Speeches, Testimony and Remarks

U/S Mandelker Speech on Impact of Sanctions at Center for Strategic and International Studies (CSIS)

UNDER SECRETARY OF THE TREASURY

FOR TERRORISM AND FINANCIAL INTELLIGENCE

AT THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

WEDNESDAY, JULY 31, 2019

WASHINGTON, DC

 

Thank you, John, for inviting me here as part of today’s important discussion about the impact of sanctions.

The economic authorities of the Office of Terrorism and Financial Intelligence, or TFI, play an increasingly central role in countering the nation’s most critical national security and illicit finance threats.  Our tools have been so effective that we frequently find ourselves at the tip of the spear as new security threats and challenges emerge around the globe.  I spend my days and nights working to ensure that our powerful authorities are always deployed strategically.

In the last two years, we have, among many other achievements:

  • Cut off billions of dollars in revenue that would have otherwise flowed to the world’s largest state sponsor of terror, Iran;
  •  Disrupted major networks that had provided Bashar al-Assad with oil and other resources he has used to brutalize the Syrian people, destabilize the region, and fund terror;
  • Choked off funds to Hizballah, causing the terrorist organization to undertake an unprecedented plea for funding;
  • Expanded sectoral and other sanctions in response to Russia’s continued aggression, leading to major western firms abandoning joint exploration ventures with Russian companies and a drop in foreign direct investment;
  • Exposed and disrupted the malign activity of Russian oligarchs, such as Oleg Deripaska, who are closely linked to the Kremlin, forcing them to divest ownership in large corporations and rendering them pariahs to the international business community;
  • Disrupted North Korean shipping, financial, and export networks and worked in concert with our allies and the UN to create a diplomatic opening for discussion;
  • Led the Financial Action Task Force (FATF) in adopting comprehensive measures for how countries must regulate and supervise digital assets, including digital currencies, to address and mitigate the associated money laundering and terrorist risks;
  • Targeted and disrupted networks of human rights abusers and corrupt officials all over the world, including the illegitimate Maduro regime in Venezuela and kleptocrats in the Democratic Republic of the Congo; and

Exposed and disrupted numerous illicit finance schemes around the world, from ISIS to Al-Qaeda, from drug kingpins to transnational criminal organizations.

The daily pace is intense.  Since the beginning of this Administration, we have issued close to 190 tranches of sanctions, targeting more than 2,600 individuals, entities, vessels, and aircraft.  We have issued scores of advisories and convened engagements with banks, the maritime and aviation industries, the energy and real estate sectors, and many others.  In just this calendar year, we have issued nearly $1.3 billion in civil monetary penalties and settlements for financial institutions and corporate actors related to violations of our sanctions programs. 

 

HISTORY OF OFAC / CREATION OF TFI

Given the prevalence of economic statecraft in addressing so many of today’s most significant national security challenges, we are constantly evaluating the impact and effectiveness of our programs.  In doing so, I draw upon our great history.

It is an honor to be the Under Secretary of TFI during our 15th anniversary year.  Although TFI itself is a relatively recent creation, the foundation of our programs was laid in 1940 out of an effort to prevent Hitler and the Nazis from seizing U.S.-held assets from the countries that they invaded.  In those days, Treasury Department officials ensured that billions of dollars were kept out of the grasp of the Nazis.  Tragically, this did not stop the genocide that was underway.  But imagine how much worse it could have been if Hitler had access to these billions of dollars.

Treasury moved swiftly then.  We move swiftly now as we constantly innovate and develop new strategies to keep funds out of the hands of dangerous actors around the world. 

No other government in the world has an organization like TFI. It includes the Office of Foreign Assets Control (OFAC), which is the beating heart of our sanctions programs; the Financial Crimes Enforcement Network (FinCEN), which safeguards the financial system from illicit use and money laundering; the Office of Intelligence and Analysis (OIA), which is a member of the intelligence community and has a cadre of talented threat finance analysts; and the office of Terrorist Financing and Financial Crimes (TFFC), which develops policy and conducts extensive international outreach.  This organizational structure integrates unparalleled insight into the financing of emerging global threats with powerful economic authorities to counter them.

THE STRENGTH OF OUR PEOPLE

I hope you’ll indulge me as I take a moment to talk about the career professionals of TFI, who are the best in the world at what they do.  These dedicated women and men work tirelessly to protect our national security and our financial system.  They are among the smartest, most determined and indefatigable public servants that I have had the honor to work with.  They believe in creativity, innovation, teamwork, and great ideas. 

I like to say that TFI is a small but mighty organization.  We draw upon the diversity of background and experiences of our people – collaborating with one another with a spirit and history of collegiality – to punch well above our weight over, and over again. 

Every single day I’m struck by the fascinating life stories and diverse family histories of those who work at TFI. I am the first in my immediate family born in this great country, the proud child of immigrants who came to the United States to study and ultimately pursue the American dream.  We have professionals who also grew up overseas and came to the United States, just like my parents, to go to college, as well as those who grew up in rural America and were the first in their families to attend college.  Our TFI family includes those whose families have suffered directly at the hands of cruel and authoritarian regimes, including in places like Europe during the Holocaust and Armenia.  We have those whose families were forced to flee their countries due to persecution, losing everything, including many family members.  I recently traveled to Europe with a TFI’er whose grandfather was part of the Belgian resistance during World War II but was captured and sent to the concentration camp Buchenwald. 

We have TFI’ers who have made tremendous sacrifice to serve their country.  There are those who have served in the military and suffered significant injury, and those who still serve in the reserves.  Every single person I’ve encountered at TFI has a unique perspective, a story that has driven them to public service.  Each and every one of them influence the collective tapestry of TFI. 

