear test.  The State Department advocated for the release of frozen North Korean funds on good faith,  and ultimately prevailed. As a result, however, Washington lost its leverage and its credibility by divorcing the Section 311 finding from the illicit conduct that had prompted the finding in the first place. Undeterred, North Korea moved forward with its nuclear weapons program while continuing to engage in money laundering, counterfeiting, and other financial crimes.

Compromising the integrity of the U.S. and global financial system to conclude a limited agreement with North Korea neither sealed the deal nor protected the system. The JCPOA appears to repeat this same mistake by lifting financial restrictions on bad banks without certifications that Iran’s illicit finance activities have ceased.

The JCPOA stipulates that of the nearly 650 entities that have been designated by the U.S. Treasury for their role in Iran’s nuclear and missile programs or for being owned or controlled by the government of Iran, more than 67 percent will be de-listed from Treasury’s blacklists within 6-12 months. This includes the Central Bank of Iran and most major Iranian financial institutions. After eight years, only 25 percent of the entities that have been designated by Treasury over the past decade will remain sanctioned. Many IRGC businesses that were involved in the procurement of material for Iran’s nuclear and ballistic missile programs will be de-listed as will some of the worst actors involved in Iran’s nuclear weaponization activities. Even worse, the EU will lift all of its economic sanctions on Iran, which were all established only on nuclear grounds, including on the notorious Quds Force commander Qassem Soleimani. As discussed below, this will enable the IRGC to treat Europe as an economic free zone.

What is especially notable about the lifting of designations is that the Obama administration has provided no evidence to suggest that these individuals, banks, and businesses are no longer engaging in the full range of illicit conduct on which the original designations were based. What evidence, for example, is there for the de-designation of the Central Bank of Iran, which is the main financial conduit for the full range of Iran’s illicit activities, and how does a nuclear agreement resolve its proven role in terrorism and ballistic missile financing, money laundering, deceptive financial activities, and sanctions evasion? In other words, with the dismantlement of much of the Iran sanctions architecture in the wake of a nuclear agreement, the principle upon which Treasury created the sanctions architecture—the protection of the global financial system—is no longer the standard.

Testimony

The Gulf Cooperation Council Camp David Summit: Any Results?

Testimony for House Committee on Foreign Affairs, Subcommittee on the Middle East and North Africa
9th July 2015

Chairman Ros-Lehtinen, Ranking Member Deutch, and distinguished Members of the Subcommittee: thank you on behalf of the Foundation for Defense of Democracies for the opportunity to testify before you again on America’s relations with the states of the Gulf Cooperation Council (GCC). As a former professional staff member at this Committee, I am particularly appreciative for the chance to discuss this important topic with you here today.

In light of President Obama’s May summit with senior princes from the Arab Gulf monarchies, it makes sense to take stock of America’s relations with members of the Gulf Cooperation Council. Saudi Arabia, the United Arab Emirates, Bahrain, Oman, Kuwait, and Qatar all rely on the United States to ensure their national security, and America looks to these countries as essential security partners in the region. So how healthy are U.S. relations with the Gulf?

Unfortunately, not very. U.S. relations with members of the GCC can best be likened to a dissatisfying relationship such as a bad marriage, in which both sides rely on each other for certain basic needs but also feel that their broader desires are going unfulfilled. Prince Saud al-Faisal, who until recently represented Saudi Arabia as the longest-serving foreign minister in the world, described his country’s ideal relationship with America as transitioning away from a monogamous Catholic marriage to one resembling a polygamous Islamic marriage that allows the kingdom to seek strategic relations with several partners at once.

Yet the GCC states still look to America as the ultimate guarantor of their security against external threats, as the closing joint statement from the recent Camp David summit confirmed. And Washington still relies on the Arab Gulf monarchies as a jumping-off platform for many of our military activities in the region. The tenor and content of relations in the last two years or so have arguably been worse off than at any point since the immediate aftermath of 9/11, with frequent sniping in the press. We should explore how to make relations more sustainable and more valuable to the citizens on both sides.

The Gulf summit at Camp David showcased our relationship with the GCC states, including the strong areas – such as military-to-military cooperation – and the not-so-strong areas, such as our anemic dialogue on reform and human rights. Nominally, the purpose of the talks was to address Gulf concerns about the Iranian nuclear negotiations, with President Obama first calling for the summit in his remarks upon the conclusion of the Lausanne framework agreement with Iran in April. However, the U.S. seems to have offered very little in the way of new security assurances or operational plans to impede Iran’s destabilizing actions in the region.

The Gulf states are particularly disappointed about American inaction with regard to Syria, where they feel we have turned a blind eye to Bashar al-Assad’s massacre of their fellow Sunni compatriots. Saudi officials have already described the conflict in Syria as genocide, yet despite Saudi Arabia’s newfound military assertiveness in recent months, Syria is one place where they simply don’t feel they can go it alone.

Our Gulf allies also view with great trepidation America’s pursuit of a multilateral agreement with Tehran on the nuclear track, since most of these monarchies see Iran’s invasive Islamic Revolutionary Guard Corps (IRGC) as their primary threat in the region. Our partners in the Gulf have nominally welcomed the possibility of a verifiable and enforceable nuclear agreement with Iran, but privately they tend to characterize the results of recent negotiations with Iran as a failure to live up to that ideal. For example, they view the deal’s sunset provisions as a worrying sign that they have been abandoned in the face of an unchecked, long-term Iranian threat.

The United States, on the other hand, has at least three major reasons to be upset with some of its partners in the Gulf: negligence in the fight against terror finance, religious incitement, and state abuses of human and civil rights. Together, these factors create a toxic brew that heightens the appeal and capacity of terrorist groups throughout the broader Middle East and North Africa.

Several of America’s GCC allies have egregiously violated the formal terms of their role in the fight against the Islamic State, as exemplified by the Jeddah Communiqué. Secretary of State John Kerry worked extremely hard to get the GCC states and four other Arab governments to commit to fighting the flow of foreign fighters, ending the incitement, and stopping terror finance – to change the rules of the game so that we can finally defeat groups like ISIL and keep them from reemerging. States such as Qatar, Saudi Arabia, and Kuwait have violated some of these crucial pledges, and it is up to our government to press them for more serious results.

Further, it is impossible to describe America’s relations with the Gulf without also considering the prominent energy dimensions of these ties. Our allies in the region are heavily dependent on fossil fuels for their revenues and broader prosperity, and they approached America’s shale revolution as a serious threat to their financial well-being. As such, Saudi Arabia’s decision to maintain production in a bear market and crash the price of oil should be seen in part as a conscious effort to kill the growth in high-cost oil production, including from hydraulic fracturing in the U.S., tar sands in Canada, deep-water drilling around Brazil, and oil drilling in the Arctic.

This decision by Saudi Arabia and supported by several other Gulf states (with the very public exception of Oman) is also undermining the economic viability of alternative fuel options by decreasing their market viability. The unfortunate reality is that even with the boom in America’s domestic production of natural gas, we remain over 95% reliant on petroleum (in short, gasoline) for fueling our transportation sector. This is a real economic and national security vulnerability, and an area where we need leadership from Washington in the form of a national strategy for advancing domestic fuel choice. Without it, American industry and consumers will remain acutely vulnerable to oil market disruptions of this sort from the Gulf.

Iran in the Gulf

Iran is the shared threat that animates the lion’s share of America’s security cooperation with the Gulf monarchies today. That is also where we have the most work left to do when it comes to reassuring our Gulf allies, and it was at least nominally the focus of why President Obama called for a summit at Camp David earlier this year. At Camp David, the GCC states gave their vague backing to at least the idea of a “comprehensive, verifiable” nuclear deal with Iran, but they also remain wary as to whether the terms of a deal are likely to fulfill their requirements.

The IRGC:

Despite hopes articulated by the administration that we will see a more moderate Iran in the case of a nuclear agreement, Tehran’s conduct in and around the Gulf since the adoption of the interim Joint Plan of Action (JPOA) and the Lausanne framework has yet to provide persuasive indication they are turning over a more moderate leaf in the region. In fact, the most recent Iranian budget displayed a shocking 48% increase in the IRGC’s public allotment in spite of the impact of international sanctions.

Now imagine what the IRGC will be capable of once its government eventually has access to over $100 billion in assets currently frozen, plus some combination of sanctions lifted on oil sales, upstream energy investment, the petrochemical sector, transferring advanced energy technologies, banks used by the regime, Iranian shipping authorities, and on trade in precious metals. While it would be folly to suggest all of these assets will end up in the hands of terrorists, it would be similarly misleading to believe the IRGC will not share in the windfall.

Since the signing of the JPOA, Iran’s international misadventures have included particularly aggressive proxy activity in Iraq, in Syria, and in Yemen. According to the Wall Street Journal, they are even increasing their training, funding, and provision of weapons to the Afghan Taliban. Tehran’s magnanimous relationship with Hamas is reportedly “back on track,” and Tehran has been providing increasingly sophisticated missile hardware to Hezbollah. Kuwait, Saudi Arabia, and particularly Bahrain claim to have been the victims of Iranian espionage or subversion. In the case of Bahrain, last year U.S. officials seemed to confirm attempts by the IRGC to smuggle weapons into the country and to train violent members of the radical opposition. Last month, Bahraini officials announced the seizure of advanced explosives and bomb-making materials that they claimed bore “clear similarities” to methods used by the IRGC and its regional proxies.

In Iraq, the latest State Department counterterrorism report revealed that “Iran increased its assistance to Iraqi Shia militias, one of which is a designated Foreign Terrorist Organization,” and several of which have previously targeted U.S. troops or “committed serious human rights abuses against primarily Sunni civilians.”

These militias have now displaced the Baghdad formal military as the main ground force used for many military operations in Western Iraq. From the perspective of the GCC, it is particularly worrisome for them to see the U.S. working indirectly to provide air cover for these Iranian protégés in Iraq. Reports that some U.S. soldiers have been forced to share a base with some of these militias are particularly stunning. Saudi officials have complained “Iran is taking over the country.”

In fact, the Gulf states are so concerned that the new Saudi king, Salman bin Abdulaziz Al Saud, jettisoned his predecessor’s campaign against the Muslim Brotherhood to make common cause with a wider range of Arab states against Iranian efforts throughout the region. This played a key part in Riyadh’s bid to build a coalition against the insurgents of Ansar Allah, also known as the Houthis, in Yemen, as well as in the kingdom’s turnabout on radical Islamist groups inside Syria.

While Tehran does not appear to exert command and control over the Houthi rebels inside Yemen, it is inconceivable that they would have been able to conquer so much of the country, including most of the north, without the generous aid they had been receiving from Iran. According to the Wall Street Journal, American officials believe the rebels received “significant” cash from Tehran, and an informed Houthi official said the group received tens of millions of dollars from Tehran.

According to an Iranian official quoted by Reuters, the IRGC’s Quds Force deployed hundreds of operatives in Yemen to train Houthi fighters; additionally, Houthi members were reportedly traveling to Iran and Lebanon for military training. News reports since at least 2012 have documented ships linked to the IRGC bringing military equipment to Ansar Allah in Yemen by the ton, including rifles, ammunition, night-vision goggles, missiles, artillery, rocket-propelled grenades, and explosives. Others claim the group received such shipments as early as 2009.

When Judy Woodruff of PBS NewsHour asked Secretary of State Kerry about Iranian military aid to the rebels, he said that “there are obviously supplies that have been coming from Iran. There are a number of flights every single week that have been flying in, and we trace those flights and we know this.” The Saudi-led coalition spokesperson General Ahmed Asiri went even further, claiming Tehran had fourteen domestic flights per week running to Sanaa before the war and that “most of them” were “used to transport ammunition and weapons.”

The U.S. has provided ammunition, target vetting, and refueling support to the air coalition, as well as backing the Saudi-led air and naval embargo. Yet we have fundamentally been treating it as someone else’s war, which has not escaped the attention of Sunni-ruled states in the Gulf. Between our government’s pursuit of a nuclear deal with Iran and its disengaged approach to Syria, Iraq, and Yemen, many of Gulf allies have begun to wonder if they are on a fast track to military abandonment.

As my co-panelist Mr. Eisenstadt has aptly noted, this credibility gap cannot be addressed with arms sales or forward military deployments alone. The Gulf states need to believe that we will use our own military might to support them when push comes to shove.

America’s decision not to launch airstrikes after the Assad regime was caught using chemical weapons against its own people in 2013 seriously exacerbated this credibility gap, and reportedly so did America’s reluctance to send additional forces to the Gulf at that time to ward off possible retaliation by Iran. Simply put, the Gulf states have trouble believing that America will actually be prepared to join them in fighting back against incursions by the IRGC and its local military allies. And so long as the Gulf states do not believe we have their best interests in mind, it becomes dramatically harder for us to encourage them to take important steps to combat religious incitement, terror finance, and abuses of civil and human rights.

As I testified before this panel last year, the prism through which the GCC states view Iran’s intentions, including its long-term nuclear intentions, is how Iran utilizes the Islamic Revolutionary Guard Corps. Further, the IRGC is the bellwether by which our Gulf allies view America’s value as an ally and our intentions with regard to Iran’s nuclear program. If Iran does not decrease its regional adventurism after a deal and we do not step up our efforts to contain the IRGC, then the Gulf states will not trust us to keep Iran from building a nuclear weapon either before or after the terms of a nuclear agreement with the E3/EU+3 have expired.

