[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
ADMINISTRATION GOALS
FOR MAJOR SANCTIONS PROGRAMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 26, 2018
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-119
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
_________
U.S. GOVERNMENT PUBLISHING OFFICE
32-370 PDF WASHINGTON : 2018
HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Shannon McGahn, Staff Director
Subcommittee on Monetary Policy and Trade
ANDY BARR, Kentucky, Chairman
ROGER WILLIAMS, Texas, Vice GWEN MOORE, Wisconsin, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan BILL FOSTER, Illinois
ROBERT PITTENGER, North Carolina BRAD SHERMAN, California
MIA LOVE, Utah AL GREEN, Texas
FRENCH HILL, Arkansas DENNY HECK, Washington
TOM EMMER, Minnesota DANIEL T. KILDEE, Michigan
ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California
WARREN DAVIDSON, Ohio CHARLIE CRIST, Florida
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
C O N T E N T S
----------
Page
Hearing held on:
September 26, 2018........................................... 1
Appendix:
September 26, 2018........................................... 25
WITNESSES
Wednesday, September 26, 2018
Billingslea, Hon. Marshall, Assistant Secretary for Terrorist
Financing, U.S. Department of the Treasury..................... 4
APPENDIX
Prepared statements:
Billingslea, Hon. Marshall................................... 26
ADMINISTRATION GOALS
FOR MAJOR SANCTIONS PROGRAMS
----------
Wednesday, September 26, 2018
U.S. House of Representatives,
Subcommittee on Monetary
Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:15 p.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
[chairman of the subcommittee] presiding.
Present: Representatives Barr, Williams, Huizenga,
Pittenger, Hill, Emmer, Mooney, Davidson, Foster, Sherman,
Green, Heck, Vargas, and Crist.
Chairman Barr. The committee will come to order. Without
objection the Chair is authorized to declare a recess of the
committee at any time and all Members will have 5 legislative
days within which to submit extraneous materials to the Chair
for inclusion in the record.
This hearing is entitled, ``Administration Goals for Major
Sanctions Programs.'' I now recognize myself for 5 minutes to
give an opening statement.
Today we welcome the testimony of Marshall Billingslea,
Assistant Secretary of the Treasury for Terrorist Financing who
last appeared before this subcommittee in November of last
year.
That hearing, like the one we are holding today, was
explicitly focused on the effectiveness of our sanctions
programs. The Financial Services Committee has repeatedly made
clear that sanctions are meaningful in the context of achieving
particular goals. The committee has shown it is not averse to
providing Treasury with the toughest authorities available, but
we remain cautious when it comes to measures that fail to truly
advance our policy objectives.
In other words, our sanctions, like other government
programs, have to be held accountable for results, and results
are measured not merely in the number of designations by
Treasury but by behavioral change on the part of foreign
persons. Treasury's role in sanctions policy is central, not
merely in implementation but in agenda setting as well.
Having said that, with great power comes great
responsibility. At a Senate Banking hearing in August, there
appeared to be a view shared by both Republican and Democrat
Members that Treasury could be more forthcoming with
information.
As for the House, we have been concerned by TFI's (Office
of Terrorism and Financial Intelligence's) delays in providing
us with materials that the committee sought in preparation for
this hearing. In addition, questions for the record for Mr.
Billingslea's last hearing have not been returned and a request
earlier this month for technical assistance on a four-page bill
went unanswered.
That bill went on to pass the committee unanimously and is
being considered on the House floor today.
Let me be clear, this committee remains a strong supporter
of TFI's work, and we applaud the efforts that Mr. Billingslea
and his colleagues devote to preserving our national security.
But we trust that no one wants to see bipartisan goodwill for
TFI taken for granted.
There are a number of areas where lawmakers should be
working hand in hand with TFI, from adapting new authorities
for Treasury, to working on appropriate resource levels, to
streamlining reporting requirements. These all call for a
greater level of engagement and I look forward to working with
the Assistant Secretary on these issues collaboratively.
As for sanctions policy itself, it is imperative for
Congress to better understand what the administration's goals
are and how Treasury's designations will bring about their
achievement.
Questions of special importance include the following: What
is the endgame in Iran such that Tehran abandons its nuclear
ambitions and ballistic missile development in the long term?
We are all aware of the difficulties facing the Iranian
economy following the reinstatement of nuclear sanctions but
where is this supposed to lead and how specifically will
economic pain take us from point A to point B?
On Russia, how are Ukraine sanctions bringing about the
changes on the ground, if any, how have the Russians responded
as a result of Crimea related sanctions, and how is the
experience informing our strategy?
And if we are to deter Russia from political interference,
chemical weapons attacks, and the like, what evidence do we
have that our current measures are working? What evidence do we
have that our current measures are countering Russian
aggression, countering Russian disinformation, countering
Russian malign activities? If they are not effective, how
specifically is Treasury adapting its strategy?
And finally on North Korea, I am pleased that pressure on
Kim Jong-un's regime helped to bring about the President's
Singapore Summit in June. At the same time, it is concerning
that there have been few concrete commitments on dismantling
North Korea's arsenal and the North's evasion of U.N.
sanctions, often with the help of China and Russia, and that
does continue and that does--that is troubling.
How then is Treasury squeezing North Korea so as to render
impossible the bait-and-switch approach it has undertaken for
the past 2 decades across Republican and Democrat
administrations alike?
To be sure this administration's abandonment of the failed
policy of strategic patience, the pressure campaign has had
measurable results. We applaud the return of the remains of 55
U.S. missing in action from the Korean Conflict; we applaud the
release of the hostages; we applaud the fact that we are not
seeing ballistic missile and nuclear tests, that the cessation
of those malign activities by the North is progress, and we
applaud the administration's sanctions policies as contributing
to that progress.
But we also want to continue to work with this
administration to give the administration maximum leverage to
achieve the Congress's objective, the administration's
objective, and that is the peaceful, verifiable, irreversible
denuclearization of the Peninsula.
I hope this hearing will help us get answers to these
questions. Again, I want to thank Assistant Secretary
Billingslea for appearing today. We look forward to his
testimony.
The Chair now recognizes that the gentleman from Illinois,
Dr. Foster, for 5 minutes for an opening statement.
Mr. Foster. Thank you Mr. Chairman. And I would like to say
how proud I am of the bipartisan support for the Sanctions
Authority. I think it is--that for a long time has been one of
our most effective tools. And I agree also with the Ranking
Member on the need for Congress to understand the
administration's thought process and especially the endgame and
each of the areas where these sanctions are being applied.
I personally believe that the effectiveness of sanctions is
exponentially more effective if you have these--really with a
strong multilateral support, and this is where I personally am
most skeptical of the thought process of the administration,
frankly.
That it is all--it is fine and good for the U.S. to impose
sanctions but unless we have strong cooperation with other
countries of the world, the sieve rapidly is emptied. And
there--so I really think that is what I will be paying
attention to in your testimony and in future developments.
I am also, frankly, skeptical and disappointed on the
progress in North Korea. I am the only physicist in Congress so
I look at the difficulty in verifying that North Korea has
gotten rid of not only its nuclear production facilities but
every nuclear weapon they may have made.
And as most physicists will tell you, it is much more
difficult to verify that a country has no nuclear weapons
hidden than it is that they have no nuclear weapons factory
operating because the signatures are so different. And so this
is something where I think that we must have stronger
multilateral effort on this, that U.S. sanctions alone are--
don't appear ever to be sufficient for that.
Anyway, I look forward to your testimony and again, I am
proud of the bipartisan support for the authorities we have
given you.