TAKING A STRATEGIC APPROACH

TFI has achieved great things in its history.  Prior to 9/11, our nation’s sanctions authorities were largely embargo based – think of Cuba, Libya, Sudan, and the early Iran sanctions programs.  Starting in 1995, Treasury first imposed targeted sanctions on Colombian drug cartels, and five years later, the Kingpin Act provided similar authorities on a global basis.  These new sanctions authorities set the stage for the effective use of targeted sanctions on terrorists focused first in the Middle East, and then out of tragic necessity expanded globally after 9/11. 

When I took the oath as Under Secretary, it became my mission to build upon Treasury’s experiences and successes by ensuring all of our efforts are strategic and intelligence driven, focused on achieving specific national security and illicit finance objectives, and calibrated to take maximum advantage of the myriad tools and authorities at our disposal.  In short, my challenge was to make certain that we are not merely responding to the increase in calls for action, but that our economic statecraft is agile, strategic, and impactful. 

Sanctions, as well as other economic authorities and measures, are tools – very powerful tools to be sure – used in support of a broader strategy to achieve a U.S. policy goal or objective.  Sanctions alone will rarely, if ever, comprise the entire solution to a national security threat or human rights or corruption crisis.  Sanctions often, however, play an enormously important role in achieving these strategies and an equally important role in disrupting money from going to malign actors who seek to do bad things around the globe.  Every time we utilize these tools to disrupt that flow of money, we keep our country safer.

Within TFI, we are laser-focused on predicting and achieving an intended impact against a specific actor or actors to effect a broader goal. We are constantly thinking through which complement of tools —sanctions, anti-money laundering (AML) measures, enforcement actions, foreign engagement, intelligence and analysis, and private sector partnerships among others — are most impactful when countering specific challenges.  We then carefully orchestrate and sequence the application of these tools to build off of each other and nest them in a broader strategic approach. 

To enhance our integration, I established Strategic Impact Units, comprised of representatives from each TFI component, who work together to develop strategies and implementation plans that are:

  • intelligence driven
  • in support of specific domestic or foreign policy priorities
  • using each component’s authorities
  • in conjunction with the larger interagency community.

Before and after applying economic measures, we assess the expected and actual impact of that action.  These impacts may be:

  • The disruption of funds going to a national security threat or illicit activity;
  • The isolation of an illicit actor from the US and global financial system;
  • Direct economic or financial loss to an illicit actor or regime;
  • A decreased capability for an adversary to conduct further illicit activity;
  • The hardening of our financial system against illicit finance threats;
  • An improvement in meeting global standards in high-risk jurisdictions;
  • A fundamental change of behavior.

This pre- and post- action analysis requires discipline and diligence, which can be tough given the workload we face.  But understanding the impact of our actions is critical to determining effectiveness in achieving our objectives and making any necessary adjustments to our strategies in the future.

Our decision-making also includes taking great care to understand and address any potential unintended impacts of each sanctions action.  Treasury and State have many tools to mitigate, where appropriate, these unintended consequences of our actions, while maintaining the pressure on the target of our sanctions, including through our licensing authority, waivers, and calibrated actions such as sectoral sanctions, FAQs, guidance, and advisories.  We use general and specific licenses to ensure that humanitarian transactions, including the provision of food and medicine, are authorized in sanctions programs such as Iran, Syria, and Venezuela.  This is particularly important in countries where kleptocrats or regime officials use humanitarian goods as a political weapon, to line their own pockets, or as a cover for nefarious activities.

NETWORK SANCTIONS

 

One way in which we have maximized the impact of our actions is by prioritizing network sanctions.  Network sanctions recognize that a bad actor rarely acts alone.  Instead, they frequently rely upon complicated structures that include shell companies, business partners, facilitators, enablers, and middlemen to disguise the nature of their activity and launder their money.

 

When we focus on these broader networks and their assets, we can more effectively block a bad actor’s ability to access their ill-gotten gains, making it more difficult for them to use the global marketplace or continue in their business arrangements. 

 

We can also have a significant impact on these facilitators’ reputations, which can result in dismissal from formal commercial or official positions, and trigger the initiation of investigations or legal proceedings abroad.  When we designated Dan Gertler, for example, for using his relationship with then-President Kabila of the DRC to secure grossly underpriced mining contracts, depriving the Congolese people of more than a billion dollars in lost revenue, we also designated 33 entities in his network.  We then followed up by designating 14 additional entities a few months later.  These designations came at a critical time as the US applied concerted pressure on Kabila and his enablers to abide by the terms of their constitution to hold elections, which he ultimately did. 

Similarly, last month we designated Samer Foz, a Syrian oligarch, and 15 individuals and entities who leveraged the atrocities of the Syrian conflict into a profit-generating enterprise.  Foz directly supported the murderous Assad regime and built luxury developments on land stolen from those fleeing Assad’s brutality.  Our action included the Four Seasons Hotel in Damascus as being owned or controlled by Foz, and within days of this action, the Four Seasons cut ties with the property, as should others around the world.  These kind of actions have a chilling effect on those who think they can profit off the backs of the innocent.

Network sanctions take longer to investigate and develop, but through their use, we are sending the message that there are real consequences to engaging in illicit or corrupt behavior. 

I have had the humbling opportunity to meet with victims of atrocities and violent repression from Syria, Burma, South Sudan, the DRC and elsewhere.  They talk about how when we use these kinds of sanctions, they see the impact on the ground.  Military and police officials who have been removed or changed their behavior out of fear that they too would be sanctioned.  Less fuel for Assad to put into the tanks and planes that kill civilians.  And the list goes on.

ENGAGING OUR PARTNERS

Another part of our strategic approach is close coordination with our partners.  That includes coordinating with international partners to amplify our actions or working with those in the trenches of the economic battlefield – banks and other financial institutions – to maintain robust anti-money laundering/countering the financing of terrorism (AML/CFT) safeguards. 