Proliferation Challenges

The stakes for this debate could not be any higher. The Arab Gulf states, and Saudi Arabia in particular, are in a position to redouble their efforts to build a civilian nuclear infrastructure with possible military dimensions. Individuals close to the Saudi leadership have been making reckless but unsurprising threats in this regard, suggesting that they view an Iranian nuclear deal as the starting gun in a decade-plus race to build their own nuclear capabilities to match. They have warned that Riyadh will begin to revisit their nuclear doctrine now with an eye toward developing a domestic civilian infrastructure for nuclear energy that is well-suited to allow for adding on possible military dimensions later on.

It is incumbent on U.S. officials across various components of the government to unambiguously condemn these irresponsible Saudi statements and threats. It is intolerable when Tehran behaves in this manner, but it is also intolerable for U.S. allies to blackmail us with their own threats of such roguish behavior.

Of course, it is also incumbent on U.S. leaders to address our allies’ legitimate security concerns, in particular their fear of abandonment vis-à-vis Iran. When American officials say that Iran will not be permitted to acquire nuclear weapons, they should also be taking steps to convince our allies that America will not dither to punish violations of the agreement and to devise joint plans to deter Iran from breaking out to a nuclear weapon after provisions of the deal begin to sunset. And we should be fighting the IRGC like there is no nuclear deal.

Finally, it is not enough to take these steps unless Saudi Arabia’s nuclear ambitions are also treated as part of the technical arms control conversation. In the course of reassuring the Saudis that we will help shield them from external military threats, we should be using a mix of sticks and carrots to convince them to accept real limits on the possible weaponization of their nascent nuclear energy program.

The U.A.E. signed a Section 123 agreement with Washington in 2009 whereby they agreed to forego the enrichment of uranium. This step provides a model for the region of peaceful nuclear development. And while it will be difficult to hold the Saudis to such a standard given what Tehran is permitted to keep under the terms of recent international agreements, there are still creative ways to devise credible limits on the Saudi program, such as committing to ship all nuclear fuel out of the country for enrichment and to accept rigorous monitoring by the International Atomic Energy Agency. As a member of the G20, Riyadh should be expected to take the goodwill gestures needed to reassure the world community that they are the responsible world leaders they claim to be.

Commerce in the Gulf

Moving forward, it seems likely that a revival of trade in the Gulf may not be far off. Several members of the GCC, Oman in particular, have been eager to cash in on Iran’s possible reintegration into international markets. In addition to reaching a nearby, relatively untapped group of consumers, many GCC states will look to Iran if sanctions are dropped as a source of natural gas to keep skyrocketing domestic energy consumption from eating into their oil exports.

However, this dynamic also would exacerbate Saudi Arabia’s fear of regional isolation and poses a threat to the United States if Iran’s illicit economic networks are allowed to increase their activities amidst a broader increase in above-the-board, permitted trade.

Oman has already inked deals to serve as a hub for Iranian natural gas exports, and Kuwait has also voiced a desire to purchase and consume Iranian natural gas. Qatar shares the world’s largest natural gas field with Tehran and has signaled interest in pursuing technology sharing and joint informational coordination on it. The ruler of Dubai, historically a major entrepôt for Iranian trade, voiced support for lifting Iran sanctions shortly after conclusion of the interim JPOA. Several of the smaller, less prosperous emirates toward the northern end of the U.A.E., such as Ras al-Khaimah, have expressed a particular interest in being new partners for Iranian trade.

U.S. officials will have to keep an eye out for increased flows of illicit activity amidst the potential resurgence of legally permitted finance and trade. This has been a longstanding challenge in some of these locales: for instance, Dubai has fought hard in recent years to crack down on Iranian sanctions busting, and yet the U.S. Treasury Department continues to identify entities engaged in such activity that seek to exploit Dubai’s territory for illicit gain.

This will be a region-wide challenge for the United States to monitor and disrupt, and our leaders should not allow the conclusion of a nuclear bargain with Iran to prevent them from continuing to confront the illegal networks Iran employs to break international rules and restrictions on the books. This should also be an area of continuing dialogue and cooperation with our partner governments in the GCC.

Defense Cooperation

The Camp David summit in May focused heavily on military-to-military cooperation, traditionally one of the areas of America’s Gulf relations that receive the most attention. While the GCC states were denied some of their most far-reaching requests for sophisticated military equipment or assurances, they did not walk away empty-handed. The meeting also provided an opportunity to review shared regional security challenges, although in most cases the results appear to have been simply a modest restatement of common principles.

Secretary of State Kerry predicted that the summit would “take us beyond anything that we have had before” by “fleshing out a series of new commitments” and “a new security understanding.” However, the outcome of the summit was more along the lines of what President Obama predicted, namely that he would use the summit “to see how we can formalize that a little bit more.”

As I have written with my FDD colleague Patrick Megahan, the administration evidently declined to sell the Gulf certain advanced weapons systems such as the F-35 joint strike fighter, improved bunker buster bombs, or advanced cruise missiles. On the other hand, the U.S. did agree to establish a “dedicated Foreign Military Sales procurement office to process GCC-wide sales,” a step that could speed up arms sales to the region. Press reports suggest that the U.S. may also have agreed to replenish Riyadh and Abu Dhabi’s store of guided bombs to replace those used in Yemen; to possibly sell Kuwait F/A-18 fighter jets; to move ahead with updating radar systems and avionics for F-15s and F-16s already owned by our Gulf allies; to sell Saudi Arabia ten new MH-60R helicopters; and to sell additional advanced missile defense systems such as the THAAD Terminal High Altitude Area Defense system.

The United States also offered its allies a reformulation of longstanding security guarantees, namely that we will “work with our GCC partners to determine what actions may be appropriate” in case of an external threat, up to the possible use of force, but that stilted reformulation of past practices fell far short of the formal defense treaty several Gulf states, especially the U.A.E., had reportedly sought. Further, the regional plans laid out at the conference seemed somewhat threadbare.

Syria:

On Syria, we offered yet another blandishment promising “increasing support to the moderate opposition in Syria” without any sort of explicit and credible blueprint for doing so.  In the months ahead, U.S. and Gulf officials should devise new measures to actualize this objective so that moderate forces can provide a better counterweight to the Assad dictatorship on one hand and hardline jihadist fighters on the other.

This is particularly important given reports that Saudi Arabia under the new king has joined Qatar and Turkey in strengthening hardline jihadists in Syria at the expense of the moderate opposition, allegedly allowing aid to reach certain elements of the Army of Conquest coalition in Syria that contains al Qaeda’s Nusra Front and several al Qaeda-friendly militias such as Ahrar al-Sham and Jund al-Aqsa. The summit’s closing language stated that leaders “warned against the influence of other extremist groups” in Syria beyond just ISIL “such as Al-Nusrah, that represent a danger to the Syrian people, to the region and to the international community.” Yet there is no sign that this statement has since brought about a realignment of Saudi, Qatari, or Turkish policy inside Syria since then.

Americans continue to fly air sorties against ISIL in Syria as part of Operation Inherent Resolve with some participation from the GCC states, but the vast majority of these strikes have been conducted by the U.S., not our Gulf allies. Kuwait and Oman did not pledge to participate in the airstrikes, and CENTCOM also does not include Qatar in its recent listings of states that have launched airstrikes as part of the operation to date. Meanwhile, the value of these strikes may be outweighed if some U.S. allies are turning a blind eye to al Qaeda making gains in Syria.

Libya:

On Libya, the Camp David closing statement indicated that “the leaders agreed to move in concert to convince all Libyan parties to accept an inclusive power-sharing agreement” based on U.N. initiatives and to “focus on countering the growing terrorist presence in the country.” The statement’s more detailed annex included a clarification that the goal in Libya would be to “establish a national unity government before Ramadan.”

The start of Ramadan came and went without a unity government in Libya, but the rival Libyan governments from Tobruk and Tripoli sat down this past month for substantive talks in Morocco, even though the Islamist factions that control Tripoli have been stalling since then on responding to the U.N. team’s blueprint for a unity government. Still, this readiness to pursue peace talks is a positive step, presumably with encouragement from the two sides’ patrons in Doha and Abu Dhabi, whom President Obama pressed in Maryland to set aside their differences over the conflict in Libya. Likely, the threat posed to all actors from a nascent Islamic State in the country also played a motivating role.

Yemen:

On Yemen, the U.S. wrested language from Gulf participants in the summit that “underscored the imperative of collective efforts to counter Al-Qa’ida in the Arabian Peninsula” and praised Saudi Arabia “for the generous grant of $274 million” to U.N. humanitarian efforts there. Yet press reports allege that Saudi Arabia may have delayed the subsequent delivery of this aid to wrest concessions from United Nations agencies. Further, there is no clear indication that America’s Gulf partners are devising their battle plan to include going after AQAP, arguably al Qaeda’s most dangerous branch to our security and theirs.

AQAP overran the capital of Yemen’s largest province in April, and yet Saudi-led coalition airstrikes in Yemen have focused exclusively on Ansar Allah and renegade units of the military loyal to former Yemeni President Ali Abdullah Saleh. While presumably Saudi Arabia is still sharing important intelligence on AQAP and probably the Islamic State’s upstart affiliate in Yemen as well, it is not unreasonable to expect our allies to take a direct role in combating Sunni terrorist groups in a country where they already have established clear air superiority.

Unfortunately, the war in Yemen recently passed its 100th day since the coalition intervened with no end in sight, although of course Ansar Allah’s campaign of conquest further precedes that count. We may see this war go for 1,000 days or more before it is over, and the Saudi spokesperson General Asiri has now been talking in terms of a campaign on the same order of length as the U.S.-led military effort in Afghanistan. It is hard to envision either side in Yemen coming to a lasting resolution at this point given that the Houthis still control the capital, can contest most major cities in the north, and have little incentive to given them up.

Meanwhile, the humanitarian toll for the Yemeni people is quite heavy. More than 3,000 people have been killed, more than a million have been displaced, and the number of people facing food insecurity now exceeds thirteen million. Shortages of fuel, water, and medicine are also widespread.

A central reason for this toll is the clumsy implementation of the air and sea embargoes now imposed on Yemen. Yet the goal of keeping Iranian weapons from flooding back into the country is worthwhile. The United States should examine whether there are ways it can help improve the flow of food, fuel, and medicine through this embargo, making the restrictions on illicit weapons more sustainable while decreasing the harm they are imposing on Yemen’s civilians.

Iraq:

On Iraq, the Camp David summit’s closing statement “stressed the importance of strengthening ties between GCC member states and the Iraqi government,” as well as calling on Baghdad to implement its pledges to reconcile with Sunni groups and exert control over Shi’ite militias. Sadly, little work has yet been done to reign in Iranian-backed militias in Iraq. On the plus side, Qatar and Saudi Arabia have moved ahead with plans to reopen embassies in Baghdad after too many years of limited relations, and Riyadh recently swore in its next ambassador to Baghdad.

However, when it comes to the steps that would truly be necessary for helping Baghdad win the war against terrorist organizations such as ISIL, many of America’s Gulf allies are coming up short.

Secretary of State Kerry exerted considerable effort after the Abadi government was sworn in to persuade the GCC states and several other Arab governments to sign onto the Jeddah Communiqué, an important document issued on the most recent anniversary of 9/11. In it, they promised to help the Iraqi government as part of a coalition against the Islamic State by finally addressing some of the longstanding shortcomings with their policies to combat the emergence of terrorist groups. 

Most notably, they committed to the following: “stopping the flow of foreign fighters through neighboring countries, countering financing of ISIL and other violent extremists, repudiating their hateful ideology, ending impunity and bringing perpetrators to justice.” While several GCC states adopted tougher regulations for punishing any citizens who seeks to join ISIL or al Qaeda as foreign fighters, several of our partners have failed to follow through on their pledges, most notably on terror finance and religious incitement.

In short, states within the GCC have failed to implement the Jeddah Communiqué. In these critical regards, they are failing the coalition against ISIL, and they are breaking their word to the United States of America to fully fight terror.

President Obama arguably alluded to this fact in his Monday remarks on ISIL, when he said that he still expects our Muslim partners to “step up in terms of pushing back... against these hateful ideologies,” including “what we’re teaching young people” and “the sectarianism that so often fuels the resentments and conflicts.”

Negligence on Terror Finance

In March of 2014, America’s top official for combating terror finance, then-Under Secretary of the Treasury for Terrorism and Financial Intelligence David Cohen, delivered a speech in which he indicated that the GCC states, American allies, became the biggest source of private terror finance to core al Qaeda. He also stated last year that tiny Kuwait had become the single biggest source of private donations to al Qaeda linked terrorists fighting in Syria such as the Nusra Front and ISIL. Cohen labeled Qatar and Kuwait as a whole “permissive jurisdictions” for terror finance, a rather stark form of criticism for such influential allies.  

Since then, it does not appear that this state of affairs has changed. Some press reports suggest that the size of these flows might have diminished or note that Kuwait and Qatar passed relevant new laws in recent years. But enforcement remains halting, typically only in response to major terror attacks or concerted U.S. pressure.

We are still under the same disappointing regulatory system for handling terror finance in these two Gulf states. Enforcement still lacks political will, and entities under U.S. sanctions as Specially Designated Global Terrorists still tend to escape punishment under Qatari or Kuwaiti law. The volume of terror finance coming from the Gulf is likely to resurge again unless serious action is taken soon.

Under Secretary Cohen revealed in October 2014 that two Qatari nationals under terror finance sanctions by the United States and United Nations, Abdulrahman al-Nu’aymi and Khalifa al-Subaiy, were enjoying legal impunity in their home country. This is particularly worrisome given that Subaiy was released from Qatari jail after only barely half a year in 2008 following a conviction on charges that included terror finance. At that time, Qatari officials assured America that this man, evidently a former senior state official at Qatar’s Central Bank, would be “under control” and subject to surveillance and tight banking restrictions. And yet the U.S. Treasury Department announced last autumn that Subaiy had resumed funding core al Qaeda to the tune of hundreds of thousands of dollars.