Chairman Barr. The gentleman yields back. Today we welcome
the testimony of Marshall Billingslea, who was confirmed in
June 2017 as Assistant Secretary of the Treasury for Terrorist
Financing. In this role, he helps oversee the Trump
Administration's efforts in administering economic sanctions
programs globally.
Prior to joining Treasury, Mr. Billingslea served as
Managing Director for Business Intelligence Services at
Deloitte Advisory. He had previously held positions at the
Department of Defense, where he served as Deputy Under
Secretary of the Navy and Principal Deputy Assistant Secretary
of Defense for Special Operations and Low Intensity Conflict.
Mr. Billingslea has also worked as NATO Assistant
Secretary-General for Defense Investment and as a staff member
on the Senate Foreign Relations committee. He is a recipient of
the Defense Medal for Distinguished Public Service.
Assistant Secretary, without objection your written
statement will be made part of the record. The Honorable
Marshall Billingslea, you are now recognized for 5 minutes.
STATEMENT OF HON. MARSHALL BILLINGSLEA
Mr. Billingslea. Thank you, Chairman, and Vice Chairman and
Ranking Member. I appreciate the opportunity to appear before
my oversight committee and have welcomed the opportunity to
appear every time you have asked us to appear.
I will, as a former committee staffer on the Senate side, I
will dig into why questions have gone unanswered, because that
is flatly unacceptable and we will make sure that we rectify
that. You have absolute assurance.
So, you have asked me to appear today to talk about the
full range of authorities and tools that are being used to
address the spectrum of national security challenges that we
face, and I will--in my spoken testimony, I will focus mostly
on Iran, with your permission.
My prepared testimony has great details on the full
spectrum. But let me start out by saying that each of these
countries: Iran, Russia, and North Korea in particular, poses
its own unique challenge to us, to our allies and to the
international order, but there are some common threads that
link them all together.
For instance, Iran is the world's leading sponsor of
terrorism, and they continue to squander their wealth through
corruption and terrorism instead of helping the Iranian people,
which is the focus of much of our work.
Russia is providing weaponry and defense material to Iran,
and extensive support to the Syrian regime that is enabling the
brutal targeting by Assad of his own citizens. And, of course,
as you mentioned, Chairman, Russia continues its occupation of
Ukraine and Crimea and subversion of Western democracies,
intolerable efforts to manipulate our elections and elections
of NATO allies. And it is a permissive environment for North
Korean procurement efforts in Russia and for efforts to
circumvent the U.N. Security Council resolutions.
And then, of course, North Korea continues, as you say, to
evade deliberately international sanctions through the United
Nations, as well as our own national sanctions, and they have
not yet abandoned their weapons of mass destruction or their
missile programs, though as you also indicated, Chairman, there
are some promising indicators.
So on the one hand all three of these countries are using
some similar tactics to exploit the global financial system,
particularly by establishing and employing front and shell
companies to mask the origin and the true beneficial ownership
of financial flows and to disguise the nature of any intent
behind transactions.
But, on the other hand, these three countries differ widely
in terms of the size of their respective economies, the extent
to which they have businesses that are intertwined within
global supply chains, and in the degree to which their
financial sectors are connected or not connected to the global
financial system. And for these various reasons, our sanctions
programs are active and complex but also very different and
nuanced in each case.
So turning directly to the matter of Iran in the time I
have left, we are determined to greatly reduce Iran's capacity
to conduct malevolent activities, including its far-ranging
support for terrorism, its human rights abuses, its aggressive
development of ballistic missiles, and the proliferation of
missile technology and missiles to groups such as Hezbollah and
the Houthis in Yemen, and other brazen activities that are
unbefitting of a member of the international community, whether
we are talking about efforts to counterfeit currency or
assassinate political opponents and opposition figures in
Europe.
We have made clear to the Iranian regime that all of these
activities must cease, and they must agree to an arrangement
which has none of the egregious loopholes on nuclear weapons
development such as those contained in the JCPOA (Joint
Comprehensive Plan of Action).
Until this occurs, sanctions are being re-imposed in two
phases, the first of which occurred on August 7 as U.S.
sanctions came back into full effect on the acquisition of U.S.
dollars by the regime, trading in precious metals such as gold,
participation in sovereign debt, and business in the automotive
sector and metal sectors.
On November 4 of this year, we will reimpose additional
sanctions, including far-reaching measures on Iran's energy and
shipping sectors and on foreign financial institutions that are
conducting certain transactions with the Central Bank of Iran
and designated Iranian banks, and we will aggressively enforce
these actions.
We will also continue to combat Iranian malign behavior
with further targeted measures. On top of the re-imposition of
the sanctions that were suspended under the JCPOA, we have
issued 18 rounds of sanctions in 18 months, designating 146
targets for a full range of activities, related again to these
human rights abuses and the terrorism behavior and
proliferation.
A major focus of ours, as you might imagine, in this area
has been Mahan Air, and I can discuss that in greater detail as
you wish. But we are also determined to expose Iran's abuse of
the international financial system. I mentioned the
counterfeiting ring, which we disrupted, but also this past May
you saw us take a very coordinated multinational effort,
together with the United Arab Emirates and the Iraqis, to
dismantle one of the main mechanisms by which the Central Bank
of Iran was funneling money to Hezbollah. And I can provide,
again, further details on that as you wish.
I want, in closing, Chairman, to just offer one particular
very poignant data point to the committee, which is this
graphic here. Maybe a bit difficult to see, but what this
depicts is the rapid decline in the value of the Iranian
currency, the rial.
The rial is effectively collapsing. It's lost two-thirds of
its value over the past few months. And this is happening for a
couple of very specific reasons, but in essence it is a
combination of our ongoing sanctions programs as well as
colossal corruption and economic mismanagement by the Iranian
regime.
And so what you see is a recognition on the part of the
Iranian people that the rial is functionally going to become
worthless because of the behaviors of the Iranian regime. Not
only their own corruption and mismanagement, but the fact that
all of their export of terrorism is now rebounding on them in
force with the U.S. economic campaign.
As you see here--the rial, by the way, now stands at the
lowest level it has ever been since the Revolution. It is
trading at 185,000 to the dollar.
And, in essence, this provides the Ayatollah, a very stark
choice: He can use his limited foreign exchange reserves to
prop up the currency and fix his economy and help the Iranian
people or he can continue to export his scarce dollars for
terrorism, but he can't have it both ways.
Thank you, Mr. Chairman. I look forward to answering the
questions of the committee.
[The prepared statement of Mr. Billingslea can be found on
page 26 of the Appendix.]
Chairman Barr. Thank you, Mr. Billingslea, and your time is
expired. And the Chair will now recognize himself for 5 minutes
for questioning.
Since you were focusing there at the end on Iran, let me
just start there very briefly. As you know, there have been
defenders of the JCPOA, critics of the administration's
decision to pull out of the deal and to reimpose sanctions.
In a nutshell, and in brief form, could you basically
describe the continued and accelerating malign activities that
justify re-imposition of the sanctions?
Mr. Billingslea. Yes, sir. So what the Iranians got was an
ability to reattach themselves to the international financial
system. And they used that access, instead of benefiting the
economy and helping the Iranian people, they used that access
to generate cash for terrorism. And their export of terrorism
has hit an all-time high.
They ship more than a $100 million a year to Palestinian
terrorist groups. They ship $700 million or more a year to
Hezbollah to underwrite their terror operations. What they are
doing with the Houthis in Yemen--in fact, in total, over the
past few years, they have spent $16 billion on terror
activities in propping up Assad in Syria and Iraq.
It is an enormous expenditure of funds by the Iranians, and
it is absolutely crucial that we bring pressure to bear to
cause this to cease.