The private sector’s vigilance likewise makes our tools and authorities that much more effective, and we have prioritized strengthening those partnerships with the private sector by providing them with the vital information they need to track, disrupt and report illicit activity.  We have been doing this increasingly over the last two years by issuing more detailed press releases, increasing the number of advisories, directly engaging with financial institutions, and issuing specific guidance to help the private sector disrupt illicit finance and build robust compliance programs that harden their networks against the latest threats from around the globe.  Just this year, OFAC – for the first time ever – outlined the essential components of an effective sanctions compliance program, which we are incorporating into our settlement agreements and are actively monitoring and enforcing for compliance. 

We have adopted this collaborative, integrated, impact-focused approach across the board.  Today, I’d like to discuss with you how we have done so with one of our programs, Iran. 

IRAN

As the world’s leading state sponsor of terrorism, Iran prioritizes funding for brutal regimes and terrorists over supporting its own people.  It provides billions of dollars to terrorist groups like Hizballah and Hamas, funds Bashar Al-Assad’s campaign against his own citizens, and sends vulnerable refugees and child soldiers to die in Syria fighting for Iran’s Islamic Revolutionary Guard Corps (IRGC) and its Qods Force.  Iran is also a country with zero financial transparency, as groups funding terrorism like the IRGC and its Qods Force remain deeply embedded in the Iranian economy.  The Central Bank itself — the banker of the Iranian government and supervisor of all Iranian banks — has funneled hundreds of millions of dollars to the Qods Force, Hizballah, and Hamas.

To meaningfully counter this national security challenge, we have engaged in a comprehensive approach, using every tool in our toolbox, to tactically and strategically apply maximum economic pressure and build international coalitions.   

The President fully re-imposed sanctions on the greatest revenue generating sectors of Iran’s economy – energy, financial, shipping, precious metals, aviation, and automotive – and we have added more than 1000 individuals, entities, aircraft, and vessels to our list of Specially Designated Nationals and Blocked Persons (SDN List). 

We have further increased this economic pressure by targeting Iran’s most profitable entities, most notably its oil sector.  The U.S. government has severely limited the flow of oil by ending the SREs, or Significant Reduction Exceptions.  To further disrupt the regime’s illicit oil revenue, we have taken action after action against vast international networks attempting to illicitly supply the regime with revenue for its destructive behavior.  This includes an action against a network that provided millions of barrels of Iranian oil to the Syrian government and facilitated the movement of hundreds of millions of U.S. dollars to the IRGC-Qods Force, Hamas, and Hizballah.  In that action, we designated two Central Bank of Iran officials, a subsidiary of the Russian Ministry of Energy, and a Syrian businessman and his companies. 

This summer, we designated Iran’s largest petrochemical holding group, Persian Gulf Petrochemical Industries Company, for providing financial support to the engineering conglomerate of the IRGC.  Together with its designated subsidiaries, this company controlled 40% of Iran’s total petrochemical production capacity and is responsible for 50% of Iran’s total petrochemical exports.

If you look at the sanctions we have issued, time and again we are targeting networks that support the IRGC, the Qods Force, and other terrorist organizations.

But the tools we’ve employed to apply maximum pressure on Iran have not been limited to just sanctions.  We have also done extensive international engagement and education to enhance our collective ability to identify the threats posed by Iran and cut off their illicit financing.  Last year, through FinCEN, we published a comprehensive advisory on Iran, alerting financial institutions of the ways in which the Iranian regime uses front companies, forged documents, and other deceptive practices to circumvent sanctions and deceive private and public actors.  And to counter Iranian efforts to evade our sanctions on oil shipments, OFAC issued a lengthy maritime advisory describing for shipping companies, insurers, vessel owners, managers, and operators the deceptive shipping practices and risks associated with dealing with Iranian oil and facilitating oil shipments to Syrian Government-owned and -operated ports. 

We have also done extensive international engagement and education around the globe with key partners and allies to enhance our collective ability to disrupt illicit funds going to Iran’s malign activities.  And we are now seeing action at the Financial Action Task Force (FATF) to reimpose consequences on Iran for their severe AML/CFT deficiencies.

IMPACT 

This multi-pronged maximum economic pressure campaign is working. 

Iran’s military spending has decreased significantly.  Since the end of April 2018, Iran’s total trade has declined markedly, including its oil exports, which have decreased substantially in recent months.  In fact, the Iranian President has declared that the economy is the worst it’s been in 40 years.  All of this means the regime has far less revenue to divert towards terrorism and malign activities. 

Our actions targeting Hizballah and its financial facilitators are also having real financial impact, which means Hizballah has less revenue to fund its destructive activities.  In a January media report, employees of Hizballah’s media and military systems complained of deep pay cuts and in March, Hizballah leader Hassan Nasrallah made an unprecedented call to his supporters to increase donations, pleading that fundraising efforts must be “stepped up.”  This is the direct result of our pressure on Iran and its proxies.

ADJUSTING BASED UPON IMPACT

Determining impact and overall effectiveness is a complex and complicated process that requires both patience and flexibility.  Why patience? Because while we continually monitor for these impacts, we must acknowledge that some impacts may change or dissipate over time.  Our adversaries are determined in achieving their malign objectives, and sanctions targets adopt mitigation strategies of their own.  It may also be that some impacts are cumulative, or only reveal themselves after a longer period of time.  We must take care against reading too much into the immediate reactions to a designation and instead focus on the long term effectiveness of our strategies and plans. 

Why flexibility? Because as carefully as we plan, the very nature and global scope of our actions means that there may be unintended impacts that require adjustments to our plans through the use of licensing and waivers to prevent harm to innocent parties or allies.  As we ramp up powerful economic pressure to achieve impact, these authorities allow us to fine tune that pressure as situations develop.  We need the ability to quickly adjust our efforts to focus on the most high-value targets.

CONCLUSION

Over the last two years, TFI has built upon the tremendous history and work of this organization to mature and evolve how we think about impact, and how that thinking drives our actions.  We have become ever more sophisticated and stronger as we build out our comprehensive approach, we utilize all of the tools in our economic toolbox in a calibrated fashion, and we wisely apply the economic leverage we have to protect our national security. 