Jay Solomon of the Wall Street Journal recently quoted Qatari officials confirming that these two sanctioned individuals are still free men in Qatar. Qatar’s ambassador to Washington insisted that Doha was building a legal case against the two men, but there has been little indication since then that much of anything is going on. This is a country where Nu’aymi was previously thrown in jail without trial simply for criticizing the country’s rulers and where suspected enemies of the state are often detained for months on end without trial or filing of charges.  The fact that Nu’aymi and Subaiy still seem to be free men says something about priority the Al Thani regime attributes to punishing and deterring purported acts terror finance.

The Qataris have reportedly imposed travel bans against several sanctioned individuals accused of terror finance, but its application of these restrictions still leaves much to be desired. When individuals are subject to U.N terror finance sanctions, member states are supposed to impose a travel ban. And yet Qatar historically has let Muthanna al-Dhari enter its territory even though the U.S. and the U.N. have each sanctioned him on charges of providing over $1 million to al Qaeda in Iraq and of directing attacks against Iraqi civilians, and even though his organization reportedly responded to ISIL’s conquest of Western Iraq by welcoming the “great victories achieved by the revolutionaries.”

Muthanna evidently visited Doha as recently as last month, at the salon of a royal family member in connection to programming by an international Qatar-based fundraising organization. Even more repugnant, this March Qatar’s Father Emir exchanged kisses with and physically embraced Muthanna, as did an elder brother to Qatar’s Emir who serves as his “personal envoy.”

Another individual likely subject to such a travel ban is Abdulmalik Abdulsalam, a former resident of Qatar whom the U.S. and U.N. allege worked in concert with Subaiy to aid al Qaeda. The Treasury Department also alleges that Abdulsalam was arrested attempting to carry large sums of money out of the Beirut airport that was intended for delivery to al Qaeda in Syria. Last year, a Lebanese court convicted Abdulsalam and two other defendants on charges that included terror finance, and press coverage claimed that one of these co-defendants, Abdulaziz Khalifa al-Attiyah, had provided funds in Abdulsalam’s possession intended for Syrian jihadists.

But conveniently for Attiyah, he is also the cousin of Qatar’s foreign minister, and both Lebanese and Kuwaiti papers cited allegations that Doha issued a series of swift, punitive threats, forcing Lebanon to release Attiyah from their custody shortly after his detention in 2012. Attiyah was back home in Qatar by the time of his in absentia conviction and has since been granted a lifetime achievement award by the Qatar Olympic Committee, which is chaired by the country’s ruler, Emir Tamim.

Abdulsalam appears to be the son of a prominent jihadist leader in Syria nicknamed Abu Abdulaziz al-Qatari who was killed in early 2014. According to sympathetic biographies, Al-Qatari was a former al Qaeda official in Iraq and Syria who later served until his death as the founding leader of Jund al-Aqsa in Syria, a militia closely aligned with al Qaeda that has been designated as a terrorist group by the U.K. but not yet by the U.S. for attacks on civilian targets. Jund al-Aqsa reportedly received considerable funding from Gulf sources, and biographies of al-Qatari claim that he also had sent material support to Iraqi jihadists from Qatari territory.

Jund al-Aqsa is also part of the Army of Conquest battlefield alliance that includes al Qaeda in Syria. My colleague Thomas Joscelyn alleges that the Jund is “an al Qaeda front group,” pointing out that two more of its leaders were also senior veterans of al Qaeda, including one who was a senior official in the Khorasan Group that U.S. officials have said is planning attacks against the American homeland. The U.S. should impose sanctions on Jund al-Aqsa, on groups such as the Army of Conquest that heavily feature al Qaeda, and on other militias close to al Qaeda such as Ahrar al-Sham that have had its operatives in their upper ranks since being founded.

The U.S. administration has cited two puzzling incidents as supposed proof Qatar has moved against terror finance. According to the Wall Street Journal, U.S. and Qatari officials “said the emirate has expelled a Jordanian associate of Mr. Nuaymi and shut a social-media website the U.S. believed was used in raising money for al-Qaeda-linked militants in Syria.” Since then, the State Department’s Country Reports on Terrorism released in June indicated that Qatar’s “steps to stem the flow of funds from Qatar to violent extremist groups and individuals” included “shut[ing] down the Madad Ahl al-Sham online fundraising campaign that was suspected of sending funds to violent extremist elements in Syria” and “deport[ing] a Jordanian terrorist financier resident in Doha who had been employed by a Qatari charity.”

But upon closer consideration, both of these steps seem disappointing and half-hearted in nature. If Qatar were truly serious about tackling terror finance and these allegations are true, Doha should have arrested Nu’aymi’s Jordanian associate and preventing him from leaving the country. If Madad Ahl al-Sham was indeed a terror finance concern, then it is worrisome that none of its fundraising captains, officers, or endorsers appear to have been subject to visible court proceedings in Qatar.

Separately, the Christian Science Monitor reported that in December “Qatari authorities briefly detained two Hamas financiers under suspicion of ‘illegal monetary and economic transactions’.” Given that Hamas is a U.S.-designated Foreign Terrorist Organization, Qatar’s decision to release these individuals is worrying, as are reports that Hamas has real estate holdings in Qatar and other Gulf nations.

Two other individuals now on U.S. and U.N. terror finance lists for allegedly funding al Qaeda were detained in the fall for several hours by Kuwaiti authorities but then let go shortly thereafter. According to press and social media reports, the men, Shafi and Hajjaj al-Ajmi, also relied on fundraising representatives in Qatar, but there is no sign that those associates have been punished by authorities in Doha. Qatar’s Interior Ministry, which is run by the prime minister and the lead agency for tackling suspected terror finance, asked one of these individuals to preach to its employees this past month for Ramadan.

Another Kuwaiti national who is subject to U.N. terror finance sanctions, Hamid Abdullah al-Ali, was invited to deliver a sermon from the Qatari state-controlled Grand Mosque, where he allegedly spoke about jihad in Syria. He was supposed to be subject to a U.N. travel ban. It is worth noting that these sanctions and the associated ban were blocked from late 2006 until early 2008 in large part because Qatari diplomats opposed the sanctions at the U.N. Security Council upon request from Kuwait City.

It is important to recognize that these countries provide a safe haven not just to terror financiers, but also to terrorist operatives themselves.

Just last week, Israel’s internal security service, the Shin Bet, announced the arrest of 40 individuals from a West Bank Hamas cell that was “preparing the groundwork for terrorist activity.” Israeli officials asserted that a top Hamas official in Qatar, Husam Badran, organized the cell and was involved in its recruitment and financing with hundreds of thousands of dollars, partially obtained through gold smuggling.

This is not the first time Israeli security officials have made such accusations. In 2013, Israel’s military announced that Badran was the “primary contact person abroad” for a disrupted cell in the West Bank that was “planning to kidnap an IDF soldier” and was “receiving guidance and funding” from operatives abroad. Two other Hamas officials based in Qatar, Talal Shareem and Hesham Hejazi, were accused by Israel of directing terror cells in the West Bank in 2013 and 2014. Additionally, Hamas’s Khaled Meshal, who still appears to be resident in Qatar, and Salah Arouri, based in Turkey, were both permitted to visit Kuwait City to meet with the Amir Sabah al-Ahmad al-Sabah at his palace last July.

In early 2014, the Amir of Kuwait appointed Nayef al-Ajmi, who had been involved in pro-jihadist fundraising, to run the Ministry of Justice and the Ministry of Islamic Affairs and Endowments, key posts for the control of terror finance. Subsequently, then-Under Secretary Cohen called out Kuwait for this appointment calling it “a step in the wrong direction” and stating that one of the fundraising networks claiming an endorsement from al-Ajmi was a major funder of al Qaeda in Syria. Several weeks after the Kuwaiti cabinet publicly voiced its resentment at the charges in his defense, Nayef al-Ajmi stepped down.

Thus, you can see why Kuwait and Qatar have not yet shown themselves genuinely willing to tackle terror finance from private individuals inside their territory. They have also embraced senior operatives of Hamas, providing safe haven to a terrorist group. There are laws on the books that may offer a model for empowering the Congress and convincing the executive branch to punish states which provide such a safe haven, and the conclusion of this testimony will offer some options for doing so.

While Saudi Arabia and the United Arab Emirates have taken some steps to tackle terrorism and terror finance in recent years, there are still some areas in which their actions fall short. Riyadh joined Washington in imposing sanctions this April against the rebranded Pakistan office of the Revival of Islamic Heritage Society (RIHS), the local branch of a Kuwaiti charity under U.S. terror finance sanctions on charges of funding al Qaeda. Yet Saudi Arabia has yet to sanction RIHS as a whole.

Notably, both Saudi Arabia and the United Arab Emirates issued formal lists of banned terrorist organizations for the first time in 2014. However, many observers noted that the credibility of these lists was undercut by a decision to include groups linked to the Muslim Brotherhood (and even a European nonviolent democracy-promotion group in the case of the U.A.E.). It is also worth noting that these lists bizarrely excluded Hezbollah in Lebanon, Hamas, the Popular Front for the Liberation of Palestine (PFLP), and other violent terrorist groups.

Shortly after the U.A.E. joined Saudi Arabia in issuing its list, the Popular Front for the Liberation of Palestine claimed credit for the gruesome killing of worshippers in a West Jerusalem synagogue with a gun and a meat cleaver, yet neither Abu Dhabi nor Riyadh added the group to their lists.

Incitement, Hatred, and State-Sanctioned Intolerance

As recently as last week, the Qatari network Al Jazeera was still explicitly lionizing the perpetrators of that West Jerusalem terrorist attack as martyrs. The network, which still largely reflects Qatar’s political agenda, has also provided unfettered airtime to terrorist commanders over the last twelve months. During the 2014 Gaza war, the state news wires of Bahrain and Qatar both included known terrorists in with civilians as part of their tally of “martyrs” among the Palestinians.

This is just one example of the intolerable incitement that continues to emanate from our allies in the Gulf. Incitement from religious sources is particularly extensive, whereby firebrand Islamic preachers spout hatred toward other religions yet receive privileges from the state. This issue is especially problematic in Saudi Arabia and Qatar, but it is also an ongoing challenge in Dubai, Kuwait, and Bahrain.

As recently last week, the Qatari network Al Jazeera was still explicitly lionizing the perpetrators of that West Jerusalem terrorist attack as martyrs. The network, which still largely reflects Qatar’s political agenda, has also provided unfettered airtime to terrorist commanders over the last twelve months. During the 2014 Gaza war, the state news wires of Bahrain and Qatar both lumped known terrorists in with civilians as part of their tally of “martyrs” among the Palestinians.

Take, for example, the case of Saad bin Ateeq al-Ateeq. Ateeq delivered a sermon from Qatar’s state-controlled Grand Mosque earlier this year beseeching Allah to “destroy” the Jews, Christians, Alawites, and Shi’a. This was the sixth time Ateeq had been invited back to the Grand Mosque since making similar remarks in 2013, so the Qataris presumably knew what they were likely to get.

Depending upon how one counts titles, Ateeq has been serving as an official at up to three different Saudi ministries: as the preacher in residence at the academy for Saudi Arabia’s National Guard, as an Islamic supervisor at the regional education department in Riyadh, and as chairman of a quasi-governmental community religious board overseen by the Saudi Ministry of Islamic Affairs. Since calling for the destruction of adherents to other religions, Ateeq has been invited to speak throughout the kingdom, at a festival sponsored by the ruler in Dubai, to officers of the Qatari Navy and Qatari airport security, and to officers under the supervision of Saudi Arabia’s Interior Ministry.

Saudi Arabia’s new King Salman is moving the country in a more religiously conservative direction. He fired an official who had tried to rein in the austere religious police, appointed a preacher to advise his court whose way of condemning ISIL is to call it “more infidel than Jews and Christians,” and dismissed only one member of the state’s highest religious board, who was considered a relative reformer.

When King Salman skipped the Camp David summit, he instead met with officials from the state-appointed religious board, whose members have made a range of hateful statements over the years. These statements reportedly include calling for socially liberal Muslim media owners to be executed, encouraging any young Saudi capable of entering Iraq while U.S. troops were there to join the fight, authorizing slavery, supporting anti-miscegenation laws, hate speech against LGBT individuals, urging men and women to observe sexual segregation even on the Internet, and calling Jewish people perfidious and deceptive. Also retained by Salman is the country’s Grand Mufti, who has said that all churches on the Arabian Peninsula should be demolished and authorized child-marriage for girls as young as age ten.

When recent Saudi textbooks call for executing gay people and anyone who converts away from Islam, when the Saudi religious affairs minister says that Islam is at “war,” under attack from a “dangerous triad” of Christians, Jews, and mushrikeen (a common derogatory term in the kingdom for Shi’ite Muslims that translates loosely to “polytheists”), it is unsurprising if other clerics who receive privileges from the state presume they can get away with voicing hatred of other religions. Many such clerics regularly condemn Shi’a as apostates, Safavids, or rawafidh (or “rejectionists”) for refusing to accept the Salafist Sunni version of Islam.

Indeed, if you look at the language used by ISIL when claiming credit for bombings perpetrated by Saudi nationals against Shi’ite worshippers in Saudi Arabia and Kuwait these last two months, the statements have specifically used words like mushrikeen (polytheists) and rafidha (rejectionism, typically referring to Shi’a).