Chairman Barr. As you know, some of our European partners
in the P5+1 have indicated their intentions to remain in the
deal. What is the administration prepared to do to impose
secondary sanctions or bring our European allies to the--to the
process to impose maximum international pressure on Tehran?
Mr. Billingslea. We have engaged in a significant
diplomatic outreach program across the globe. Together with the
Department of State, more than 30 countries, we have had
detailed consultations with them. I myself have led
negotiations with 13 countries, many of them in Europe.
There is a difference of opinion within Europe. It is not a
monolithic view on this issue and we are working with those who
understand the security threats that we perceive that the
Iranians pose. We have also made very clear that secondary
sanctions are available and that it would be extremely unwise
to continue to transact with the Iranians in the prescribed
areas that I laid out where sanctions will be reapplied.
Chairman Barr. Thank you, and then moving--shifting over to
North Korea really quickly, just citing a public article--
publicly available article from The Wall Street Journal just a
few days ago, it stated that a confidential new United Nations
report says that Pyongyang, often with the help from people in
Russia and China, has been able to circumvent restrictions
rendering, quote, the latest U.N. sanctions ineffective,
unquote.
Citing U.S. intelligence, U.N. investigators found, quote,
a massive increase, unquote, in fuel shipments to North Korea
involving Russian and Chinese ships, as well as numerous
examples of coal shipments to China from North Korea, and the
U.N. report also called out Chinese companies for buying tens
of millions of dollars of North Korean iron, steel, and other
products. Chinese firms have maintained joint ventures with
North Korean partners despite a U.N. ban last year
And this--according to the report, it says this amounts to
a serious setback to the maximum pressure campaign to isolate
North Korea.
Could you just respond to that and tell us what we are
doing as part of our sanctions program to prevent actors in
China, in Russia, and other places from circumventing our
international sanctions so that--so that we can have the
maximum leverage possible?
Mr. Billingslea. We are holding them to account. We have--
and you may have noticed in the previous couple of months, we
have engaged on almost a weekly basis in imposing sanctions on
entities who are attempting--who are seeking to undercut U.N.
Security Council resolutions on North Korea.
I will give you just a couple of quick examples. We
repeatedly warned the Russians that banks that continue to
transact with North Korean financial facilitators will be
targeted. They chose to ignore us, and as a result we have now
designated a Russian bank just a few weeks ago, the Agrosoyuz
Bank.
We likewise have said, as you point out, that coal--
circumventing the coal embargo is unacceptable, yet a Russian
port operator was willfully allowing the obfuscation of the
origin of coal in a transshipment of coal and so we designated
that port operator.
We also went after shipping companies, jointly owned ships,
some Russian shipping companies, and six Russian vessels, as
well some Chinese entities. Just as a few examples of how we
are targeting those who seek to undercut the Security Council
and its resolutions.
Chairman Barr. My final question, it was reported last
month that Russia may be violating U.N. sanctions by issuing
new work authorizations for North Korean laborers. Can you
certify that Russia is complying with U.N. sanctions in this
regard, and if not, what are you going to do to sanction the
employers of these laborers?
Mr. Billingslea. I cannot certify that. In fact, I have
repeatedly warned--I said this when I appeared before this
committee in November, that Russia was not actively and
aggressively enforcing the U.N. Security Council resolutions.
We are watching this matter very closely.
Chairman Barr. Thank you. My time is expired, and the Chair
now recognizes the gentleman from Washington, Mr. Heck.
Mr. Heck. Thank you, Mr. Chair. I would like to start by
saying what a pleasure it is to be a part of this subcommittee
hearing in which the distinguished gentleman from Kentucky
opened up by quoting classic and great American literature,
namely Spiderman; ``With great power comes great
responsibility,'' very erudite of you.
Secretary Billingslea, thank you so much for being here. I
am going to share my perspective on how it is, I think,
sanctions can work best and then ask you a question. I think
they work best--this is not an all-inclusive list--when they
target specific activity connected--linked to specific behavior
that we want to change, and furthermore, when the sanctions
themselves actually harm the people who are in the
decisionmaking roles or capacities so that they can see, feel,
and touch the damage to deter them from continuing it.
And so my question out of all of that--because it really
isn't clear to me at all--is how is Secretary Kim Jong-un in
any way damaged by the sanctions we have levied? Because it is
not clear to me that he has suffered any damage. Indeed, I
think, maybe the general population has; they are not in the
decisionmaking seats.
Mr. Billingslea. So in an absolute dictatorship, as we have
in the case of North Korea, the key has been to impose
significant financial costs that affect the broader economic
situation. It is certainly the case that it will allow his
people to starve while he continues to ensure that the elites
in Pyongyang received their share of the wealth.
But when you have a precipitous drop in revenue generation,
as they have faced because of our sanctions and the U.N.
sanctions, it is--the estimates are really difficult to come
by, but at a minimum I would say 40 to 50 percent of the
revenue they were generating has gone away. And that has led to
some significant shortages in luxury goods for the elites and
pressure on the regime itself.
Mr. Heck. Do we have evidence of that? Because I am not
aware of any.
Mr. Billingslea. We do, and I would be happy to come back
in a closed session--within a classified session with you on
what we know, but again, it is a bit challenging to give you
concrete econometric numbers, since they--
Mr. Heck. Understood. I have the privilege also to serve on
HPSCI, and I am aware of the challenges associated with this.
It is still nonetheless not clear to me that he is feeling any
of this.
Mr. Secretary, as you know we passed CAATSA (Countering
America's Adversaries Through Sanctions Act) by a vote of
something like 515 to 4. It was ridiculously overwhelming. And
the administration was pretty slow to actually pull the trigger
on all of that and to move forward on the sanctions vis-a-vis
Russia; why?
Mr. Billingslea. Oh, I would--Congressman, I would have to
disagree with that premise. We have imposed three times as many
sanctions on Russia for cyber activities as the previous
administration in just our first 20 months.
Mr. Heck. Well because we passed CAATSA but you were very
slow to do it, it took months and months and months.
Mr. Billingslea. OK but on CAATSA, a couple of key points,
one is the legislation is prospective so it is forward-looking,
so we are building the case on a number--in a number of areas
to use the CAATSA sanctions.
But second when we have a target that we want to designate,
like I mentioned the sanctions evaders in Russia, for the North
Korea sanctions. We want to use whatever legal authority or
executive order we have that gets us onto the target most
efficiently and most rapidly so CAATSA--
Mr. Heck. Let me interrupt Mr. Secretary and I am
encouraged to hear that, I encourage you in the strongest terms
possible to proceed. I do, however, want to point out that the
sanctions have mostly been targeted against low-level
operatives for example, in the internet research agency or
Concord Catering and I harken back to what I said at the top of
my questioning, which is they work best when the people who are
in the decisionmaking capacities get whacked.
And it is not at all clear to me that these sanctions have
been taken to the degree to actually harm, injure and therefore
deter the oligarchs or Mr. Putin himself as a matter of fact.
Low-level people being sanctioned is not an effective
deterrent.
So from where I sit, it was slow and it went after low-
level people.
Mr. Billingslea. Congressman, I couldn't agree with that
characterization, here's why. When we targeted Oleg Deripaska,
who is an oligarch that the previous administration was
unwilling to touch, in part because he came to power through
his Saint Petersburg connections and controls the world's
second largest aluminum company.
He has lost half his net worth. Viktor Vekselberg has lost
$3 billion in our designation.
Mr. Heck. And yet there's no evidence that those sanctions
have been levied against enough people in decisionmaking
capacities to change behavior. I am out of time and I thank you
Mr. Chairman, incredibly erudite gentleman from Kentucky.