Link:

Treasury Press Release

The Trump administration has implemented an unprecedented pressure campaign on Iran’s leaders with two objectives: First, to deprive the Iranian regime of the money it needs to support its destabilizing activities. Second, to force the Ayatollah Ali Khamenei to the negotiating table to conclude a comprehensive and enduring deal.

The comprehensive deal we seek with the Iranian regime should address four key areas: its nuclear program, its ballistic missile development and proliferation, its support for terrorist groups and proxies, and its treatment and illegal detention of U.S. citizens.

Before we reimposed sanctions and accelerated our pressure campaign, Iran was increasing its malign activity, even under the Joint Comprehensive Plan of Action. These actions included expansive missile testing and proliferation, continuing to unjustly detain American citizens, and deepening its involvement in regional conflicts.

In Yemen, Iran has provided funding, weapons and training to the Houthis, only prolonging the conflict and suffering of the Yemeni people. In Syria, Iran supports a regime that has killed hundreds of thousands, has displaced millions of its own citizens, and continues to spread violence throughout the country. In Lebanon, Iran uses Hezbollah to provoke conflict with Lebanon’s neighbors, imperil the Lebanese people and generate instability.

U.S. pressure is reversing these trends. The regime and its proxies are weaker than when our pressure began. Iranian-backed militias have stated that Iran no longer has enough money to pay them as much as in the past and has enacted austerity plans. Iran’s proposed military budget for 2019 included a 28% cut to its defense budget and a 17% cut to its terror branch, the Islamic Revolutionary Guard Corps.

As we raise the cost of Iran’s expansionism and the status quo, we seek a comprehensive deal and a far more peaceful, stable relationship. We look forward to the day we can help bring the Iranian people and their neighbors the peace and prosperity they deserve.

Link:

State Department Op-Ed

With apoligies to “Clarissa” (pop culture reference)…

Special Briefing

Senior State Department Officials
Via Teleconference
September 20, 2018

 

MODERATOR: Thank you, and good afternoon, everyone. Thank you for joining in today’s call regarding the President’s executive order on the Countering America’s Adversaries Through Sanctions Act as well as other actions. Today’s call will be on background, and it is embargoed until the end of this call.

For your reference purposes only and not for reporting, we welcome on the call today [Senior Administration Official One]. From now on he’ll be known as Senior Administration Official One. We also have [Senior Administration Official Two], Senior Administration Official Two. Then we have [Senior Administration Official Three], now going to be known as Senior Administration Official Three.

Again, this call is on background. The contents are embargoed until approximately 1:30 or when the call is over. I will now turn it over to our senior administration officials, who will open our call with some brief remarks, and then we’ll move to your questions. So Senior Administration Official Number One, please proceed. Thank you.

SENIOR ADMINISTRATION OFFICIAL ONE: Thank you very much. Good afternoon, everyone, and we are grateful for you joining us today. Back in January of this year, many of you may recall we held a background briefing for reporters on the Countering America’s Adversaries Through Sanctions Act, which is also known, at least in U.S. Government circles, as CAATSA for its acronym.

Some of you may have been involved in that briefing or been following this issue otherwise in the press, so you may be familiar with CAATSA. But for those who may not be, it is legislation that Congress passed in – well, at least the Russia portions of it were passed by Congress in response to a range of Russian malign activities that include meddling in the U.S. elections. Part of the statute includes provisions that mandate the imposition of sanctions upon anyone engaging in what is called a “significant transaction” with any entity that appears on a list of persons associated with the Russian defense or intelligence sectors.

There are a couple of developments which we’d like to bring you up to speed on today, two sets of actions. The first is one with which you may be familiar from – just from the website, because today the Treasury – excuse me, today the President signed a new executive order authorizing the State Department to implement certain sanctions that are set forth in the CAATSA statute. That is already public knowledge. The second bit may perhaps be news to you.

The second thing that happened today is the Secretary of State took two actions. First of all, he added 33 additional persons to that list that I mentioned before. It’s the so-called “List of Specified Persons” that are acting on behalf of the Russian defense or intelligence sectors. So that so-called LSP, that list, it got longer today by 33 names.

In addition to that, however, the Secretary, in consultation with the Secretary of the Treasury – so Secretary Pompeo and Secretary Mnuchin – imposed sanctions on a Chinese entity, the Equipment Development Department, otherwise known as EDD, and also upon its director, Li Shangfu. EDD and Mr. Li are being added to the Treasury’s Specially Designated Nationals and Blocked Persons List, which is a complicated way of referring to what we usually just informally call the SDN list. This list has now been updated on the Treasury website.

We want to stress that the legislative standard here is a significant transaction with an entity that appears on the List of Specified Persons. We took these actions because China took delivery of 10 Sukhoi fighter aircraft, specifically Su-25s, in December of 2017 – of course, after the CAATSA statute came into force. And it also took delivery of a batch of S-400 – sometimes known as SA-21 – surface-to-air missile systems or related equipment in January of this year. Both these transactions, which I repeat occurred after the CAATSA sanctions statute came into force, were deals that were negotiated between the Equipment Development Department, or EDD, on the one hand, and Rosoboronexport, which is Russia’s main arms export entity. And it, Rosoboronexport, is on the List of Specified Persons.

I want to emphasize that the ultimate target of these sanctions is Russia. CAATSA sanctions in this context are not intended to undermine the defense capabilities of any particular country. They are instead aimed at imposing costs upon Russia in response to its malign activities. And of course, those malign activities are many that it’s undertaken in its attempt to compete with the U.S. and our allies and our partners. The array of sanctions the United States has imposed against Russia and those who material support – materially support its malign activities are undertaken in direct response to Russia’s aggressive actions against our country, our allies, and our partners.