Last month, Emir Tamim of Qatar personally hugged, kissed, and physically embraced some of the most hateful clerics in the Gulf. He kissed on the head Yusuf al-Qaradawi, who once called in a public sermon for Allah to “take the Jews, the treacherous aggressors” and “count their numbers, and kill them, down to the very last one.” Emir Tamim embraced and exchanged kisses with Aidh al-Qarni, who has called the fighters of Hamas holy warriors and maligned Jews as “the brothers of apes and pigs,” as well as Mohammed al-Arifi, who has been accused of calling Shi’a “non-believers who must be killed.” The Emir held hands with Nasser al-Omar, who reportedly has signed a petition calling the “Shi[ite] sect an evil among the sects of the Islamic nation, and the greatest enemy and deceivers of the Sunni people.”

In Dubai, a government department invited residents to a 2015 Ramadan forum that hosted two extremist clerics this past weekend who deny and mock the truth of how al Qaeda used passenger aircraft to perpetrate the attacks of 9/11. This is particularly worrisome given that Dubai has the world’s busiest airport in terms of international travelers.

Last year, a Quranic festival sponsored by the ruler of Dubai hosted Saad al-Ateeq, the aforementioned Saudi preacher who beseeched Allah to “destroy” adherents of other religions. This year, that same festival featured an opening lecturer named Saleh al-Moghamsy, who notoriously has said that Osama bin Laden died with more dignity and honor than any “infidels” such as “Jews, Christians, Zoroastrians, apostates, and atheists.”

Kuwait and Bahrain have both allowed Moghamsy to speak at their state-controlled Grand Mosques in recent years. His lecture in Kuwait this April was sponsored by the Amir Sabah al-Ahmed al-Sabah himself, and Moghamsy was permitted to use the Amir’s honor hall at the airport. Kuwait’s government also hosted the Saudi preacher Saleh bin Humeid as a guest speaker, both before and after he gave a sermon brimming with hate speech against LGBT individuals. Both times in Kuwait he was honored with gifts. Amir Sabah’s choice for Minister of Islamic Affairs and Endowments in early 2014 gave a sermon on Kuwaiti state TV calling Jews “apes and pigs” and “the scum of mankind.” This March, Kuwaiti state TV aired a sermon invoking the noted forgery Protocols of the Elders of Zion and proclaiming that Allah does not like the Jewish people because they spread corruption throughout the land.

News reports that Kuwait may now be moving to ban Salafist media outlets from Saudi Arabia that incite hatred against Shi’ite Muslims is a positive step in the right direction, and American officials should privately encourage Riyadh to match Kuwait’s example.

In Bahrain, Saleh al-Moghamsy was honored by a lunch with members of the royal family, including a deputy prime minister and the head of the country’s religious establishment. In little more than the last two years, Bahrain’s deputy prime minister, justice minister, and the commander-in-chief of the defense forces have all received a hardline Bahraini preacher named Jassim al-Saeedi (twice in the case of the BDF’s commander). Saeedi has allegedly preached for Allah to “damn the Jews and Christians and Rafidha [derogatory term referring to Shi’a],” and the meetings took place shortly after a call on his Twitter account for Allah to “destroy the Rafidha and those who are hostile and the Majous [derogatory term for Alawites] and the sons of Jews and the Christians and the sons of apes and pigs.” Activists have also alleged that Manama’s armed forces republished a Salafist book in February 2015 called Light of the Sunni Faith and the Darkness of Heresy, the text of which states that common Shi’ite rituals and beliefs make one an infidel, a polytheist, and a heretic.

Human Rights, Civil Rights, and Justice

The systematic abuse of civil rights and other human rights by Gulf regimes is another essential area where our allies are setting the stage for greater regional instability and thus undermining our own national security.

As former Secretary of State Condoleezza Rice explained in her 2005 speech at the American University in Cairo, “for 60 years, my country, the United States, pursued stability at the expense of democracy in this region here in the Middle East – and we achieve neither.” This is one of the main lessons we should have drawn from 9/11 as well as from the Arab Spring: reform cannot be postponed indefinitely, and attempts to do so cause greater radicalization and instability down the line.

President Obama seems to understand this, at least on the rhetorical level. In his interview with the New York Times ahead of the Camp David summit, he said that “the biggest threat” our Gulf allies face is “going to be from dissatisfaction inside their own countries.” He said “that’s a tough conversation to have, but it’s one that we have to have.” And yet just before the summit began, a senior administration official informed Politico that political reform is “not what Camp David is about” and “not what Camp David was designed to do.”

This seems to reflect a broader challenge across administrations: that we jettison our principles on matters of civil rights and other human rights when we engage with our allies in the Gulf. Indeed, President Obama declined to bring up human rights when he might with Saudi Arabia’s then-King Abdullah last year near Riyadh. He downplayed the importance of discussing human rights on his way to meet the new King Salman in the Saudi capital this January, and there is little indication that he seriously raised the issue at Camp David, despite a positive statement to this effect in the president’s post-summit press conference.

Human rights abuses are particularly egregious in Saudi Arabia, which has been undergoing an authoritarian regression since the King Salman took the throne. Power is so centralized now among a handful of individuals, particularly the direct descendants his Sudairy family clique, that the country only half-jokingly being referred to as “Sudairy Arabia.” The country is on its way to setting a new record for executions, with over 100 so far this year, and the state is hiring more executioners to help with the beheadings. Death sentences continue to be handed out on such outrageous charges as blasphemous speech, conversion away from Islam, and perceived acts of sorcery.

Yet throughout the GCC region, U.S.-allied monarchies are headed in the wrong direction in terms of domestic inclusivity, moderation, and reform. In fact, they are systematically demolishing the constituencies required to move their countries in a more tolerant direction while continuing to embrace intolerant or repressive hardliners.

Bloggers, civil society groups, women’s advocates, proponents of sectarian dialogue, human rights lawyers, and ordinary citizens engaging in free speech have all faced unjust repression at the hands of Gulf governments since the Arab Spring. President Obama has said that “America’s support for civil society is a matter of national security,” and nowhere is the shortfall in our support for these efforts more transparent and in need of changing than in the Gulf.

Kuwait, a government that historically has shied away from prosecuting prominent financiers of terrorism has shown no such compunction when it comes to sending ordinary people to prison for years simply for criticizing government policies or the personage of the country’s Amir.

In Oman, an atheist blogger who criticized state policies went missing after being summoned by intelligence officials. He reappeared at a mental institution with shackles on his legs.

Qatar, a purported champion of the broader Arab Spring, sentenced a local poet for expressing similar yearnings to a lifetime in prison, although his sentence was subsequently reduced to a mere 15 years.

Beyond treating their own citizens with little dignity, Gulf regimes have a tendency to treat foreigners, particularly foreign laborers, as less than human. Qatar’s kefala labor system inherently lends itself to egregious abuses of foreign workers, in some cases verging on modern day slavery, but the country’s government continues to drag its feet on legislative reforms. Saudi Arabia’s kefala system is arguably not much better, and reports continue to emerge from the United Arab Emirates of foreign laborers being beaten, harassed, or deported for seeking to express their collective voice.

The last time the United Nations Special Rapporteur on the Independence of Judges and Lawyers visited the U.A.E., she concluded that officials handling state security cases “almost systematically violate” defendants’ right to due process, utilize secret detention facilities and incommunicado detention, that arrests are “usually carried out without a warrant,” and that she received “credible information and evidence that in many cases, detainees are tortured and/or subjected to ill-treatment.”

Last week, the U.S. government decided to lift the hold on security assistance to Bahrain’s Defense Forces and National Guard that was instituted after the regime’s harsh crackdown on protesters that started in 2011. The State Department cited “some meaningful progress on human rights reforms in Bahrain” to justify the move, even though four days earlier a senior U.S. official admitted Manama “has focused much of its energy on prosecuting peaceful critics.” While the State Department’s announcement praised the “recent release” of some prisoners, the evidence in this regard – as in other regards on the Bahraini file – is disappointing at best.

Last month, Manama released from prison Ibrahim Sharif, a top Sunni member of the country’s political opposition. Sharif had been arrested in 2011 and already served most of his five-year sentence. But this positive gesture came just days after a severe step in the wrong direction, when the leader of the country’s mainstream opposition, Shi’ite cleric Ali Salman, was sentenced to four years in jail. Amnesty International considers Salman a prisoner of conscience, calling his conviction “an affront to freedom” as he was sentenced “solely for peacefully expressing his opinion.”

One day before the State Department’s announcement, a court in Bahrain sentenced opposition politician Fadhel Abbas to five years in prison for a statement and tweets opposing the war in Yemen. One day after the U.S. announcement, Salman’s deputy Khalil Marzooq was unavailable for comment because Bahrain’s Interior Ministry summoned him for statements he had expressed at a recent public meeting, reportedly charging him with insulting the interior minister. Two days after the U.S. decision, another prominent member of the opposition who served as president of the Manama Municipal Council for eight years, Majeed Milad, was allegedly detained by authorities and facing charges “related to his peaceful political activism and for expression of political opinion.”

Human rights abuses in the GCC are important to address now because otherwise the risk of instability in this area may get worse, not better over time.

Virtually all the GCC states rely directly or indirectly on petroleum revenues for their economic wellbeing. But by refusing to reduce skyrocketing domestic energy consumption by eliminating exorbitant subsidies, these countries are generally in for leaner economic times ahead. Without tapping into the power of civil society to channel and address people’s desire for better governance, public grievances are set to expand. The continued exclusion of women from much of the labor market means economic growth will struggle to keep pace with the global economy. Further, the looming presence of a demographic bulge means rising numbers of young people will be disaffected and underemployed. And by refusing to tackle incitement, the GCC governments are ensuring that hardliners get to indoctrinate the youths who will be agitating for change and determining its eventual character.

Policy Recommendations

Energy and Economic Relations:

The GCC states are extremely appealing as big-ticket economic partners. Although they do not regularly respect the rule of law, these petroleum-enriched regimes offer highly centralized decision-making and often dispense economic privileges as political favors. Thanks in large part to arms sales, the United Arab Emirates is now America’s number one destination for exports anywhere in Africa, the Middle East, or South Asia. Additionally, tiny Qatar has announced plans to invest a whopping $35 billion inside U.S. territory.

But we should not let such immediate economic advantages blind us to the long-term economic and strategic risks of allowing U.S.-Gulf relations to continue on autopilot in the midst of the current turmoil in the region. We should not let the tempting subject of foreign investments overshadow pressing issues like terror finance, religious incitement, and systematic repression that are sowing the ground for greater insecurity and violence down the road.

As the recent Saudi decision to crash the oil market reveals, we should not wait to begin protecting our economy and pocketbooks from sudden disruptions in global oil markets, which are often shaped in large part by the Gulf. We need a national strategy to promote fuel choice and American energy independence, and that requires leadership from the very top, something every president for several decades has promised but none has truly delivered.

With regard to Iran, it would be unrealistic to expect that all of our GCC allies will shun the economic opportunities presented by Tehran after the possible lifting of sanctions. Yet given the longstanding history of Iranian sanctions-busting networks in the Gulf, it will be particularly important for American officials to proactively monitor and punish instances of such illicit activity in the Gulf in the event of an accord and to partner with local authorities when we can be helpful to them.

Regional Reassurance and Iran:

The United States should fight aggression by the IRGC and its proxies regardless of any nuclear agreement. Without doing so, it is impossible to truly reassure our Gulf allies, and it is crucial for ensuring the stability and balance of the region. It is up to Congress and the administration to ensure that if sanctions are lifted, they are not removed from entities that remain involved in supporting terrorism in the region.

The U.S. must maintain a robust dialogue with the GCC states to reach a common understanding, clear guidelines, and explicit commitments as to what will happen in the event Iran cheats on a nuclear agreement, as well as what Washington will do to prevent Iran from breaking out to a nuclear weapon once the terms of a deal begin to sunset. While addressing Saudi Arabia’s fears of abandonment, the U.S. must also condemn

Testimony

Evaluating the Security of the U.S. Financial Sector

Testimony for House Financial Services Committee Task Force to Investigate Terrorism Financing
24th June 2015

Download full testimony here

I was extraordinarily privileged to serve our country at the United States Department of the Treasury for 11 years following the terrorist attacks of 9/11.  I worked with and for an immensely talented and dedicated group of individuals from across the government.  This was a pivotal period in the development and institutionalization of an unprecedented global campaign to counter the financing of terrorism (CFT).    

From the time of 9/11 through the present, the United States has led this global CFT campaign with unprecedented tenacity and commitment.  This commitment has been vindicated by the substantial disruptive and preventive impact of our CFT efforts against our most pressing terrorist threats.  Due to these successes, the ongoing global CFT campaign is now unquestionably recognized as a pillar of the broader counter-terrorism mission.  Nearly 14 years after the inception of the modern CFT campaign, the ongoing work of this Committee and Task Force is a testament to this fact. 

And yet the CFT challenges facing us now are perhaps greater than ever before.  The rise of the Islamic State and the resiliency of a balkanized, but continually dangerous, al Qaeda and its global network of affiliates demonstrate the ongoing urgency of the terrorist threat.  As we have succeeded in clamping down on more overt forms of support to terrorist organizations, these and other terrorist groups have adjusted their means of obtaining the resources they need. 

Many of these terrorist financing methods are not new, but they have become more pervasive.  Prominent examples include the rise of kidnapping for ransom and the other criminal activities, increasingly in collaboration with criminal organizations.  Fundraising and recruitment over the internet and exploitation of local economies under terrorist control have also grown, exposing limitations of our CFT approach.  And despite the potential of a nuclear deal, Iran’s continued and aggressive state sponsorship of terrorism presents complex but urgent challenges to the global CFT campaign.  