Chairman Barr. Thank you, the gentleman's time has expired,
the Chair now recognizes the Vice Chairman of the subcommittee,
Mr. Williams from Texas.
Mr. Williams. Thank you Mr. Chairman for holding this
important hearing on this issue that you have passionately
pursued throughout this Congress and Assistant Secretary
Billingslea, I thank you for your testimony this morning there
today and for your service to our Nation in such a critical
capacity.
Each day we are reminded which states are friends to the
United States and which are not. Under the leadership of
President Trump and this Republican Congress, I hope that in
the end we will have more friends than ever before. That said,
before there is a demonstrable shift from the actions and
behaviors of regimes like Iran, North Korea, and Russia and
Venezuela, we must maintain a vise grip on every bad actor.
The aforementioned governments are not our friends as is
evidence from the deliberate intent to destabilize the United
States and her financial institutions, citizens, and
businesses. So, Mr. Billingslea, once again, I thank you for
your testimony and for your commitment to countering the
persistent threats to our homeland and also please extend our
gratitude to your counterparts at the Treasury Department.
First question, as you know, I have introduced legislation
H.R. 4324, the Strengthening Oversight of Iran's Access to
Finance Act which requires a Treasury Secretary to submit a
report to Congress regarding financial transactions authorized
in connection with aircraft sales.
HR 4324 passed the House last November with bipartisan
support as you know, and at your hearing with us last November
you were asked if Iran air had ceased all sanctionable
activities. You replied that you would need to get back to the
committee, but we haven't received that answer yet and can you
tell us today whether Iran Air has ceased all sanctionable
activities?
Mr. Billingslea. I think the airline of, I am going to
choose my words very carefully here because I don't want to
stray into classified territory, but the airline with which we
are most preoccupied but not exclusively preoccupied is Mahan
Air.
Mahan Air is the airline that the Quds force tends to rely
on when they need to ferry weapons terrorists, explosives, or
bulk cash to the Assad regime or other places.
Mr. Williams. Watch that very closely, needless to say.
Mr. Billingslea. Sorry sir.
Mr. Williams. Watch that very closely, needless to say.
Mr. Billingslea. Yes sir, yes sir.
Mr. Williams. There seems to be a dividing line in Russia
sanctions with sector-based measures on the one hand and on the
other hand personalized sanctions are focusing on the
oligarchs, these are very different approaches but they are
being employed at the same time.
So my question would be what is the relative effectiveness
of one over the other and when it comes to influencing Moscow's
behavior?
Mr. Billingslea. I ultimately--these are critical
questions, ultimately a lot of this I would defer to the
Department of State to explain how sanctions are an enabler for
the broader diplomatic efforts that we undertake.
Sanctions in and of themselves are not the primary vehicle
for our foreign policy but they do underpin much of what we are
doing now vis-a-vis the Russians. We have decided that the
nature of Russian malign behavior is unacceptable, and we will
impose enormous costs and consequences on the inner circle
surrounding President Putin.
I think they have come to the realization that we are
serious about this and that we will react forcefully if they
continue these malign behaviors. The Russian stock market took
a 9 percent dip when we acted in April and it has not recovered
since the ruble is still trading near all-time--all-time lows
for the past several years.
Mr. Williams. Well, thank you again for your testimony. Mr.
Chairman, I yield my time back.
Chairman Barr. Gentleman yields his time, the Chair now
recognizes the gentleman from Texas, Mr. Green.
Mr. Green. Thank you Mr. Chairman, thank the witnesses for
appearing as well and would ask about sanctions in terms of the
messaging associated with the sanctions that are being imposed.
What type of messaging are we engaged in when the President
gives one impression about the efficacy of a circumstance and
the intelligence community gives another?
When the President talks in glowing terms about
relationships with the leader of North Korea and the
intelligence community is indicating to us that things that are
to be done are not being done. How does that impact the
effectiveness of the sanctions?
Mr. Billingslea. So obviously we deliver a wide range of
messages at different levels for different purposes but I think
our messaging in the case of North Korea has been pretty clear
and unambiguous as far as Treasury's posture, which is that
sanctions will not only be maintained until North Korea
denuclearizes but that we will combat North--continuing efforts
by North Korea to evade our sanctions by interdicting or
otherwise disrupting those conduits through our sanctions
authorities and also through our financial diplomacy.
Mr. Green. Similar circumstance with Russia. Intelligence
community in a very explicit way indicated that there was
involvement in our election. The President, on the other hand,
was late to the game, if I may use such a term. How does that
impact the messaging? How does that messaging impact the
sanctions that we have imposed and then there's this little
thing of the meeting that took place wherein it was indicated
that this was all about adoptions, when clearly it was not.
That language was taken out of context and put into another
context so what--the messaging seems to be a little bit
confusing, I think, to the people that we rely on to engage in
sanctions with us when they see one message from the President
and then another from the intelligence community.
Mr. Billingslea. Thanks for the question Congressman. I
think that as Congressman Foster noted in his opening statement
and as you just alluded to, maintaining and engaging--
maintaining international support for our measures is really
crucial and I am very pleased that we have been able to do so
with regard to Russia sanctions and the European Union.
And we have worked very, very closely. I was just in
Scandinavia, we worked very closely with a number of those key
countries to ensure that the EU stays tough on Russia together
with us for Crimea, Ukraine, and other actions.
I would simply note that our actions do, I think, speak for
themselves. We have, we, the Treasury Department have engaged,
we have targeted more than 223 Russian entities in our first 20
months in office.
That is in comparison, in our 20 months in office and 220
entities, more than in 8 years the Obama Administration did 550
sanctions. So, we are definitely proving, I think, that we will
hold the Russians accountable.
Mr. Green. Special purpose vehicle, the European Union. We
have decided, by and through our President, that we will no
longer be a part of what we have called the Iran deal and our
allies have now taken the position that they will do things
that in effect will circumvent the position that we have taken.
The messaging seems to put us at odds with people that we
may need at some point because really, there are only two ways
to prevent Iran from having nuclear weapons. Iran can decide
not to do it on their own volition or they can attempt to do it
and we can take kinetic action.
So this notion that we are somehow going it alone, what
kind of message does that send to the allies that we depend on
to enforce sanctions to make them efficacious?
Chairman Barr. A brief answer, the gentleman's time is
expired so a brief answer, please.
Mr. Billingslea. Yes, Congressman I--again, you are
touching on exactly the importance of working together in a
multinational context, it is absolutely the case that we enjoy
enormous support from our allies and our friends in the Middle
East, the Gulf nations in particular who have joined us to
impose sanctions on Hezbollah and other Iran proxy groups.
I would--I think it is important to talk about the special
purpose vehicle in these other matters and with the Chairman's
just indulgence, suffice to say, I wouldn't get enormously
worked up over the special purpose vehicle discussion because
the European companies are voting with their feet.
They recognize that a $20 trillion business opportunity to
work with United States versus a $400 billion-dollar liability
to work with the corruption in the Iranian economy, it is a
pretty clear-cut case and so we have had more than a hundred of
the major European companies make very clear, they are getting
out.
Chairman Barr. The gentleman's time has expired. The Chair
now recognizes the gentleman from Ohio, Mr. Davidson for 5
minutes.
Mr. Davidson. Thank you Chairman and thanks for your
comments, sir. I appreciate your service and really a critical
national security component for our country, indeed economic
security is as a vital component in national security and we
have been able to leverage that with the sanctions regime.