This is also the first time that we have ever sanctioned anyone under Section 231 of CAATSA, which focuses upon, as I’ve been explaining, those who engage in significant transactions with entities that appear on the LSP. We have not done this before; we are doing this now. We want to stress that our enforcement of Section 231 is an ongoing process. We’ve been engaging with our partners and our allies for quite some time on this, because the ultimate goal of this legislation is to prevent revenue from flowing to the Russian Government. Russia uses its arms sales not only to raise revenue, moreover, but to build relationships which, of course, it then attempts to exploit in furtherance of its interests and almost invariably in ways that goes against ours.

So we’ve been using the CAATSA – the possibility of CAATSA legislation to deter arms transfers for many months now. We’ve had a – done quite a bit, actually, and had some good results in probably preventing the occurrence of several billion dollars’ worth of transfers simply by having the availability of this sanctions tool in our pocket. But since China has now gone ahead and, in fact, done what is clearly a significant transaction by acquiring these Sukhois and S-400 missiles, we feel it necessary – indeed, we are required by the law – to take this step today.

So I want to stress again: This is the first time we’ve ever sanctioned anyone under Section 231 of CAATSA, so it is a significant – this is a significant step. And we have some experts on hand here who can help explain to you many of the details as best we can should you have questions about this. Thank you.

MODERATOR: All right. Thank you very much. I think now we’ll go to our first question.

OPERATOR: Thank you. And once again, on the phone lines, you may press * and then 1 for your questions or comments. Our first question will come from the line of Emily with Energy Intelligence. Your line is open.

QUESTION: Hi, thanks for doing the call. Could you all help me understand some of the other sections, not 231, but that are outlined in the executive order? I mean, specifically I’m interested in Section 232, “Sanctions with respect to the development of pipelines in the Russian Federation.” Is what you’re doing today sanctioning specific projects – like Nord Stream 2, for example – or is it effectively just laying legal groundwork so that that can happen later?

SENIOR ADMINISTRATION OFFICIAL ONE: I think it’s probably best to keep this discussion focused upon the step that we’re actually taking today under Section 231. The executive order that was signed does create a framework under – by executive order for implementing CAATSA sanctions, but I think it’s best if we keep this particular talk to – simply to the step that we are taking today so that we have the chance with the time – the brief time that’s available to explain this step to anyone who has specific questions about it.

MODERATOR: Thank you. We’ll go on to our next question, please.

OPERATOR: That will be from the line from the line of Nick Wadhams. Excuse me. One moment. That’ll be from the line of Nick Wadhams with Bloomberg News. Your line is open.

QUESTION: Hi, thanks. Could you give us a little more information on the 33 people who were added to the List of Specified Persons acting on behalf of the Russian defense LSP? Who are they? Where do they work? Are these government officials? Are they all Russian nationals? Thanks.

SENIOR ADMINISTRATION OFFICIAL ONE: I think perhaps some of my colleagues can provide a bit more of the buildout on that perhaps, but there are a number of – they fall into clumps, if I might sort of broadly summarize. There’s an addition to – there are additions to the list with respect to the Russian defense sector, listing a number of – three entities, actually, there. There are also – most of the bulk of the additions today relate to filling out the list with respect to actors associated with the Russian intelligence sector, which is a bit of a – again, a bit of a new thing here. They come from a variety of sources. Some of you who perhaps will look these names up when you check them out on the website will find that a number of these names correspond to people who have been indicted in connection with Russian election meddling.

SENIOR ADMINISTRATION OFFICIAL TWO: And I would just add that we will be issuing a fact sheet from the State Department with further information with these names, so you’ll be able to see them. But it is indeed a mix of people from the defense sector, from the intelligence sector, and various others who have been associated with Russian malign activities.

MODERATOR: Thank you, we’ll move on —

SENIOR ADMINISTRATION OFFICIAL ONE: Hold on. If I might just also quickly – sorry – add a little bit of additional gloss, and that is that, of course, the List of Specified Persons is not itself a sanctions imposition. Nothing specifically happens to someone by virtue of being on that list. The implications of it, however, are that if anyone else engages in what is deemed to be a significant transaction with such a person, the person who engages in that action may well be subject to mandatory sanctions pursuant to Section 231.

So partly this – the signaling involved and the list is teeing up such sanctions, should someone be engaged with these folks. But it also, we hope, will be something of a signal to avoid engagement with those folks for that very reason. We work very closely with people around the world to minimize their exposure to sanctions for engaging in significant Russian arms transfers. And with this new build-out of the list to cover the Russian intelligence sector to some extent as well, we are sending a signal that dealings with these people may well subject one to sanctions, and therefore we hope that people, if they come across that opportunity, will think twice.

MODERATOR: Thank you. And we’ll go on to the next question now.

OPERATOR: Thank you. We will go to the line of Ian Talley with Wall Street Journal. Your line is open.

QUESTION: Hi, yes. Thanks for doing this. Can you hear me? Hello?

SENIOR ADMINISTRATION OFFICIAL ONE: Yes, I can.

QUESTION: Okay. Great. So a little bit of housekeeping. Can – do you have any details on the cost of those two transactions, the Su-25s and the S-400s? And then does that give us an idea of what the threshold is for a significant transaction? And finally, does – do U.S. entities that have Sukhoi parts, therefore, should they be concerned that their supply chain has a – product have – products from their – from a blacklisted entity?

SENIOR ADMINISTRATION OFFICIAL ONE: Okay. I’ll try to take those three elements in the order you asked them. First, with respect to the costs, I am not in a position to provide information to you all at this point about the specific costs of the transaction. And I certainly understand your interest in trying to decode from an understanding of those costs what it might mean to be a significant transaction, but I think that is an – that would be an unwarranted conclusion. There are a lot of factors that go into deciding when a transaction is significant. Cost is certainly part of it. The significance of that transaction, both in terms of its security impact upon us and its – frankly, its security benefits to the Russians as well as any other circumstances that may be relevant at the time —

QUESTION: Okay. That’s helpful.