To meet these challenges, we must adjust our CFT campaign to directly confront the shifting terrorist financing methodologies of today’s primary terrorist threats.  This will no doubt include continued development and adaptation of our CFT operational and targeting capabilities.  More fundamentally, this must also include addressing systemic challenges to our financial security.  Such challenges increasingly undercut the effectiveness and threaten the sustainability of the global CFT campaign.

My remarks today will focus on these systemic challenges.  Such challenges are not new, nor are they limited to the CFT campaign or to the United States.  But addressing these systemic challenges is more important than ever before, not only for our CFT campaign, but also for our national and collective security, and for our economic stability. 

Addressing these challenges will require us to strengthen global commitments to financial integrity, including through continued implementation and enforcement of global anti-money laundering (AML)/CFT standards and financial sanctions regimes.  These are global standards that sustained US leadership has helped to create.  The integrity of our financial system relies on their effective implementation, as well as our continued development and application of targeted financial measures. 

This ongoing work to strengthen and protect U.S. and global financial integrity will clearly require the continued leadership of the United States and the strong support of this Committee.

I will begin with a brief explanation of the meaning of financial integrity and its importance in today’s evolving CFT campaign and to our broader security and economic interests.  I will also highlight how the global AML/CFT and financial sanctions regimes led by the United States over the past generation have helped create a foundation of financial integrity essential to the work that lies ahead.  I will then outline the key systemic challenges to financial integrity, including with respect to financial transparency and financial accountability.  I will close with a series of recommendations for actions that this Committee can take to address these challenges. 

The Financial Integrity Imperative

Financial integrity is fundamentally about financial transparency and accountability.  These concepts provide the foundation upon which our CFT campaign and broader counter-illicit financing mission rest.  They are also crucial to protecting our financial system, national security, and economic interests.  And they rely upon effective implementation of global AML/CFT and financial sanctions standards.

Financial Transparency

Financial transparency is crucial to financial integrity because it allows us to identify, track and trace the sources, conduits and uses of terrorist financing that transit the financial system.  This is equally true for all manner of illicit finance.  Without financial transparency, financial institutions and regulators cannot identify, manage or avoid risks ranging from financing al Qaeda to brokering nuclear proliferation to banking corruption.  Law enforcement cannot track or trace progressively globalized criminal networks or their illicit proceeds.  States cannot identify or recover stolen assets or proceeds of tax evasion.  And financial pressure to address gross violations of international law by Iran, Syria, Russia or others becomes a hollow talking point rather than an operational instrument of global security.    

Certainly, financial transparency alone cannot satisfy these needs.  But without it, these needs cannot be met.  This is why financial transparency is both a core objective of the global counter-illicit financing community and a driving principle of financial reform by the G20 and the G7.

Accountability

Accountability is crucial to financial integrity because it gives us confidence that the rule of law is enforced across the financial system.  With respect to combating illicit finance, accountability drives financial integrity in two respects.  First, accountability is needed to enforce requirements of and responsibilities for financial transparency across the financial system, including with respect to the customers, institutions and ultimately the authorities that access, service and govern the financial system.  Second, accountability is needed to pursue, disrupt, punish and deter those who abuse the financial system in pursuit of illicit activity.  It is essential to recognize that failure of accountability in either of these two respects undermines the integrity of the financial system.

Economic Stability

Beyond the clear national security imperatives of financial transparency and accountability, financial integrity is also essential to protect our economic stability.  When financial transparency and accountability suffer, the integrity of economic markets can erode, and with it market confidence.  Short term gains associated with short-cuts around systemic investments in financial integrity are ultimately a losing proposition.  When investors realize that their capital is not protected by the integrity of financial markets, they lose confidence in their investments.  And they move their capital to markets whose integrity protects their interests.  This is particularly true when times are turbulent. 

The U.S. market has thrived historically in part because of the integrity of our financial system.  The financial transparency and accountability created by the sound implementation of AML/CFT and financial sanctions regimes play an increasingly important role in protecting the integrity of not only our financial system, but also of the economy it supports.  The financial transparency and accountability fostered by AML/CFT and financial sanctions regimes guard our economy from various forms of corruption that undermine market principles.  Such regimes, when properly implemented and enforced, help protect the market integrity of industries that enjoy the public trust and the confidence of investors.  When such regimes are absent, market integrity is threatened. 

The globalization of market economies underscores the importance of enforcement actions against those who fail to implement AML/CFT and financial sanctions regimes.  Countries and financial institutions with systemic deficiencies in their AML/CFT and financial sanctions regimes present systemic vulnerabilities to the integrity of the international financial system and the global economy it supports.  In an increasingly globalized financial system and economy, such deficiencies in any one country or financial institution present vulnerabilities to other countries and institutions.  They also present vulnerabilities to the industries, investors, depositors and other customers they service.  Ultimately, these vulnerabilities can jeopardize the health of the general economy.       

In an increasingly globalized financial system, economy and threat environment, our financial integrity requires a global commitment to financial transparency and accountability.  For decades, the United States has led the development of a comprehensive and global counter-illicit financing framework.  This framework is designed to achieve the financial transparency and accountability upon which our CFT campaign and collective security increasingly depend.  As discussed below, this global framework represents an accomplishment as tremendous as it is important, providing a financial integrity foundation that is both deep and wide.  The financial integrity imperative must now focus on strengthening implementation of the key measures that deliver financial transparency and accountability pursuant to this global framework.

This first requires a brief explanation of the global counter-illicit financing framework as a foundation for securing our financial integrity.

A Global Foundation for Financial Integrity

After 9/11, the global CFT campaign led by the United States became an instrumental factor in accelerating a global understanding of the importance of financial integrity to our collective security.  Protecting the integrity of the financial system has since become central to the mission of the United States Department of the Treasury and to that of finance ministries around the world.  Through the work of the G7, the G20, the Financial Action Task Force (FATF), eight FATF-Style Regional Bodies (FSRBs), the World Bank, the IMF and the United Nations, the United States has led a global commitment to protecting the integrity of the financial system against all manner of illicit finance. 

This commitment is evident in the rapid evolution of the global counter-illicit financing framework.  This framework continues to drive development and implementation of comprehensive jurisdictional AML/CFT, counter-proliferation and financial sanctions regimes.  This framework, largely led by the work of the FATF, manages jurisdictional participation in conducting the following sets of activities:

  • Developing typologies of illicit financing trends and methods;
  • Deliberating counter-illicit financing policies and issuing global counter-illicit financing standards;
  • Conducting and publishing regular peer review assessments of jurisdictional compliance with the FATF’s global standards; and
  • Managing follow-up processes that both assist jurisdictions and hold them accountable in implementing the FATF standards.

Through the FATF network of assessor bodies, the overwhelming majority of countries around the world are incorporated into this counter-illicit financing framework.

The global standards issued by the FATF and assessed through this global framework cover a broad range of specific measures to protect the integrity of the financial system from the full spectrum of illicit finance – including money laundering, terrorist financing, proliferation finance, serious tax crimes, and corruption.  These global standards create a conceptual and technical roadmap for countries and financial institutions to develop the capabilities required to advance and secure the integrity of the global financial system.  The FATF standards generally encompass the following areas:

  • Jurisdictional and financial institution processes and policies to assess and address illicit financing risks;
  • Preventive measures covering the entirety of the financial system;
  • Transparency and beneficial ownership of legal entities, trusts and similar arrangements;
  • Regulation and supervision;
  • Targeted financial sanctions;
  • Criminalization of money laundering and terrorist financing;
  • Confiscation of criminal proceeds;
  • Financial analysis and investigation; and
  • International cooperation.

Implementing the FATF global standards within and across these different areas of importance requires a whole-of government approach in collaboration with the private sector, particularly financial institutions.  It is a massive undertaking.  And it is essential to protect the integrity of the financial system.

Peer review assessments over the past several years demonstrate that most countries have taken substantial steps towards implementing many if not most of the requirements covered by the FATF global standards.  Collectively, this work represents a tremendous accomplishment in creating a firm global foundation for financial integrity.  

Nonetheless, these comprehensive jurisdictional assessments also reveal a number of deep-seated, systemic challenges to financial integrity.  These challenges are also evident from many of the U.S. enforcement actions taken against global financial institutions in recent years, as well as from consistent criminal typologies of illicit finance.  Such challenges may be broadly divided between those that undermine financial transparency and those that threaten financial accountability.

Systemic Challenges to Financial Transparency

Financial transparency generally requires implementation of the full range of preventive measures included within the FATF global standards.  Ongoing systemic challenges to financial transparency primarily stem from important gaps in implementing these preventive measures, including in particular: 

(i)                 Effective customer due diligence by financial institutions;

(ii)               Meaningful beneficial ownership disclosure and maintenance requirements for legal entities;

(iii)              AML/CFT coverage of the complete financial system; and

(iv)              Information-sharing to enable financial institutions to understand and manage correspondent or intermediated illicit financing risks. 

These measures, and the systemic challenges that frustrate their implementation, are briefly discussed below.

Customer Due Diligence

Financial transparency fundamentally requires financial institutions to understand the persons and entities with whom they do business, whether on an ongoing or occasional basis.  Customer due diligence (CDD), or know-your-customer (KYC) rules, are commonly understood as the bedrock of financial transparency.  

Pursuant to FATF global standards, CDD/KYC generally includes the following four elements:  (i) customer identification and verification; (ii) beneficial ownership identification and verification; (iii) understanding the nature and purpose of the customer account or relationship, and (iv) monitoring customer account activity.  Failure to implement any of these required elements undermines financial transparency, making it more difficult to identify, track or trace illicit financing networks.

Each of these four elements of CDD can present challenges for financial institutions, but the consistent lack of beneficial ownership information collected by financial institutions has historically posed a systemic vulnerability undermining financial transparency.  To be effective, CDD obligations must go beyond identifying the front companies, shell companies and other cut-outs frequently used to open accounts on behalf of criminals.  Addressing this common method of illicit finance requires gathering meaningful information about the beneficial owners of financial accounts – that is, the primary individuals who ultimately own, control or benefit from these accounts. 

In accordance with FATF global standards, financial institutions should be required to obtain such information from their customers as a routine element of CDD.  Customers that fail to provide such information should be denied access to the financial system.  Customers that deliberately misrepresent such information for purposes of avoiding detection should be subjected to meaningful sanctions, including prosecution for fraud. 

In recent years, most financial centers have significantly strengthened CDD requirements for financial institutions, including for purposes of specifically addressing shortcomings in beneficial ownership information collection.  However, implementation and enforcement of these requirements, particularly in non-bank financial institutions, remains a systemic challenge.  In some countries, including the United States, beneficial ownership information is not yet required as a routine element of CDD.  The systemic vulnerabilities created by these weaknesses in CDD substantially compromise financial transparency.

Beneficial Ownership Requirements for Legal Entities

In higher risk scenarios, financial institutions should verify the beneficial ownership information obtained from their customers through independent corroboration of the beneficial owner’s status.  This presents significant challenges for financial institutions that lack independent sources of information about their legal entity customers.  To assist financial institutions in conducting such verification, countries should demand beneficial ownership information as a condition for granting legal status to those entities formed under their authorities. 

Equally importantly, beneficial ownership requirements for legal entities will provide immensely valuable information for law enforcement and other authorities.  An abundance of testimony and evidence over the past several years demonstrates that investigations of legal entities implicated in all manner of criminal activity are all too often frustrated by of a lack of meaningful beneficial ownership information. 

For these reasons, the FATF global standards clearly require jurisdictions to impose beneficial ownership disclosure and maintenance requirements for legal entities formed under their authorities.  Yet few jurisdictions require companies to disclose their beneficial ownership as a condition of obtaining or maintaining their legal status.  Of those jurisdictions that do require such disclosure, few have meaningful verification or enforcement processes to ensure the credibility of the beneficial ownership information they collect.  This consistent lack of available and credible beneficial ownership information for legal entities – in the United States and most financial centers around the world – presents another systemic challenge undermining financial transparency.

AML/CFT Coverage of the Complete Financial System

Financial transparency is complete only to the extent that it applies across the entire financial system.  All financial institutions – including non-banking financial institutions such as broker dealers, investment advisors, and money services businesses – should be subjected to effective AML/CFT regulation.  In addition to non-bank financial institutions, certain industries that can operate as de-facto financial institutions or that facilitate access to financial services for their customers may present systemic vulnerabilities to illicit finance.  Such industries include casinos, real estate agencies, dealers in precious metals and stones, and trust and company service providers. 

Failure to extend meaningful AML/CFT regulation to these non-bank financial institutions or vulnerable industries can allow illicit financing networks to obtain the financial services they need without detection.  Once illicit actors gain access to any part of the financial system, the highly intermediated nature of the system facilitates their access to other parts, including by sector or geography. 

Any unregulated or under-regulated financial sector or vulnerable industry also puts more pressure on those sectors that are regulated.  It is much more difficult to detect illicit financing risks that are intermediated through another financial institution or through a customer or account that represents unknown third party interests.  Correspondent relationships with unregulated financial institutions or vulnerable industries that lack AML/CFT controls allow criminals to access even well-regulated financial institutions through the back door.

For this reason, correspondent relationships are generally considered high risk under FATF global standards, even between financial institutions that are well-regulated for AML/CFT.  Correspondent relationships with financial institutions that lack AML/CFT regulation may be prohibitively high risk.  The same may also be true of accounts with businesses from other vulnerable industries that lack AML/CFT regulation. 