And as you allude to, one of the keys to that effectiveness
has been engaging allies to unite against adversaries, one of
the things that I am concerned about is our trade policy. Our
trade policy is currently doing just the opposite, its
multiplying our enemies instead of multiplying our allies and
so I am personally exploring, how we could use the sanctions
regime, which has achieved great results, to be much more
targeted.
In modern warfare, we do everything we can to minimize
collateral damage and to focus everything on our adversaries
and the nice thing about the sanctions toolkit is you don't
even have to levy them against an entire country, you can levy
them against a company or as you have alluded to already with a
couple Russian oligarchs, against individuals.
So I am curious as you look at adapting the International
Emergency Economic Powers Act which gives this authority, it is
historically been used for other foreign policy objectives but
do you see any particular roadblocks to applying it in trade
policy?
Mr. Billingslea. Congressman, that is a--that is a very
incisive question. I have to confess, I don't--trade policy's
beyond my remit, I have a hard enough time just on the
sanctions side of the house but I would actually like to
explore this with you in greater detail to understand ways that
we could work together on that.
Mr. Davidson. Yes, thank you for that and so the logic
would be that for similar purposes that we are currently
engaging in unilateral action on tariffs, frankly, maximum
collateral damage in the case of uniform tariffs, for example.
Here we could be very precise and say target Chinese steel
companies rather than taxing all the steel in the world, we
could simply use the power of sanctions to target two specific
companies, for example.
I am curious, however, because the intent is very
aggressive with our sanctions. Effectively once sanctions go
into effect on a company, we are not anticipating a future for
that company, in fact we are doing everything we can to disrupt
their entire business model.
I am concerned about the collateral damage that may happen
as we impose sanctions so help me understand what happens if an
American company is actually partnered with a company or
individual that becomes subject to sanctions.
In my preparation or study for how I would apply this to
trade policy, I have come across some companies, some of them
wholly owned by Americans but because they became involved with
individuals or companies that were the targets of sanctions,
they have found it impossible to even operate it, the business
and, in general, when they can get a temporary relief with a
license, it is really just to unwind the business.
So for the policy, I anticipate with application to trade,
you would have to focus this in a way that could have not
necessarily a terminal effect but a painful one and how do you
minimize the collateral damage for the American?
Mr. Billingslea. Congressman, that is a great question. I--
one thing I would say at the outset is that our sanctions are
designed fundamentally to induce a change in behavior and so we
need to keep--we want to be mindful of--
Mr. Davidson. Apparently at the country level more so than
at the company level, correct?
Mr. Billingslea. Company or individual but again, I think
there are some instances where we have targeted companies,
potentially very big ones, that were owned by some pretty
nefarious actors and then immediately issued some licenses to
allow them to extricate themselves from their ownership
situation.
The other thing I would offer to look at, we could explore
this together further is how we crafted the Venezuela executive
order that prohibited U.S. persons from engaging in any new
debt or equity with the Venezuelan regime. As you mentioned the
issue of blowback, one of the things that we saw in the case of
the PDVSA bonds that were issued but as Maduro was stealing--is
stealing from his oil industry, as we wanted to ensure that the
secondary bond market was protected from the effects of that
action.
And that might be a very instructive model that we used in
that particular case for what you are driving.
Mr. Davidson. Yes, thank you for that. And just in general,
let's say that U.S. Steel had partnered with Severstal in the
U.S., we wouldn't want the employees in that company that are
based in the United States to not be able to get payroll, for
example.
And right now, those licenses are necessary, what is a
general timeline to get that work through for a company that is
partnered?
Mr. Billingslea. So that you are absolutely right, our goal
is not to harm any U.S. jobs or and--or jobs in our friends or
allies. I would have to get back to you with OFAC (Office of
Foreign Assets Control) on the specifics on those licenses.
Mr. Davidson. All right, thank you my time is expired.
Chairman, I yield.
Chairman Barr. Gentleman yields back, the Chair now
recognizes the gentleman from Arkansas, Mr. Hill.
Mr. Hill. I thank the Chairman, appreciate the Ranking
Member, I want to echo Dr. Foster's comments that in my 3-1/2
years or so of serving in Congress, it is been refreshing to
see the strong bipartisan support, particularly in this
committee and the full committee on how to use sanctions as a
political and economic tool to compel change in behavior.
Some successfully, some not so much. I do believe Iran is a
reasonable case study though, where collectively multilateral
sanctions and bilateral sanctions with the United States have
been most successful along the way and I have always used as an
example, particularly with my constituents, that if you look at
other sanctions regimes, whether they are multilateral
sanctions through the United Nations or bilateral sanctions
imposed by the United States, either by action of the Secretary
of the Treasury or legislatively, nothing compares to what we
have done really on Iran.
Only in the recent time President Trump's been in office
pressing South Korea, have we seen anything that has risen to
the amount of sanctions and the most encompassing of sanctions.
Venezuela, no, not so much; other countries we have had
problems with over the years, not so much so I think Iran was
instructive to the world community on how to create a sanctions
regime.
So thanks for leading the effort. I believe we also would
be very interested in new ideas that you are seeing in sanction
design since we have had this intensive period in Iran and
collaborated with our allies and the multilateral sources so
that if you have new suggestions legislatively that would be
helpful to aid to the United States, particularly the Secretary
of the Treasury, we would be interested in those and be happy
to meet in a classified session to discuss those if necessary.
I want to talk a bit about South Korea, North Korea, and
our sanctions there to complement the President's moves in
North Korea. Sanctions are great when they are written down but
only in their enforcement do we get the response that you are
looking for.
So according to the U.N. panel of experts, any vessel
operator captained by a North Korean person is at risk of
engaging in illicit activity, this is all consistent with the
Security Council resolutions 2270 and 2321, as well as the work
we have done under our Chairman's leadership with the Warmbier
Nuclear Sanctions Act that we have proposed here in the House.
Consistent with that panel of experts and the U.N. work and
what the Treasury's been doing, how are you in achieving that
blacklist regardless of who owns the ships themselves in order
to again tackle this enforcement issue?
Mr. Billingslea. Thank you Congressman. I would welcome the
chance to explore with you additional tools and authorities. We
are always on the hunt for the kind of flexibility that we need
to do this job. On the shipping issue, you have put your
finger, I think, on really if I had to pick the main area of
concern, there are several areas of concern but the main area
of concern we have regarding North Korean sanctions evasion, it
is ship-to-ship transfers of oil and coal and other commodities
out in the open ocean.
And so disrupting and targeting those vessels, the vessel
owners but also the flagging--the mechanisms by which they
received their national flags and they received their insurance
underwriting are all key things that we, together with the
Department of State, have been focused on.
And so I personally, for instance, have intervened with a
couple of key flag-of-convenience nations to raise particular
vessels with them and I have to say they have moved very
swiftly when we do raise it to deflag and delist the vessel
from their registries.
We also through--well, we don't usually talk about that,
that we do in my organization is we engage in some pretty heavy
financial diplomacy and so we will get out into the field or
use our attaches to pass intelligence information and we have,
I think, very successfully seen the impounding of some of these
vessels by the South Koreans, the Indonesians, and others.
These vessels that were engaged in this illegal activity have
then been seized in national waters. So those are just some
examples.
Mr. Hill. Thanks, let me switch gears in the few seconds
remaining. The--again, staying on the same subject, Bank of
Dandong and Bank of Delta Asia, those are fairly small
financial institutions without a lot of clout. What are you
doing to get the bigger players in finance in Asia?
Mr. Billingslea. We are talking directly with them and
their chief compliance officers; we have engaged in a data
process with them that has alerted them to a wide range of
entities that we believe are controlled by the North Koreans,
and we are helping them take enforcement actions to expunge
these accounts from their roles.