SENIOR ADMINISTRATION OFFICIAL ONE: — go into this. So there – it is not quite so simple an algorithm as the question might seem to suppose. So I have no doubt the cost of this fancy equipment was rather significant, but that is not necessarily the determining factor, and I couldn’t tell you what the number is at this point on this call anyway.

With respect to your question about parts, we have been pretty consistent in our messaging throughout the process of enforcing – or implementing, I should say – Section 231 of the CAATSA statute that we are not targeting things such as simply the provision of spare parts and maintenance. That is not of particular concern to us at this time. We are focusing most of our efforts upon the much – the bigger ticket items, the items – transactions that involve significant qualitative changes in the nature of military equipment shipped abroad or things of that nature.

I mean, there are a lot of pieces that go into determining significance, as I said, but we have not hitherto spent any time worrying about merely the provision of parts or maintenance in order to keep existing systems that have already been acquired going, for instance, which goes to my earlier point that we are – the purpose of doing this is not, of course, to undermine the defense capabilities or the aerospace capabilities or really any capabilities of any particular country. The objective here is, of course, to impose costs upon Russia. And we generally take a – we look at things rather differently if there’s a large shipment of new, fancy, qualitatively significant stuff as opposed to simply the provision of things that keep existing systems going.

MODERATOR: All right. We’ll go on to the next question now, please.

OPERATOR: Thank you. Next we’ll go to the line – excuse me – of Joel Gehrke with the Washington Examiner. Your line is open.

QUESTION: Hi. Thanks for doing this. Wanted to go back to the 231 sanctions. I think under the law there are 11 different options for different sanctions under Section 235 that you can apply. Which particular sanctions have you imposed over these Sukhoi and S-400 transactions, and what do you think the practical impact of that will be? And then a little more broadly, does this mean – there have been some debates, some ambiguity about whether the law covered transactions that were agreed to prior to passage of CAATSA. If they were agreed to on paper but they hadn’t accepted delivery yet, is that transaction a violation? Can you say – does – did you end up adjudicating that in your own minds?

SENIOR ADMINISTRATION OFFICIAL ONE: Okay, yeah, let me offer a little bit more on the specific sanctions in question. Under the law, once a determination of a significant transaction is made, we’re required to impose at least five from a menu of – I think it’s actually twelve options that are set forth in the statute. One could impose five, six, eleven, twelve, what have you, depending upon the circumstances, and that is itself a complicated question, as part of our decision-making process.

In this case, the sanctions that are being imposed upon EDD – and I would certainly turn to – I believe it’s Senior Official Number Three to correct or fill in anything that I get wrong here – but we are imposing sanctions on EDD – that is to say, the Chinese entity, Chinese company – a number of these things, although not all of them and there are indeed some carve-outs and waivers. We are denying U.S. export licenses to EDD. We are denying – or, in fact, we are imposing a prohibition upon foreign exchange transactions under U.S. jurisdiction; also imposing a prohibition on transactions with the U.S. financial system. We are blocking all property or interests in property within the U.S. – within U.S. jurisdiction. And we are imposing sanctions on an EDD principal executive officer. That’s the fellow, Mr. Li Shangfu, who we mentioned before. And these sanctions include a prohibition on foreign exchange transactions under U.S. jurisdiction, a prohibition on transactions with the U.S. financial system, and blocking of all property or interests Mr. Li’s – in property within the U.S. jurisdiction, as well as a visa ban.

OFAC has also placed both EDD and Mr. Li on its SDN list, and as a result of that in itself, all property and interests in property within the U.S. jurisdiction are being blocked and U.S. persons are from here forth generally going to be prohibited from transacting with them.

Did I miss anything, Number Three?

SENIOR ADMINISTRATION OFFICIAL THREE: No you didn’t, Number One. I will just note that the OFAC will be implementing these sanctions by the conclusion of this call, scheduled to go out at 1:30.

MODERATOR: All right. We’ll move on to the next question now.

OPERATOR: Thank you. As a reminder, for any questions or comments, press * and then 1. And we will go to the line of Gardiner Harris with New York Times. Your line is open.

QUESTION: Can you just tell us what the effective outcome of the executive order is? It sounds like it’s an executive order that’s just sort of telling you to go ahead and do what you were already doing or what CAATSA the legislation already required you to do. Am I missing something? Does the executive order sort of give you any greater authority or any new abilities to sort of carry out CAATSA that you didn’t already have?

SENIOR ADMINISTRATION OFFICIAL THREE: This is – let me jump in here. This is – I’m [Senior Official Three]. The EO specifically is allowing us to implement the sanctions that we – that – in the State – the actions that the State Department has taken today under CAATSA. First, it delegates the listed sanctions menu – so that was earlier referenced, the menu of 12 in section 235 of CAATSA, and also the separate menu in the Ukraine Freedom Support Act of 2014 – it delegates those sanctions to be implemented.

It also authorizes the Secretary of the Treasury to employ all powers granted under IEEPA. Some of those powers that this executive order now allows us to take will be to do things like promulgate regulations, issue administrative subpoenas, issue licenses, and take the full range of civil enforcement actions that we can. So what the executive order does today is it amplifies and makes implementable the good authority that Congress has given us in the Countering America’s Adversaries Through Sanctions Act, or CAATSA.

MODERATOR: Think we have time for one last question.

OPERATOR: Thank you, and that will be from the line of Nicole Gaouette with CNN. Your line is open.

QUESTION: Hi, thank you for making the time. I apologize that I missed the top of the call. I am – I have two questions, and one is: What has prompted today’s action? You mentioned that the Chinese purchases took place in – at the end of last year and in January. We’re nine months into the year.

The second is that Turkey has been quite forthright about S-400 purchases itself and I’m wondering if there’s been any communication with Turkey that they might be next or whether you’re looking at them, if there’s been any communication with them about their intent to purchase the S-400.