In light of these concerns, FATF global standards direct countries to extend AML/CFT preventive measures across all financial sectors and vulnerable industries, including the legal and accounting professions.  Covering all of these sectors and industries can challenge considerable political interests and entails substantial costs.  As a result, many countries, including the United States, lack full AML/CFT coverage of their financial systems or vulnerable industries.  These gaps in coverage put more pressure on banks and other sectors that are covered and present systemic challenges to financial transparency.

 Intermediation and Information-Sharing

Illicit financing networks, like the business of most enterprises, almost always implicate more than one financial institution.  Whether in the process of raising, moving, using or laundering funds associated with illicit activity, such networks almost invariably transact across multiple financial institutions.  For the illicit financing networks of most pressing concern, transactions also often cross multiple jurisdictions.  Identifying, tracking and tracing these networks therefore depends critically upon information-sharing across financial institutions and across borders.

FATF global standards require or encourage countries and financial institutions to share information in many ways.  However, implementation of such information-sharing measures is routinely constrained or prohibited by data protection, privacy, or business interests, or by liability concerns associated with these interests.  Many counter-illicit financing professionals in governments and in financial institutions consider data protection and privacy to be the “new bank secrecy” that was the genesis for much of interest in creating the FATF over 25 years ago.

The systemic challenge posed by these information-sharing constraints is perhaps most evident in the risk management programs of global banks and large financial groups.  FATF global standards direct countries to require such banks and financial groups to develop risk management programs that cover their entire enterprise.  The wide scope of these programs is deliberately aimed at identifying and addressing illicit financing risks across all branches and affiliates of the bank or financial group, wherever located.  Yet data protection, privacy and other restrictions in many countries prohibit such banks or financial groups from sharing much of the information that is relevant or even essential to such enterprise-wide risk management programs.  These restrictions apply even when the information sought is intended to be kept entirely within the financial group’s enterprise. 

Even more problematic for these institutions, information-sharing requirements and prohibitions from different countries can conflict with one another, making it impossible to comply with the laws or expectations of different financial centers in which global banks and financial groups operate.

Information-sharing challenges associated with financial intermediation and illicit finance are not limited to cross-border scenarios or to risk management programs.  Even within jurisdictions, many of the same constraints prevent financial institutions from sharing information that can be critical in identifying or addressing illicit financing risks.  This presents opportunities for countries, including the United States, to begin understanding and addressing these challenges through domestic information-sharing enhancement processes, in partnership with their financial institutions.

The sensitivity of financial information and the legitimate interests behind data protection and privacy raise important considerations for policymakers in determining how best to address these information-sharing challenges.  Although more work is needed to better understand these challenges and how best to overcome them, it is clear that the lack of proactive or even reactive information-sharing between and among financial institutions presents a systemic challenge to financial transparency. 

Systemic Challenges to Financial Accountability

Distinct and global systemic challenges to financial accountability exist with respect to both achieving compliance with financial transparency requirements and pursuing and disrupting illicit financing networks.  I will focus primarily on those systemic challenges that directly implicate financial authorities.

Achieving Compliance with Financial Transparency Requirements

Over the past several years, the United States and most countries have undertaken substantial efforts to strengthen and expand AML/CFT preventive measures required to achieve transparency across the financial system and other vulnerable industries.  Yet in all jurisdictions, implementation of these measures remains a constant challenge.  This is overwhelmingly due to the complexity of the financial system, the global economy, and of illicit financing networks and schemes. 

In many instances, however, such challenges of global implementation may also be owing to the lack of effective enforcement and an ensuing lack of compliance culture in the private sector regarding AML/CFT preventive measures.  In turn, these industry compliance concerns implicate questions of industry supervision. These issues present distinct and global systemic challenges of financial accountability associated with achieving compliance with financial transparency requirements. 

1. Challenges of Industry Compliance

As a general matter, U.S. enforcement of AML/CFT preventive measures is particularly strong.  A long string of U.S. enforcement actions against global banks and other financial institutions in recent years underscores the U.S. commitment to the global AML/CFT regime and financial integrity.  At the same time, these enforcement actions have raised questions about the state of industry compliance with AML/CFT preventive measures, both within the United States and particularly abroad. 

Many of these enforcement actions reveal systemic deficiencies in AML/CFT policies, procedures, systems and controls, including in many of the world’s largest and most well-regulated banks.  The immense size and complexity of these banks, and the corresponding illicit financing risks they must manage, help explain the particular focus of AML/CFT authorities in making sure these banks implement effective AML/CFT measures, including those that provide financial transparency.  It also helps explain the need for more sophisticated AML/CFT programs that implicate particular compliance challenges in these banks.

However, the fundamental breakdowns that have given rise to these enforcement actions raise important concerns about the general culture of compliance with AML/CFT preventive measures across the core banking sector.  This continues to be a dominant topic of concern to U.S. authorities, and is beginning to resonate in other financial centers. 

This realization has prompted efforts in the United States, and in some instances in other financial centers, to intensify AML/CFT oversight of key financial institutions.  U.S. authorities have placed many of the world’s largest financial institutions operating in the United States under intense monitoring and oversight programs as a key condition for settling various AML/CFT enforcement actions.  It is unclear whether similar efforts may be underway to the extent that may be required in other financial centers.  This is particularly true with respect to non-banking sectors. 

Given the importance of this issue and its relatively recent focus, it is also unclear what systemic changes in the AML/CFT culture of compliance across key financial sectors and centers may ultimately result from these efforts.  However, it is apparent that the enforcement actions taken by the United States to strengthen compliance with AML/CFT preventive measures and financial sanctions have made a substantial impact, particularly in the global banking sector.  The combination of enforcement and outreach by U.S. authorities, particularly in recent years, has led many financial institutions to adopt important structural, policy and programmatic changes that have substantially improved their ability to understand and manage illicit financing risks.  This work must continue.            

Notwithstanding the significant progress achieved by financial institutions in strengthening compliance with AML/CFT preventive measures and financial sanctions, questions of compliance continue to present an ongoing global and systemic challenge of financial accountability.  This may be particularly true in other financial centers that lack the strong enforcement actions taken by the United States.

2. Challenges of Industry Supervision

The above concerns of global industry compliance with AML/CFT preventive measures have also raised global challenges of AML/CFT financial supervision.   These supervisory challenges broadly include:  (i) the appropriate role of law enforcement in facilitating industry compliance; (ii) supervisory coordination, particularly for larger financial groups that often have multiple regulators in multiple jurisdictions, and (iii) the effectiveness of existing supervisory AML/CFT models in money services businesses (MSBs) and other non-banking or non-financial sectors lacking a functional financial regulator. 

In the United States, as in most financial centers, financial functional regulators bear the primary responsibility for examining and ensuring compliance with AML/CFT preventive measures across the covered financial sectors they supervise.  In administering this responsibility, U.S. federal and state regulators continue to pursue more active cases of AML/CFT enforcement than any of their financial counterparts around the world, strengthening AML/CFT compliance across the international financial system. 

The strong AML/CFT enforcement record of financial functional regulators in the United States has been critically supported by the prominent and unique role of U.S. federal and state law enforcement in enforcing global compliance with AML/CFT preventive measures.  These law enforcement authorities are a driving factor in strengthening the integrity of the global financial system.

The essential role of U.S. law enforcement in enforcing global compliance with AML/CFT preventive measures raises systemic challenges of financial accountability on a global level.  Other countries, including those whose financial institutions have branches subjected to AML/CFT enforcement actions in the United States, should consider whether compliance with AML/CFT preventive measures in their jurisdictions could be strengthened by giving their AML/CFT law enforcement agencies a more active role in enforcing compliance.

Inside the United States, the compliance enforcement role of law enforcement raises systemic challenges of how best to coordinate law enforcement’s independent investigative authority with the independent supervisory authority of U.S. regulators.  Such coordination is essential to provide financial institutions with a clear, consistent and reasonable set of AML/CFT expectations that they must meet to effectively implement their AML/CFT obligations.  This is particularly true when considering the necessary discretion that financial institutions must have to manage illicit financing risks.  Such discretion is essential to preserving the risk-based approach that guides U.S. and global implementation of AML/CFT preventive measures.

In 2012, the United States Department of the Treasury began to address these concerns and related issues through the work of a federal AML Task Force that included the Department of Justice and the financial functional regulators.  This Task Force developed a number of initiatives to strengthen coordination among federal law enforcement and financial regulatory authorities on a wide range of AML/CFT matters.  These initiatives were generally designed to facilitate a common understanding of the illicit financing risks facing the U.S. financial system and align corresponding risk management expectations in supervising and enforcing compliance with AML/CFT preventive measures. 

Such initiatives likely assisted the Department of the Treasury in developing the 2015 National Money Laundering and Terrorist Financing Risk Assessments issued earlier this month.  These risk assessments provide incredibly valuable information to financial institutions and all AML/CFT stakeholders about the money laundering and terrorist financing threats, vulnerabilities and risks currently facing the United States and our financial system.

The initiatives of the AML Task Force will become important in aligning law enforcement and supervisory expectations for financial institutions that must consider the National Money Laundering and Terrorist Financing Risk Assessments in developing their own illicit financing risk assessment and risk management programs.

The systemic challenge of aligning supervisory expectations is exacerbated for larger financial groups that often have multiple regulators in multiple jurisdictions.  In managing differences in AML/CFT requirements between home and host countries of financial groups, FATF global standards direct such groups to apply the laws of the jurisdiction with the stronger requirements.  To support this outcome, or any outcome with consistency, supervisors across jurisdictions and across sectors must have a system for coordinating their efforts.  The initiatives of the AML Task Force may help illuminate ways of standardizing and strengthening these efforts.

Supervisory AML/CFT models for sectors that lack a functional financial regulator present yet another systemic supervisory challenge to financial accountability.  In the United States, as in most other financial centers, MSBs and certain other non-banking or non-financial sectors covered under existing AML/CFT preventive measures lack a federal functional regulator.  This raises substantial challenges of resources and expertise needed to oversee effective implementation of AML/CFT preventive measures in these sectors.

To address these challenges, the United States and many other countries delegate national AML/CFT examination authority for these sectors to national or federal tax authorities.  While there continue to be reasonable arguments defending this position, it is becoming increasingly clear that additional examination and/or supervisory support may be needed to adequately oversee effective AML/CFT implementation in these sectors.

The United States continues to develop and explore initiatives to strengthen oversight and examination of these sectors through the Financial Crimes Enforcement Network (FinCEN). FinCEN is a Treasury bureau that functions as the U.S. financial intelligence unit and additionally has authority delegated from Treasury to issue and enforce AML/CFT preventive measures across the U.S. financial system in accordance with the Bank Secrecy Act (BSA).

In particular, FinCEN has coordinated with and leveraged MSB licensing and examination authorities in most states.  FinCEN also continues to coordinate with Treasury’s Internal Revenue Service in pursuing a principal-agency model for MSB examination.  This model consolidates AML/CFT responsibility for MSB agent networks with their principals, including Western Union, MoneyGram, Sigue and other primary money transmitters. 

It is unclear the extent to which other countries are developing or exploring these or other models for strengthening regulatory examination and oversight of AML/CFT preventive measures in sectors that lack a functional regulator.  It is also not clear whether further steps may be needed to bring additional AML/CFT supervisory resources and expertise to these sectors.

What is clear is that MSBs and other sectors covered by AML/CFT regulation but lacking a federal functional regular – including insurance companies, casinos, and dealers in precious metals and stones in the United States – may present substantial risks of illicit finance.  While the relative scale of these risks may appear small when compared to the overwhelmingly disproportionate size of the banking sector and capital markets, the high risk nature of the services offered by some of these sectors can make them disproportionately prone to illicit financing risks. 

The recent emergence of virtual currency providers underscores this point.  Virtual currencies and the administrators and exchangers that provide them have emerged as a potentially promising new form of money transmission.  Yet this relatively new industry understandably lacks familiarity or experience with AML/CFT risk management.  When these illicit financing risks are compounded by limited oversight and supervision, they can appear prohibitive to the banks that virtual currency providers, other MSBs and other AML/CFT covered industries ultimately rely upon for convertibility, settlement, clearance and other services.  This can frustrate efforts to obtain banking services and in some instances may provide an additional impetus for banks to exit accounts with such industries.

Pursuing and Disrupting Illicit Financing Networks

Beyond ensuring compliance with AML/CFT preventive measures necessary to achieve financial transparency, financial accountability requires countries to effectively pursue and disrupt illicit financing networks.  It is these networks, and the criminal interests they support, that ultimately undermine the integrity of the financial system.

There are a number of systemic challenges that the United States and all countries face in pursuing and disrupting illicit financing networks.  As in the case of achieving financial transparency, these challenges primarily stem from gaps in implementing FATF global standards.  Such standards broadly include requirements to facilitate effective analysis and investigation, prosecution and confiscation, and targeted financial sanctions against illicit financing activities, actors and assets.  They also include a number of measures to facilitate cross-border cooperation in these actions.

The systemic challenges to pursuing and disrupting illicit financing networks presented by gaps in implementing FATF global standards are numerous and require additional time and consideration beyond the immediate scope of this hearing.  However, it is important to recognize that the work of the FATF is now focused on assessing the effectiveness of jurisdictions in implementing AML/CFT and financial sanctions requirements pursuant to revised and strengthened global standards.  This work, facilitated by the leadership of the United States and other financial centers, will greatly assist countries in identifying and closing gaps in implementing the FATF global standards, including those required to pursue and disrupt illicit financing networks.