Mr. Hill. I hope you will come back and keep the committee
apprised of that, I think, that is--that will bear fruit if you
press on that point. Thanks. I thank the Chairman.
Chairman Barr. The gentleman yields back, and I think we do
not have any other Members in the queue. I think we would like
to proceed with the second round if the Assistant Secretary be
willing to take those so I will recognize myself for a second
round of questioning and Mr. Heck and Mr. Hill, if you all
would like another round, we will recognize you all as well.
Let me just stay on North Korea and foreign banks for a
minute. When you testified last November, you made note of
ship-to-ship transfers that enabled North Korea to continue its
petroleum imports.
According to a Washington Post report last week much like
The Wall Street Journal report that I quoted earlier, the
smuggling has continued and ``Russia and China have shown a
little enthusiasm for cracking down on the profiteers who are
helping supply crucial fuel for Pyongyang's vehicles and
factories.''
I would ask unanimous consent to enter this article into
the record. I am concerned that making designations ship-by-
ship or individual-by-individual has not gotten us as far as we
need to go. As you know, the legislation that was passed out of
this committee and passed by the U.S. House 415 to 2, the Otto
Warmbier North Korea Nuclear Sanctions Act.
That legislation would target, would require a more
comprehensive targeting of foreign banks. I am encouraged to
hear you talking about working with the compliance officers of
some of the larger Asian financial institutions to help them
identify shell companies or North Korean controlled accounts.
But can you elaborate on how Treasury is going after
foreign banks, insurers, and registries that are doing business
with these sanctions evaders and when can we expect an impact
on the petroleum trade that is more comprehensive than just
this individual-by-individual or ship-to-ship designation?
Mr. Billingslea. You are absolutely right and when I when
previewed the phenomena of the ship-to-ship transfers to this
committee back in November, I would say the situation continues
to be a big issue for us and perhaps has only intensified as an
evasion technique.
And so our response that has to be a whole-of-government
response that employs not just our Treasury actions but our
State Department demarcheing process but also the actions of
our United States Navy and others.
And then I would further add that our work with our key
allies like South Korea and Japan to conduct surveillance
overflights of the transfers to furnish that information, to
follow the vessels and to impound them would be additional
actions that are illustrative of how we are operating but, at
the end of the day--at the end of the day, as Ambassador Haley
has made clear at the United Nations, it is incumbent upon both
the Russians and the Chinese to step up and enforce these
Security Council resolutions.
Chairman Barr. Well, we appreciate continued pressure on
those Russian and Chinese banks to help enlist their
cooperation. Can you tell us from the beginning of the maximum
pressure campaign to date, how much is there--can you quantify
the hard currency that we have denied to North Korea? Is there
a--does Treasury quantify how much sanctions pressure since we
have made this shift in policy?
How much sanctions pressure has actually deprived North
Korea of hard currency?
Mr. Billingslea. Let me check, we have a rolling estimate,
we attempt to quantify it, the hard data is very difficult to
come by, we watch the currency valuation, we also watch basket-
of-goods estimates, we will need to get you the exact number
for the record, a number for the record, it is not an exact
number but like I indicated previously, we believe we have cut
the regime's revenue generation by at least 40 percent if not
more so that would translate into several billion dollars.
They weren't generating tens of billions to begin with, so
we have cut it by roughly half.
Chairman Barr. I obviously don't want to get into any
classified territory here but if it is--if you are able to
answer this question, do you have an assessment of whether or
not the sanctions has limited the capabilities of the North to
maintain its nuclear program or is it in your best judgment,
assessment of a voluntary response to the Singapore summit or
the diplomatic work that has been done?
In other words, have we actually degraded their capability,
their nuclear and ballistic missile capabilities and that is
why they haven't been engaged in these testing activities?
Mr. Billingslea. So on the on the details, I defer to the
intelligence community on some of that. I would say--I would
say we believe we have certainly degraded their procurement
efforts.
Chairman Barr. OK, thank you. My time is running out but
one final question. At last year's hearing, the committee
discussed cutting off North Korean leaders' access to financial
services, which you indicated something your office was working
on. Ten months after that hearing, can you tell us if Kim Jong-
un's inner circle still enjoys access to assets abroad?
Mr. Billingslea. I suspect they do, we are hunting it down,
when we get indications as we made very clear and the actions
we undertook in Latvia against the bank there, we had evidence
of North Korean-related money laundering so we have been very
active, but I couldn't give further details on that.
Chairman Barr. Thank you, my time has expired. The Chair
now recognizes the gentleman from California, Mr. Sherman.
Mr. Sherman. When the crisis 10 years ago, we were told
certain banks were too big to fail, then prosecutors told us
some banks are too big to jail, are their banks in China that
are too big to sanction? What we have seen is that in dealing
with North Korea, you have been willing to sanction a small
Chinese bank, the Bank of Dandong but have been unwilling to go
after the Industrial and Commercial Bank of China, the China
Construction Bank Corporation, or the Agricultural Bank of
China.
Is this because those banks don't do any business with
North Korea or because they are too big to sanction?
Mr. Billingslea. Thanks, Congressman, and we can pick up on
the conversation we had just the other day on this in a
different committee. I will reiterate when I said to them,
which is there is no Bank that is too big for us to sanction if
we determine that it is in our national security interest to do
so.
We would juggle a couple of considerations together, but as
I also had indicated just a moment ago, we are working with a
number of the very large banks to ensure that they are aware of
and taking action against accounts that we believe are
associated with North Korean front companies.
Mr. Sherman. But you are saying that the three large
Chinese banks I mentioned and, by the way, Chairman Yoho and I
have sent a letter to the administration to urge and have not
received a response. We sent the letter 2 or 3 months ago, I
believe the letter was not addressed to you personally, asking
for why these major Chinese banks had not been sanctioned.
Are you here telling me that those three Chinese banks
haven't done anything like what the Bank of Dandong did?
Mr. Billingslea. I wouldn't want to comment on any
particular bank or financial institution at this stage. I am
told by staff that we believe, we have responded to the letter.
I want to make sure you have it so--
Mr. Sherman. We will work to make sure we get a response.
For our best sanctions that are most effective have been
banking sanctions. We introduced those against Iran I believe
in 2013. My fear is that if you keep using the best hammer, you
eventually break the hammer.
Can Europe, will Europe invent a payment system for Iran in
order to preserve the JCPOA that will make our banking
sanctions less effective, not only against Iran but in future
decades, future other targets?
Mr. Billingslea. It's a crucial question and it is one that
we spend a lot of time focusing on, there certainly is a lot of
aspirational talk along these lines. At the moment, the United
States dollar, or particularly with the strength that the
dollar enjoys now, does remain the fundamental currency of
choice for the banking system and for clearing financial
transactions.
Mr. Sherman. Now drug dealers use dollars, they put them in
suitcases, why does that not work for Iran?
Mr. Billingslea. The Iranians will not hesitate to try to
move dollars in bulk cash for their malign activity.
Mr. Sherman. But--OK, if they want to sell oil instead,
they could accept euro currency or dollar currency, it doesn't
take--those oil tankers come in empty so there's plenty of
room.
Mr. Billingslea. Right and this is why, in August, we
prohibited transactions involving U.S. banknotes with the
Iranians and it is why, in November, we will designate the
Central Bank of Iran as well as a large number of Iranian banks
to preclude exactly what you are--what you are talking about.
Mr. Sherman. Let me point out that if sanctioning Iran is a
good idea, the fact that we have chosen to do it for the one
reason that Europe wouldn't support, which is the JCPOA instead
of identifying, this is more on the foreign policy side, all
the other wrongs that Iran is committing, which Europe regards
as wrong, is the worst packaging and marketing of sanctions
that I have seen.