SENIOR ADMINISTRATION OFFICIAL ONE: Okay. The – as I indicated, the driver for this was the delivery of the Sukhoi fighters in – at the end of 2017, and also of a batch of S-400 missile system-related equipment in January of 2018. These are about —

QUESTION: I’m just wondering why it has taken so many months. I mean, it’s been – it’s been – CAATSA has been in existence for a while and that’s nine, ten months ago.

SENIOR ADMINISTRATION OFFICIAL ONE: Well, we wanted to make sure that we were doing our job responsibly, making sure that we have evaluated all of the circumstances and understood the facts surrounding these particular transactions, making sure that in evaluating the standard of significance in light of those facts, and of course, not just deciding what is a significant transaction, but then thinking through the process of what sanctions it is appropriate to apply from the menu of sanctions. Which ones to impose, what carve-outs to have, which ones not to impose, to make sure that we’ve done an appropriate job as stewards of the interests of the American people and the intent of the Congress in passing this statute, and making sure that we’ve appropriately balanced all the equities.

The CAATSA was not intended to take down the economy of third party countries. It’s intended to impose appropriate pressures on Russia in response to Russian malign acts, and we have it on very good authority from the office of the statute itself that they expect that we will implement it in ways that are appropriate in light of consultations with all of the parties involved. So we think this time was necessary in order to do the homework that we needed to do to make sure that this action was measured and appropriate, as well as being stern and responsive to a real challenge presented by facts on the ground.

As to other potential recipients of the S-400, we haven’t made any determinations yet with respect to what to do about those, but you can be confident that we have spent an enormous amount of time talking about prospective purchases of things such as S-400s and Sukhois with people all around the world who may have been interested in such things and some who may still be. We have made it very clear to them that these – that systems like the S-400 are a system of key concern with potential CAATSA implications. Members of Congress have also publicly said that they believe any transfer of an S-400 to anybody would constitute a significant transaction, and of course that’s something we have to bear in mind in these as well. So while decisions on other cases have yet to be made, and indeed other transactions have yet to occur, we hope that at least this step will send a signal of our seriousness and perhaps encourage others to think twice about their own engagement with the Russian defense and intelligence sectors, which would of course be precisely what we hope Congress intended, and what we are required to do pursuant to the fact.

MODERATOR: All right, thank you very much. I’d like to thank our speakers for taking the time today and our journalists for joining us. The embargo on this call is lifted. We will be issuing a statement from the spokesperson as well as a fact sheet on this that will be coming out shortly. Thank you very much and thank you for joining our call today.

Link:

State Department Briefing

David Cohen is Undersecretary of Terrorism and Financial Intelligence, and he recently testified before the Senate Committee on Banking, Housing and Urban Affairs. The topic: Iran Sanctions: Ensuring Robust Enforcement, and Assessing Next Steps.

Some highlights – on CISADA:

When I last appeared before the Committee, I described the Administration's extensive efforts to implement the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA). CISADA calls for the exclusion from the U.S. financial system of any foreign financial institution that knowingly facilitates significant transactions or provides significant financial services for Iranian financial institutions designated in connection with Iran's nuclear or missile proliferation activity, or its support for international terrorism.

The mere fact that we have CISADA at our disposal has been sufficient to drive the overwhelming majority of banks away from business with Iran's designated banks, isolating those Iranian banks from the global financial system. To date we have employed this authority against two foreign banks, China's Bank of Kunlun and Iraq's Elaf Islamic Bank,1 for facilitating millions of dollars' worth of transactions for several designated Iranian banks. Were there any question about our willingness to apply CISADA sanctions, these actions clearly demonstrated that we will target sanctionable activity, wherever it may occur.

On the Central Bank of Iran:

Just over a year later, in December 2011, the President signed into law the National Defense Authorization Act for Fiscal Year 2012 (NDAA), which threatens CISADA-like consequences – that is, terminating or restricting correspondent account access to the U.S. – for foreign financial institutions that transact with the Central Bank of Iran (CBI) in a way not authorized by U.S. law. Significantly, the NDAA also marked a new phase in our sanctions campaign by targeting Iran's economic lifeblood: its oil exports.

The logic behind the measures in the NDAA is two-fold. First, it seeks to isolate the CBI from the international financial system – a process begun in November 2011 when we designated the entire jurisdiction of Iran as a “primary money laundering concern” under Section 311 of the USA PATRIOT Act. These actions undercut the CBI's ability to facilitate the conduct of designated Iranian banks and to support Iran's illicit activities within Iran and abroad.

Second, because the CBI is the primary bank into which Iran receives oil payments, the NDAA intensifies economic pressure on the regime. To prevent Iran from benefiting from a spike in oil prices that might be caused by a rapid reduction of Iranian oil in the global market, the NDAA was designed to encourage Iran's oil customers to undertake significant but incremental reductions in their Iranian oil imports, giving customers and alternative suppliers a measure of time to adjust and accommodate this reduction. This law – working in tandem with our efforts targeting Iran's access to the international financial system – has had an enormous impact on Iran's oil revenues.

On Executive Order 13599:

In response to Iran's continued abuse of the financial sector, the President in February 2012 issued E.O. 13599. Among other things, E.O. 13599 blocks all property of the Government of Iran, including the Central Bank of Iran, and allows us to identify for sanctions any person – Iranian or non-Iranian – who acts for or on behalf of the Iranian government, regardless of the type of activity. Under this executive order we recently identified a Greek businessman, Dmitris Cambis, and a group of front companies for using funds supplied by the Government of Iran to purchase oil tankers, and then disguising the origin of the Iranian oil transported on those vessels.