Today, I would like to briefly highlight two critical developments that appear to have emerged from systemic challenges in pursuing and disrupting illicit financing networks. 

The first development concerns the growing difficulty of systematically pursuing complex, cross-border criminal investigations of sophisticated illicit financing networks. The expertise and investment of time and resources required to systematically pursue such financial investigations is often prohibitive for all but the most advanced, well-resourced and protected teams of criminal investigators and financial analysts.  The United States is consistently more effective in overcoming these challenges than any other country in the world.  Nonetheless, these challenges are becoming more daunting as the complexity and globalization of the financial system and illicit financing networks have grown. 

To keep pace with these challenges, the United States has increasingly turned to national security authorities to combat illicit financing and the transnational criminal organizations that often perpetrate and benefit from such activity.  This is the second development that has emerged from the systemic challenges to pursuing and disrupting illicit financing networks.  Just as terrorism and other national security threats have converged with criminal interests, so has our response. 

To address the growing challenges that law enforcement faces in pursuing and disrupting illicit financing networks, the United States has developed effective complementary outcomes to criminal prosecution and forfeiture.  These outcomes increasingly offer options for law enforcement, in collaboration with financial authorities, to effectively disrupt and deter sophisticated transnational organized crime through the application of targeted financial measures.  These measures include targeted financial sanctions most often issued by Treasury under the International Economic Emergency Powers Act (IEEPA) and preventive measures issued by Treasury pursuant to Section 311 of the USA PATRIOT Act.

The success of these authorities in assisting law enforcement pursue and disrupt an expanding range of transnational criminal activity illicit financing can be seen in the expansion of financial sanctions over the past several years.  Such sanctions, originally applied against Columbian drug cartels and eventually global drug trafficking organizations, have expanded to target criminal conduct ranging from terrorist financing, proliferation financing, foreign corruption in context of certain sanctioned government regimes, and most recently, cybercrime. 

The increasing application of targeted financial measures to disrupt an expanding range of criminal activity can also be seen in increased use of Section 311 to target primary money laundering concerns.  These concerns include those presented by rogue digital currency providers, as well as money transmitters and banks that become infiltrated or exploited by organized crime and terrorist organizations. 

Far from precluding more traditional outcomes of criminal prosecution and forfeiture, these actions can often facilitate such outcomes, as several cases have shown. 

These developments underscore the importance of targeted financial measures to strengthen our financial integrity in combating the criminal and national security threats we face.  They also underscore the acute need for ongoing U.S. leadership in continuing to advance the global commitment to financial integrity, including through the application of targeted financial sanctions and measures.

Recommendations to Address Systemic Challenges to Financial Integrity

Addressing the systemic challenges to financial integrity discussed above will require the clear support of this Committee.  The following recommendations outline specific steps that this Committee can take to lead Congressional action, including with respect to new legislation, support for further executive action by the Administration, and targeted investments specifically directed to protect and strengthen our financial integrity against the full range of threats to our national and collective security.

New Legislation

Since the issuance of the USA PATRIOT Act in October 2001, the Congress has generally provided unwavering and essential bipartisan support and leadership on a wide range of issues to protect the integrity of the U.S. and international financial system.  This is particularly true with respect to Congressional legislation.  The following additional legislative action will further these interests by addressing systemic challenges to our financial integrity:

(i) Adopt legislation expanding the purposes of the Bank Secrecy Act (BSA) to explicitly include protecting the integrity of the financial system.   Such legislation is required to underscore the importance of financial integrity and the full partnership that is required between industry and authorities to achieve it.  Section 5311 of Title 31 of the United States Code declares the purpose of the BSA “to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.”  While this purpose is more important than ever, it is also incomplete.  Protecting the integrity of the financial system is an essential objective in its own right. 

Expanding the purpose of the BSA to reflect this will elevate the role of financial institutions and underscore the importance of government partnership with them.  In addition to law enforcement and other investigative and analytic authorities, financial institutions – together with the customers and economy they service – are direct beneficiaries of financial integrity.  They are also end users of BSA recordkeeping and reporting, relying on such information to identify and manage all manner of illicit financing risk for purposes of protecting the integrity of the financial system.  And they must be full partners with governing authorities in implementing the BSA to advance this purpose. 

Amending the purpose of the BSA will assist all stakeholders in recognizing these truths.  It may also facilitate a stronger commitment to a risk-based approach by industry and authorities.  Protecting the integrity of the financial system, beyond filing reports or maintaining records, clearly requires such an approach.  This will further augment the importance of collaboration between industry and governing authorities to facilitate a shared understanding of illicit financing risk and effective risk management programs.

(ii) Adopt legislation to require the disclosure and maintenance of meaningful beneficial ownership information in company formation processes.  Such legislation is required to address the systemic challenges posed by the chronic abuse of legal entities to mask the identities and illicit financing activities of the full scope of criminal and illicit actors.  For several years and through at least three consecutive administrations, various arms of the Executive Branch – including several law enforcement agencies and the Department of the Treasury – have called for meaningful action on this issue.  For an even longer period, the Senate Permanent Subcommittee on Investigations, beginning with the prior leadership of Senator Levin, has called for such action. 

The current Administration has developed a proposal that is reasonable and effective, leveraging current IRS reporting requirements to obtain beneficial ownership information from companies created under the authority of the states.  This Committee should work with the Congress, the Administration and state authorities to support this approach, including through legislation required to ensure adequate availability of beneficial ownership information to the full range of US authorities investigating illicit finance.

(iii) Consider legislation strengthening the information-sharing provisions of Section 314 of the USA PATRIOT Act.   Such action may assist in addressing the systemic challenges to financial integrity posed by information-sharing constraints.  Such legislation could strengthen information-sharing by clearly extending Section 314(b)’s safe harbor provisions to the widest range of counter-illicit financing information sharing by financial institutions.  This should include enabling compliance teams from different financial institutions to share information while working in common groups for purposes of mapping illicit financing networks.   Such work could be facilitated by FinCEN and other investigative authorities, whose participation may require amending Section 314(a).  This Committee should work with FinCEN to explore whether additional legislative authority is needed to advance these ideas and others to facilitate more effective information sharing by financial institutions in uncovering illicit financing networks. 

Support Treasury Rulemaking under the BSA

(i) Support the issuance of Treasury’s Proposed Rule on Customer Due Diligence (CDD), consistent with FATF global standards.  Such action is required to address the systemic challenges posed by CDD practices that fall below global standards, particularly with respect to beneficial ownership.  Treasury’s proposed rule clarifying and strengthening CDD has incorporated and benefitted from exhaustive stakeholder comments collected through an outreach campaign unprecedented in the history of BSA rulemakings.  Congressional support for Treasury’s proposed rule may facilitate action by the Administration to finalize this rulemaking.   

(ii) Support Treasury’s consideration to extend AML/CFT preventive measures to investment advisers, consistent with FATF global standards.  Such action is required to help address the systemic challenges created by gaps in the financial system that are not covered by AML/CFT preventive measures.  As Treasury has reported in the 2015 National Money Laundering Risk Assessment, as of April 2015, investment advisers registered with the SEC reported more than $66 trillion assets under management.  The current lack of AML/CFT regulation over this sector creates a significant blind spot in our understanding of whose interests are represented by this $66 trillion of assets, substantially undermining financial transparency in our capital markets.  This gap also puts broker-dealers and other covered capital market sectors in the unfair and difficult position of trying to manage illicit financing risks of the investment adviser sector they service.  Congressional support for Treasury’s consideration to extend AML/CFT preventive measures to this sector may facilitate such action by the Administration.       

(iii)  Support Treasury’s consideration to extend AML/CFT preventive measures to real estate agents, consistent with FATF global standards.  Such action is required to help address the systemic challenges created by gaps in vulnerable industries that are not covered by AML/CFT preventive measures.  The longstanding global vulnerability of the real estate industry to money laundering is well-known.  For this reason, FATF global standards direct countries to extend AML/CFT preventive measures to real estate agents.  Several recent cases and investigative reporting by the media have indicated that this vulnerability continues to be exploited in the United States, perhaps most prominently in New York City and Miami.  Treasury has long considered extending AML/CFT preventive measures to this industry.  Congressional support may facilitate such action by the Administration.    

(iv)  Support Treasury’s consideration of lowering the recordkeeping and travel rule thresholds for funds transfers from $3000 to $1000, consistent with FATF global standards.  Such action is required to enhance the transparency of lower value funds transfers consistently abused to structure illicit financing transactions.  Treasury’s 2015 National Money Laundering Risk Assessment provides the latest evidence of such continued abuse.  Lowering the thresholds to $1000 would triple the costs and risks for illicit financing networks engaged in such structuring.  Maintaining a threshold of $1000 would preserve a reasonable threshold well above the average value of cross-border remittances, thereby avoiding any potential collateral and exclusionary impact on remittance flows.  Congressional support for Treasury’s consideration to lower this threshold may facilitate such action by the Administration.  

Provide Additional Resources Targeting Strategic Investments to Strengthen Financial Integrity

Despite the clear and growing importance of financial integrity to our CFT campaign, national and collective security, and economic stability, US authorities responsible for protecting and advancing our financial integrity are severely stretched.  These authorities are literally the best in the world at what they do, and their success has led to the welcome expansion of the counter-illicit financing mission and the continued protection of the expanding financial system.  To maintain our unparalleled success, our counter-illicit financing authorities require the resources needed to match this expanding mission. 

The critical importance of financial transparency and the proven impact of targeted financial measures represent a compelling investment opportunity for Congress to achieve a high return with relatively marginal costs.  The recommendations below target specific investments that could significantly enhance our financial integrity and expand the ability of the United States to combat national security threats through financial action.  

(i)  Provide protected resources for Treasury to enhance examination and supervision of BSA-covered industries lacking a federal functional regulator.  Such action is needed to address the systemic challenges posed by AML/CFT regulatory coverage of high risk or vulnerable sectors that lack a federal functional regulator.  Through the creative efforts of FinCEN and the IRS described above, Treasury has strengthened oversight and supervision of the MSB sector.  These efforts would be further strengthened by additional resources that could be used to support a targeted supervisory and examination function managed by FinCEN, in continued coordination with the IRS.  Such additional resources would also strengthen FinCEN’s ability to oversee and enforce implementation of AML/CFT preventive measures in other industries lacking a federal functional regulator – including insurance companies, dealers in precious metals and stones, and casinos.  Finally, such additional resources will be further needed if Treasury extends AML/CFT preventive measures to real estate agents, as recommended above.

(ii) Provide protected resources for Treasury’s IRS and the Asset Forfeiture and Money Laundering Section of the Department of Justice to enhance financial investigations of illicit financing networks.  Such action is needed to strengthen the systematic pursuit of illicit financing networks by the criminal investigative and prosecutorial authorities that are best suited and trained to support this mission.  Such dedicated resources should be protected from competing interests of tax investigations in the case of the IRS and forfeiture actions by AFMLS.  Such interests are obviously central to the respective missions of the IRS and AFMLS and critical to the broader financial integrity mission.  Nonetheless, these interests should not preclude strengthening the parallel and sustained development of units dedicated to pursuing or supporting criminal investigations of the most sophisticated and dangerous illicit financing networks.

(iii) Provide protected resources for Treasury to enhance targeting of primary money laundering concerns under Section 311 of the USA PATRIOT Act and targeting of illicit financing networks under IEEPA.  Such action is needed to give Treasury the resources it requires to continue applying targeted financial measures against a growing range of criminal and national security threats.  The clearly disruptive impact of these actions and the increased demand for additional action justify additional resources that match the Treasury’s expanding role in combating threats to our financial integrity and national security.    

(iv) Provide protected resources for Treasury to develop foreign capacity in critical allies to support the effective implementation of AML/CFT measures and the application of targeted financial measures.  Such action is required to strengthen the global commitment to financial integrity and the impact of Treasury’s targeted financial measures against those who threaten our collective security and the integrity of the global financial system.

Other Steps

(v) Task the Congressional Research Service to conduct a study of cross-border information-sharing requirements and prohibitions that our financial institutions must meet.  Such action is needed to better understand the information-sharing challenges that our financial institutions face in identifying and managing transnational illicit financing risks.  Armed with a better understanding, Congress can work with the Administration to develop solutions that assist our financial institutions in sharing the information they need to protect the integrity of our financial system.

(vi) Support the work of the AML Task Force in coordinating and strengthening examination, supervision and enforcement of AML/CFT preventive measures and financial sanctions.  Such support may be needed to underscore the importance of collaboration across Treasury, law enforcement and the regulatory community to harmonize expectations for industry in implementing an effective risk-based approach to managing illicit financing risks.  Such support may also encourage the development of new ideas and mechanisms to strengthen the integrity of the financial system, including through possible amendments to existing authorities to better align AML/CFT preventive measures to the risks facing our financial system.  The 2015 National Money Laundering and Terrorist Financing Risk Assessments provide an excellent opportunity to reinvigorate this work. 

Conclusion

Once again, I am honored and humbled to testify before you today in support of those across our government and financial services industries who fight every day to protect our financial integrity.  They are the best in the world in advancing this mission.  Their continued success will require your ongoing support. 

I would be happy to answer any questions you may have.