But finally, cryptocurrencies. Obviously often
cryptocurrencies are used as a medium of exchange for a normal
transaction, I remember one supporter of cryptocurrencies
waving around an article that said 9 out of 10 times when
there's a crypto transaction, it is legitimate and doesn't
involve drugs or terrorists, but is there any advantage that
cryptocurrencies have to the legitimate non tax evading
business person or are they uniquely well-suited for those
trying to evade sanctions and tax laws?
Mr. Billingslea. So we definitely are seeing some of the
cryptocurrencies being used for money laundering or other
behaviors. I think we will arrive at a point in time where we
have digital currencies that are tied to a fiat currency and I
also definitely believe that the underlying technology, the
distributed-ledger technology that underpins cryptocurrencies
will have enormous benefit for the financial services industry.
And so these are--
Mr. Sherman. Nobody's against descriptive--distributed
ledgers but what can you do with a cryptocurrency that you
cannot do with a dollar? I assume a dollar can also be
accounted for in a distributed ledger.
Mr. Billingslea. Right, I am not assuming I know. I think
that is a very valid point but because we believe the
technology is here to stay and that it will continue to evolve,
for this very reason we have decided to make the U.S.
presidency of the Financial Action Task Force, which is a year-
long presidency that started in June, we have decided to make
securing international agreement on a global standard for how
we are going to regulate anti-money laundering regulations of
cryptocurrencies to be one of the three priority areas for us.
And I am optimistic, time will tell but I am optimistic
that, at the FATF meeting in October, the nations will agree to
such a standard, for exactly the reasons you are pointing to
Congressman.
Chairman Barr. The gentleman's time is expired but it was
an interesting question and so I have wanted to provide Mr.
Billingslea an opportunity to answer that question and the
Chair now recognizes the gentleman from Minnesota, Mr. Emmer.
Mr. Emmer. Thank you Mr. Chair. Thank you Mr. Billingslea,
for being here. That last question was interesting. I would ask
you this, when we are talking about the distributive ledger,
the blockchain platform, wouldn't you agree with me that it is
easier to track criminal behavior on a distributive ledger than
perhaps a suitcase of cash that is being carried by an
individual that is unknown?
Mr. Billingslea. In general, yes as long as the ledger was
not--as long as the blockchain in question was not designed
specifically to be non-attributional.
Mr. Emmer. Right.
Mr. Billingslea. And so I think that is a key
discriminating factor in the technologies.
Mr. Emmer. Right.
Mr. Billingslea. Very quickly, on Monday, the European
Union announced that it would set up a special purpose vehicle
to permit its companies to deal with Iran and avoid U.S.
sanctions. How will you treat foreign companies that use this
mechanism and is it accurate to say that they will still be
subject to U.S. sanctions?
Mr. Billingslea. Congressman, it is accurate to say and
we--absolutely accurate to say, we have made crystal clear to
companies around the world that they need to make a business
calculation and if the business decision that they make is they
want to trade with the Iranians in the prescribed sanctioned
areas that we have laid out, that is their business decision.
But they will not transact with the United States and they
will not have access to the United States financial system if
they so choose. I think the net effect of that is been pretty
clear, the vast majority of multinational companies that were
even just contemplating business with the Iranians have made
clear, they are not interested at this stage.
Mr. Emmer. Thank you. In an August report the research
group C4ADS, using open-source information identified 125 North
Korean restaurants in 14 countries, two-thirds of which are in
China.
Restaurants abroad have long been a source of hard currency
for the regime, when can we expect appropriate designations by
Treasury so that they are all put out of business?
Mr. Billingslea. You are describing an issue of fundamental
importance to me because what I did in the private sector
before I came to the Treasury Department was I led the
investigative arm of one of the big four that focused on using
open-source information to reveal true beneficial ownership of
entities.
And I believe we can do a much better job in our government
of using open-source information like you are laying out. That
said, if we are going to hit the evidentiary standards
necessary for a sanction, we are going to need multiple sources
of information and press reporting alone is often insufficient.
Mr. Emmer. But the question is when can we expect
appropriate designations by Treasury or do I take by your
answer that, that is in process because you have to figure
out--
Mr. Billingslea. Right.
Mr. Emmer. A source you are talking about it.
Mr. Billingslea. Figure out and often we found,
particularly in the restaurant front, that engaging
diplomatically with the host country in question can get us
where we need to go. We have done that in the case of a couple
of NATO countries, where they were operating restaurants or
hostels almost right out of the backyard of their embassies.
Mr. Emmer. OK, last, I would like to go through a few quick
yes-or-no questions with respect to North Korea sanctions, if
you don't mind. First, have any of China's largest banks
including ICBC, Bank of China, and others knowingly engaged in
sanctionable activities?
Mr. Billingslea. I don't think we have determined
knowingly.
Mr. Emmer. OK, have any of China's largest oil companies
including China petroleum and chemical corporation, China
National Petroleum Corporation, and China National Offshore Oil
Corporation knowingly engaged in sanctionable activities?
Mr. Billingslea. I don't think we have made that
determination.
Mr. Emmer. Have any large Russian banks knowingly engaged
in sanctionable activities with respect to North Korea?
Mr. Billingslea. Yes, and we sanctioned very recently the
Agrosoyuz Bank for exactly this reason.
Mr. Emmer. Have any of Russia's largest oil companies
knowingly engaged in sanctionable activities?
Mr. Billingslea. I don't think we have made that
determination, we are looking at all these topics.
Mr. Emmer. Last, the U.N. panel of experts recently
concluded that several dozen foreign companies have been
operating joint ventures in North Korea, which is prohibited
under U.N. sanctions. Under the Otto Warmbier Sanctions bill
which the House passed last October by a vote of 415 to 2, each
of those companies and their foreign banks would be subject to
U.S. sanctions.
Do you support such a measure and if so when can we expect
designations from Treasury?
Mr. Billingslea. So joint ventures with the North Koreans
are prohibited under the U.N. Security Council's resolutions
and I have to say and I am going to echo Ambassador Haley here
but Russian efforts to water down the panel of expert reports,
it is egregious behavior and it is unacceptable.
And we are determined to protect the integrity of that
process so that the panel of experts can advise all of us on
what they see in terms of potential sanctions evasion.
Mr. Emmer. Any timing on the designation?
Mr. Billingslea. I don't want to tip our hand but, I think,
if you look at the pattern of actions we have been taking, it
is almost been an action a week or thereabouts in recent
months.
Mr. Emmer. Thank you very much, my time has expired.
Chairman Barr. Gentleman's time has expired, the Chair
recognizes gentleman from Washington, Mr. Heck for another
round.
Mr. Heck. Thank you Mr. Chairman. Mr. Secretary, as you
know, gas from state-owned enterprise in Russia is currently
constructing a gas pipeline in the Baltic Sea from Russia to
Germany. Consensus is that, that will weaken the economic
energy security, I should say of Europe so given that those
profits feed right back into both the military and the
intelligence operations of Russia, presumably to undertake
activities such as the interference in our 2016 elections and
on an ongoing basis.
Why haven't we targeted Nord Stream 2, which is the name of
the pipeline for sanctioned consideration?
Mr. Billingslea. We have made--you are focused on a major
issue. We have made crystal clear to the Europeans and Germans,
in particular that we view the Nord Stream 2 project as
extremely ill-advised and we oppose it and that message has
come from the President all the way down.
But I myself have engaged, the Baltic nations are extremely
concerned about Nord Stream 2, Poland is extremely concerned
about Nord Stream 2, was just talking with the Polish
government about this last week.