On Executive Order 13622:

In July 2012, the President issued E.O. 13622, which enhances the NDAA by authorizing sanctions on foreign banks and persons that facilitate the activities of, or provide material support to, the National Iranian Oil Company (NIOC) or its energy-trading subsidiary, the Naftiran Intertrade Company (NICO), or that facilitate the acquisition – from any party – of Iranian petroleum, petroleum products, or petrochemicals. This authority also gives us the ability to target those who provide material support to the Central Bank of Iran or who sell gold to the Government of Iran. My colleagues at the State Department imposed sanctions on two petrochemical companies last week under this order, and we have used this measure to important effect in our engagement with foreign partners, warning countries about the risk of undertaking this conduct and, we believe, deterring it.

On IFCA:

Last, I would like to discuss a new authority, the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA), which was enacted in January 2013 and becomes fully effective on July 1, 2013. IFCA expands our existing sanctions by giving us new tools to target Iran's ports, energy, shipping, and shipbuilding sectors, as well as Iran's supply of certain metals and industrial materials. It also provides for additional sanctions on banks that transact with any designated Iranian entity, not just those designated for WMD proliferation, terrorism, or human rights abuses, as well as entities identified as the Government of Iran. To help ensure this new legislation has the greatest impact possible, we have conducted extensive outreach to foreign governments and companies to explain the ever-increasing risks that business, and financial transactions incident to that business, with Iran poses.

On Iran's role in Syria:

Iran's financial, material and logistical support for the Assad regime's brutal campaign of violence against its own citizens also remains an area of intensive focus. Last year the President exposed the IRGC-QF for its support to the Syrian General Intelligence Directorate – a key instrument of Assad's repression – in the Annex to E.O. 13572, which targets those responsible for human rights abuses in Syria. We have also taken action under this authority against the IRGC-QF's commander Qasem Soleimani and his deputy, as well as the Iranian Ministry of Intelligence and Security, Iran's primary intelligence organization. As part of the effort to expose Iran's role in abetting Assad's atrocities, Treasury has also targeted Iran's national police, the Law Enforcement Forces, along with its chief Ismail Ahmadi Moghadam and his deputy, which have also aided the Syrian regime's crackdown.

Iran's support to the Assad regime also is clearly reflected in Hizballah's aid to the Assad regime. As we observed last year when we designated Hizballah and its leadership for providing support to the Government of Syria under E.O. 13582, Iran has long provided Hizballah with military, financial, and organizational assistance. Iran's IRGC-QF has led these efforts, working with Hizballah to train Syrian government forces and establish and equip a pro-Assad militia in Syria that has filled critical gaps in Syria's military.

We also continue to focus on Syria and Iran's ongoing proliferation activities. Last year, for instance, we sanctioned Iran's SAD Import Export Company under E.O. 13382 for acting on behalf of Iran's Defense Industries Organization, itself sanctioned under this authority, for shipping arms to the Syrian military and supplying goods for the production of mortars.

On sanctions evasion:

As Iran is turned away from reputable international financial institutions and partners, it increasingly relies on deception and concealment to evade international sanctions to meet its financial needs. We have worked tirelessly to expose those who aid these efforts. Just over two weeks ago, we identified for sanctions five senior leaders of NIOC and several of its overseas subsidiaries, including the head of NICO, Seifollah Jashnsaz. These individuals have been deeply involved in Iran's circumvention of international sanctions on behalf of its energy sector. Earlier last month we designated a UAE exchange house, Al Hilal Exchange, and a trading company, Al Fida International General Trading, for providing services to Iran's Bank Mellat, which we designated in 2007 for providing banking services to Iran's nuclear entities. These companies conspired to provide foreign exchange to Bank Mellat in a manner intended to obscure Mellat's involvement. Earlier last month the Central Bank of the UAE revoked the license of Al Hilal exchange for major regulatory and anti-money laundering compliance violations. And in April the Administration exposed a major network run by Iranian businessman Babak Zanjani, including banks in Malaysia and Tajikistan, that helped move billions of dollars on behalf of the Iranian regime, including tens of millions of dollars to an IRGC company.

On isolating Iran further:

First, we will continue to identify ways to isolate Iran from the international financial system. We will do so by maintaining our aggressive campaign of applying sanctions against individuals and entities engaged in, or supporting, illicit Iranian activities and by engaging with the private sector and foreign governments to amplify the impact of these measures. As part of this effort we will also target Iran's attempts to evade international sanctions through the use of non-bank financial institutions, such as exchange houses and money services businesses. And we will explore new measures to expand our ability to target Iran's remaining links to the global financial sector.

In particular, we are looking carefully at actions that could increase pressure on the value of the rial. In that connection, we will continue to actively investigate any sale of gold to the Government of Iran, which can be used to prop up its currency and to compensate for the difficulty it faces in accessing its foreign reserves. We currently have authority under E.O. 13622 to target those who provide gold to the Iranian government and, as of July 1, IFCA will expand that authority to target for sanctions the knowingly selling gold to or from anyone in Iran for any purpose.

Targeting Additional Sources of Revenue

Second, we will continue to target Iran's primary sources of export revenue. In addition to oil and petroleum products, Iran exports substantial volumes of petrochemicals. Current authorities allow us to target those who purchase or acquire these commodities, as well as the financial institutions that facilitate these transactions. We believe targeting these actors, as well as those on the supply side of the equation in Iran, may offer a meaningful opportunity to gain additional leverage.

Engaging with International Partners

Third, with State, we will maintain our robust engagement and outreach efforts to foreign governments and the private sector. Treasury regularly meets with foreign officials and financial institutions to explain our sanctions, to warn them of the risks of doing business with Iran, and to encourage them to take complementary steps. In response, we have seen jurisdictions and companies the world over respond positively to these overtures, multiplying the force of our sanctions many times over. As we have for CISADA and the NDAA, we have already begun to engage with foreign countries, banks, and businesses on the implications of IFCA, and will continue to do so as we move forward in our implementation of this important legislation.

Links:

Undersecretary David Cohen Testimony