 

 

Testimony

Admitting Syrian Refugees: The Intelligence Void and the Escalating Homeland Security Threat

Testimony for House Committee on Homeland Security, Subcommittee on Counterterrorism and Intelligence
24th June 2015

Download full testimony here 

The Syrian refugee crisis represents the tragic consequences of politics gone awry in the Middle East. Millions of Syrians have been displaced due to the fighting, which has also produced a near-complete fracturing of Syrian society. The refugee crisis must be considered with an emphasis on both humanitarian and security issues, as they are deeply linked. This testimony thus seeks to highlight the competing considerations that should inform our thinking and policies on this issue by focusing on both the deep humanitarian and geopolitical challenges associated with the Syrian refugee crisis, but also reasons why policymakers have legitimate concerns about the admission of large numbers of Syrian refugees into the United States. Even though rebel groups seem to have recently broken the stalemate with Bashar al-Assad’s regime, this doesn’t mean that the Syrian civil war will imminently end, and even an end of the civil war doesn’t mean an end to the refugee crisis: The proliferation of jihadist groups in the country is a demonstration of just how enduring the refugee crisis may be.

The United States is now asking whether it should accept those Syrian refugees left most vulnerable by the conflict. While there may be both moral and pragmatic considerations counseling in favor of such a course of action, there are also challenges involved in doing so, and the risk exists that the United States could end up with an incoherent set of migrations policies, given its failure to admit the many Afghans and Iraqis who directly aided U.S. efforts during the major wars in both countries. Put simply, the U.S. has not met its obligation to locals in those two countries who assisted the U.S.’s military efforts, and whose lives are endangered as a result. Thus, any discussion of admitting Syrian refugees should recognize these obligations as a part of the discussion, one that should take priority.

My testimony begins by outlining, country by country, the impacts of the Syrian refugee crisis, detailing where refugees have ended up in the Middle East, Europe, and North America. It examines the conditions of refugee camps, as well as humanitarian efforts of host nations and international organizations. The Jordanian response will be specifically highlighted, as Jordan has been particularly challenged by the sudden influx of refugees. The testimony concludes by describing potential problems related to resettling Syrian refugees in the United States, including security concerns.

The Humanitarian Crisis Related to Syrian Refugees

The Syrian refugee crisis, now entering its fourth year, presents dire humanitarian concerns. The exodus of Syrians to neighboring states has created a myriad of challenges for host countries and aid organizations alike. Syrians displaced from the conflict now number almost four million in such neighboring countries such as Turkey, Lebanon, Jordan, Iraq, and Egypt, as well as European and North American states. 

Syrian refugees have been removed from the violence that continues to plague their home country, but they remain an at-risk population in the countries to which they have fled. Conditions in refugee camps vary, but they have created numerous humanitarian issues. Outside of the camps, displaced Syrians struggle to afford housing and find work, while host nations grapple with the implications of trying to integrate a refugee population that has become more likely to stay as the crisis continues.

Scope of the crisis. According to the UN High Commissioner for Refugees (UNHCR), the UN’s refugee agency, nearly 4 million registered Syrian refugees live outside of Syria.[1] There is also an unknown, though sizable, number of Syrian refugees who have not been registered, leaving them in legal limbo and without access to services provided by humanitarian agencies. Additionally, the Internal Displacement Monitoring Centre (IDMC) estimates that there are approximately 7.6 million internally displaced persons (IDPs) in Syria, making it the country with the largest population of individuals displaced by conflict and violence in the world.[2]

Countries bordering Syria have borne most of the burden of housing Syrian refugees. Turkey, with over 1.7 million registered refugees, holds more registered Syrian refugees than any other country. Second to Turkey is Lebanon, which houses nearly 1.2 million registered refugees, along with approximately 300,000 unregistered refugees.[3] Jordan houses approximately 620,000 refugees, with the majority (80 percent) residing in urban areas such as the capital, Amman.[4] Iraq houses around 250,000 Syrian refugees, in addition to 3 million-plus IDPs who have been displaced by the current conflict in Iraq.[5]

Syrian refugees have also sought asylum or temporary residency in other countries in the region. According to UNHCR, there are 155,000 registered Syrian refugees in North Africa; of those, approximately 130,000 reside in Egypt, though conditions for Syrian refugees in that country have deteriorated since Mohamed Morsi’s regime was overthrown in July 2013.[6] A growing number of Syrian refugees based in Egypt have attempted the treacherous journey to Europe by sea. A significant number of Syrian refugees also live in Libya, though most of them are unregistered. Many Syrian refugees still residing in Libya do not intend to remain, and are planning to travel to Europe via Libya’s well-established human smuggling networks.[7]

Europe is home to a steadily growing population of Syrian refugees. Nearly 150,000 Syrians have sought asylum in Europe since 2011 and European Union (EU) member states have pledged to resettle another 33,000 Syrians in the coming months.[8] Though EU law states that refugees must register in their country of entry, many Syrian refugees evade migration officials in southern and eastern European countries, and travel to northern European countries, where they then apply for asylum. Among European states, Germany and Sweden have received the most Syrian refugees, with both countries processing over 50,000 Syrian asylum applications from 2011-2014.[9] Of the 33,000 refugees whom EU member states have vowed to resettle, the vast majority (30,000) will be resettled in Germany.[10]

The United States has admitted a small number of Syrian refugees. According to the State Department, 700 Syrian refugees have been accepted since the civil war began, and the State Department has revealed plans to accept as many as 2,000 additional refugees by the fall of 2015.[11] Canada has pledged to accept 11,000 refugees in the near future.

Conditions for refugees inside and outside of refugee camps. The massive forced migration out of Syria has necessitated a huge humanitarian response. Camps have been established in several countries to address the inflow of refugees. Yet with dwindling funds and resources, conditions are deteriorating.

There are over 3.5 million Syrian refugees in Jordan, Iraq, Turkey, and Lebanon. Camps provide food, water, electricity, cash vouchers, basic medical services, education, and shelter. The camps, and the services they provide, are jointly managed by the host governments, UNHCR, and several participating NGOs. Some camps, notably the Kilis camp in Turkey, have relatively high standards of living.[12] But the quality of services is not standardized across all camps; and even in a well-run camp like Kilis, the refugees want nothing more than to leave.[13] Many camps have seen overcrowding and major budget shortfalls, and some camps reportedly lack electricity.[14] Malnutrition, poverty, and disease are endemic.

But these camps represent the living situation for only 11 percent of refugees. Eight-nine percent live in communities outside the camps, among the native population. Egypt and Lebanon, both of which have accepted a large number of refugees, do not even have official camps. The sudden influx of refugees has caused tensions with local populations, in part due to rising property costs, unemployment rates, and the overburdening of public institutions such as health care and education. Indeed, conditions outside of the camps are arguably worse for Syrian refugees than conditions within the camps. A recent report by UNHCR concerning the refugees in Jordan living outside of official camps (84% of the total for that country) found that nearly half were living in bad or uninhabitable conditions, two-thirds were living at or below the poverty line, and one-sixth lived in abject poverty.[15] Refugees living outside of official camps lack many of the essential services that are at least partially provided inside the camps. This has caused even further substandard living conditions for Syrian refugees who resettle among the native population.

Conditions for refugees, both inside and outside of official camps, are likely to worsen. Only 20 percent of the $4.5 billion funding request for UNHCR to sustain its 2015 operations assisting refugees has been fulfilled.[16] Food aid has already been cut, as the Associated Press explains:

The World Food Program reduced the number of Syrian refugees eligible for food vouchers from 1.9 million to 1.7 million in January to focus on the neediest. Since then, it has twice reduced benefits, most recently in May by a total of about 30 percent, and the neediest among more than 520,000 refugees living outside camps in Jordan now receive just $21 per person per month.[17]

The situation can be expected to further deteriorate. Lacking money and resources, UNHCR and host governments will not be able to sustain their current efforts without more assistance from the international community.

            The case of Jordan. The impact of Jordanian refugees on Jordan demonstrates that the current crisis is not just humanitarian, but also has real strategic implications for the region—and for the United States as well. Jordan’s current population is approximately 8 million, of which about 628,160 are Syrian refugees.[18] This 8.5 percent increase in population attributable to the inflow of refugees from Syria has strained the country in multiple ways.

Most Syrian refugees have settled in either Jordan’s urban centers or refugee camps, with about 80% going to urban areas. A statistical analysis my research team performed on Syrian refugees in Jordan suggests that 51.3 percent are in the northern region, while only 3.5 percent are in the south; and the distribution of Syrian refugees in Jordan is even more uneven on a governorate scale. The Mafraq governorate, which makes up most of Jordan’s border with Syria, has absorbed most of the refugees in the north, and 25% of all Syrian refugees in Jordan overall. Refugees now make up 35% of Mafraq’s population, with the two major destinations being the capital city of Mafraq and the Za’atari refugee camp.

            Syrian refugees in Jordanian cities, initially welcomed with a high degree of hospitality, are encountering rising tensions with the host community. A September 2012 report showed that 80% of Jordanians in the city of Mafraq would prefer that the refugees leave the city to live in camps.[19] The rising population produced by the inflow of refugees has caused, among other things, a drastic rise in housing prices.[20] Many Jordanians also fear that Syrian refugees are competing for their jobs.

            Conditions in Jordanian refugee camps, especially the Za’atari camp—with 85,000 residents—are comparatively well-suited for a long-term stay, and the camps have appeared more permanent over time. (This is not to say that the conditions can be considered good.) Za’atari has a significant black market economy, but also signs of normalcy that include barber shops, paved streets, electric poles, private toilets, private gardens, a pet store, a flower shop, and an ice cream parlor. In July 2014, 3,500 businesses could be found in Za’atari.[21] Another indicator of the camps’ potential permanence is rising levels of school attendance. One resident observed that most parents kept their children out of school initially, electing to wait and continue their education once they returned to Syria. Now, however, Za’atari residents send their children to school “because they don’t have any hope to go back.”[22] Jordan’s government has begun to acknowledge, at least implicitly, that Syrian refugees could be permanent in the country. UNHCR’s external relations officer noted that the new Azraq refugee camp is designed to function like a city instead of a temporary camp.[23]

This refugee population has placed significant demands on Jordan’s resources. The government of Jordan is currently able to satisfy the basic needs of the refugee community, but it may not be able to do so in the long run. Jordan is one of the most water-scarce countries in the world, and before refugees arrived the country’s groundwater resources were on track to be depleted as early as 2060.[24] The government’s strategy to manage water use and increase sustainability did not account for the sudden addition of large numbers of Syrian refugees to the population. Water resources could now depleted years earlier than previously projected.

The locations hardest hit by the refugee influx have seen average daily supply of water per person plummet to 30 liters, far below the 80 liters per day necessary to satisfy basic needs. At this level, “sanitation standards decline, diseases rise, subsistence crops wither, and children go thirsty.”[25] In Za’atari, refugees are allocated 35 liters of water per day, compared to the 70 to 145 liters per person per day provided in pre-conflict Syria.[26]

The entry of hundreds of thousands of Syrian refugees has caused food prices to rise sharply, especially in the north. For example, in Mafraq governorate, food prices have increased by 27 percent.[27] A study has found that more than 60 percent of Syrian refugees in the al-Ramtha, Beni Obaid, Irbid, and al-Badiya districts and the Jarash and Ajloun governorates do not have adequate access to food.[28] Compounding this problem has been substantial cuts in food assistance to Syrian refugees, as the World Food Program reduced the number of Syrian refugees eligible for food aid in January 2015, and has further reduced benefits twice since then.[29]

Further, the electricity generation sector has been strained, which has been expensive for Jordan’s government due to its subsidization of energy.[30] Compounding the problem, Jordan imports 96 percent of its oil and gas, so it is exposed to fluctuations in energy prices on the supply side, and to population changes and increased consumption on the demand side.[31] Pressure on Jordan’s sanitation, education, and health systems is also increasing.[32] Many schools are running two shifts at the expense of quality to accommodate Syrian refugee children, who are perceived to be at a lower educational level than Jordanian children due to curriculum differences and their interruption in education.

The influx of refugees also places significant strains on Jordan’s economy. A January 2014 USAID study estimated that the direct and indirect costs of managing the Syrian refugee population amounted to 2.4 percent of Jordan’s GDP.[33] The study found that growing government expenditures on refugees caused a decline in Jordan’s ability to provide services and security to the general population.[34] A separate study by the UN Development Programme found that the cost of hosting refugees in Jordan totaled $5.3 billion for 2013-2014, and most of these costs were covered by Jordan’s government.[35] And refugee-related economic costs extend to several other sectors of Jordan’s economy. As previously noted, rental prices have increased as Syrian refugees drive up demand for rental units.[36] The uptick in rental prices, along with other factors related to the refugee population, has contributed to a rise in inflation. Jordan’s informal economy has also expanded as Syrian refugees look for jobs in informal industries.

All of this has fueled resentment among native Jordanians, who have consistently opposed opening their border to Syrian refugees. In a survey conducted in 2013, 71 percent of Jordanians opposed allowing more Syrian refugees into the country, while 58 percent said that the quality of service had declined in neighborhoods where Syrian refugees lived.[37] Resentment and opposition to the refugee presence has only grown over time.

Jordan has been forced to adapt its policies to deal with the growing number of Syrian refugees residing within its borders. Jordan initially welcomed Syrian refugees with what can be termed an “open-border policy” at the start of the conflict in 2011. But as the Syria crisis intensified and became more protracted, Jordan has adjusted its control over the Jordan-Syria border, its management of refugee camps, and its legal framework concerning Syrian refugees. In September and October of 2014, for example, the border was closed to refugees, though the government’s official stance remained that it was open to women, children, and injured refugees.[38] In November, Human Rights Watch found that Syrian refugees attempting to cross into Jordan were being forcibly returned.[39] Jordan again closed its border with Syria at the beginning of April 2015 due to the nearby outbreak of violence.[40] Jordan also began restricting the movement of Syrian refugees