Likewise, there's concern in Scandinavia, I have talked--I
told Finland we regretted the decision to approve the permits
there. Denmark has not yet approved the permitting process for
a Nord Stream 2 and I am hopeful that that they would not on
the very grounds that you have laid out.
I think if Nord Stream 2 comes online, the Russians will
use it, they will weaponize fuel in Europe, and they will
ultimately choke off the Ukrainians, so this is a big, big
issue for us. Now that said, in terms of the actual sanctions
authorities that you put into law through CAATSA, those
authorities were delegated to the Department of State and I
would have to defer to them on that matter.
Mr. Heck. I am exceedingly encouraged to hear the basic
policy premise for your view of this proposed pipeline. Can I
assume that you are speaking on behalf of the administration
since you honor the President?
Mr. Billingslea. Absolutely.
Mr. Heck. And can I reasonably conclude that, that
therefore is the perspective of the Department of State as
well?
Mr. Billingslea. This comes from the President himself, he
has been clear that he is not happy with the Nord Stream 2
project.
Mr. Heck. Well, we have sanctions that could be levied. Let
me ask you and again, I am pleased to hear the position, would
like to see some--some action to follow up. Is it too late to
stop? Are we letting the cat out of the bag here? And I want to
acknowledge, Mr. Secretary, it is complicated and it is big and
we are talking about some kind of three-dimensional chess that
would need to be played with traditional friends and allies.
At least we used to think they were friends and allies,
still do as a matter of fact, it just seems to me that time is
not our friend and if we are serious in the way in which you
describe the policy perspective and I will take your word, sir,
then time is a-wasting.
Mr. Billingslea. The challenge we face and again, I am not
an expert, I am not a pipeline expert, I am not an energy
expert. I am told that the Russians have alternative pathways
for laying the pipelines that could go around the Danish
waters, but I do think that a delay is on our side in the sense
that we need to continue to push for other alternative energy
independent sources for Europe. So that they are not held
hostage to Russian natural gas.
Mr. Heck. I am interpreting your answer to be that even if
they have alternatives; if we were to, for example, sanction
them and caused them to delay the current path, that would be a
good thing.
Mr. Billingslea. Again, on the matter of the sanction, I
would--I really need the Department of State here with me but I
would tell you that we need Europe to have non-Russian sources
of energy, upon which they can rely.
Mr. Heck. I couldn't agree more, it just seems to me that
we can do something about it and we ought to. I yield back the
balance of my time Mr. Chairman.
Chairman Barr. Gentleman yields back and I will use one
more round for myself if that is all right and I want to echo--
yes, I want to echo the sentiments expressed by my friend Mr.
Heck, I share his concern and your concern and the
administration's concern about the Nord Stream 2 and I think
that sanctions, if there needs to be some collaboration with
the State Department on this, I would urge the administration
to sanction Nord Stream 2.
And not just Nord Stream 2 but in our visits in a
delegation to Vilnius and Lithuania, our allies in Lithuania
expressed concern not only about Nord Stream 2 but the nuclear,
the construction of a nuclear facility in Astravyets in
Belarus, just 30 miles or so from Vilnius.
And so if the strategic objective is energy independence
for our Eastern European NATO allies, independence from Russian
sources of energy, I think the menu should include Astravyets,
Nord Stream 2, any other attempts by the Russians to create a
dependency on the part of our Baltic friends or Eastern
European allies to Russian sources of energy.
I had a conversation with the Department of Energy also
about using U.S. policy, not just on the sanctions side but
also doing more in the way of exports of U.S. LNG and coal and
other sources of energy that the Eastern Europeans would be
willing to access in lieu of Russian sources of energy.
So I want to work with you on that and again, give the
administration bipartisan encouragement, as a member of the
Baltic caucus, as someone who believes that this administration
has been serious and is to be credited for countering Russian
aggression.
The Congress wants to work with this administration to
ratchet up the pressure and help our NATO allies in that
regard. Let me switch gears really quickly after that editorial
comment to operational activities that OFAC and in your part of
the Treasury Department.
A 2015 audit report by the Treasury's Inspector General
concluded, ``written standard operating procedures for many
day-to-day functions of OFAC's sanctions programs have not been
deployed or developed contrary to governmentwide internal
control standards.''
Moreover, OFAC's resistance to documenting a set of
standard operating procedures is contrary to governmentwide
internal control standards and Treasury policy. It is hard to
understand OFAC's position given the importance of its mission
to U.S. foreign policy.
The IG also noted that OFAC lacked a lessons learned
process as a result, ``OFAC lacks a viable way of identifying
strengths and weaknesses in the administration of sanctions
programs and could miss valuable opportunities to improve its
effectiveness and efficiency.''
Now, I understand we don't have an OFAC director as of now
and these findings obviously, date from the previous
administration, but can you help us understand how Treasury has
been organizing the day-to-day workflow at OFAC and whether the
IG's conclusions may still be relevant today and whether or not
this administration has taken actions to remedy some of these
deficiencies identified by the IG in 2015.
Mr. Billingslea. Chairman, thank you for that. That does
predate my time, I am happy that we do--the Under Secretary has
appointed the new OFAC director and I think she just assumed
office just very recently, couple of days ago.
The--as far as what I see from my vantage point, OFAC has
been, I think, highly successful at being able to handle a wide
range of demands on them for the production of executive orders
which was at the heart of the IG investigation and I have not
seen them in my time suffering from any lack of standard
operating procedures to generate those executive orders.
And they are--of which there have been a multitude. I would
want to take the rest of that back for action and get OFAC up
here with you, to give you more details on how they have
addressed the situation but from the policymaking standpoint, I
have not--I have not seen an issue there.
Chairman Barr. One final question on Iran and that is
obviously, the second phase of Iranian position of sanctions is
coming in November, we are interested in the kinds of
incentives that are going to be built into the Treasury
sanction policy and what behavioral change on the part of
Iranians are you expecting?
What does success look like? New talks, regime change, a
cessation of the terrorists' activities, what is success with
respect to a post-JCPOA policy?
Mr. Billingslea. Sir, I want to be crystal clear, we are
not pursuing regime change, what we want is an immediate end to
the terrorism and the funding of terrorism, the support to the
brutal Assad regime, the proliferation of missile technology to
the Houthis who then launch attacks into Riyadh for instance.
Ship attacks on shipping in the Gulf of Aden, that is got
to stop. The effort to pursue ballistic missiles because again
no nation has ever wanted ballistic missiles, that also hasn't
wanted a nuclear warhead to go on, on the front end of that so
the ballistic missile program needs to be terminated.
And they need to return to the negotiating table to
negotiate an agreement that is free from the deficiencies that
were contained in the JCPOA. The Secretary of State has laid
out in a speech, a few months ago, at a very detailed level,
the actions that we expect the Iranians to undertake and until
they agree to return to the negotiating table, they will face
these economic consequences.
Chairman Barr. I agree with all of those objectives and I
would add another one and that is we need better verification
in a future deal on the nuclear side. Access to international
inspectors that includes military sites where nuclear--illicit
nuclear activity is most likely to be taking place, that in my
mind was a major deficiency of the JCPOA.
Defenders of the JCPOA often talked about the
denuclearization or the access to the inspectors but that was,
in my mind, a major problem, so with respect to verification of
ceasing nuclear activities, international inspectors need
access, better access. With that, I think we have exhausted our
time here today, we appreciate your time with us today
Secretary Billingslea and we appreciate your testimony.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
[Whereupon, at 3:32 p.m., the subcommittee was adjourned.]
A P P E N D I X
September 26, 2018
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]