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 Remarks of Under Secretary for Terrorism and Financial Intelligence David Cohen at the Foundation for Defense of Democracies Washington Forum


12/6/2012

WASHINGTON - Thank you, Mark, and thank you very much for inviting me to speak to the Foundation for the Defense of Democracies' Washington Forum.

And thank you to FDD's chairman, Ambassador Jim Woolsey, its president, Cliff May, and its distinguished board of directors and advisors for recognizing Treasury's Terrorism and Financial Intelligence team with this inaugural George P. Shultz Award.  It is a great honor.

We at the Treasury Department's Office of Terrorism and Financial Intelligence – TFI in the vernacular – have long valued FDD's insightful analysis, creativity, and deep commitment to combating the most repressive and dangerous regimes in the world. 

We have benefited greatly from FDD's work, ranging from its reports on the expanding reach of the Islamic Revolutionary Guard Corps to the deceptive practices of the Islamic Republic of Iran Shipping Lines – IRISL – to the ways to constrain Iran's proliferation-sensitive energy sector.

We appreciate our partnership with you.  And we are proud to receive an award given in the name of one of the great statesmen of the 20th century.  

I'm happy to say that, in Treasury's Office of Terrorism and Financial Intelligence, George Shultz is regularly in our minds, in part because one of the tables that he used while at Treasury now sits in the office of one of my colleagues, Danny Glaser. 

Secretary Shultz served with enormous distinction in challenging times, the epitome of a true public servant – wise, fiercely patriotic, and dedicated above all to doing what's right for the country.  

As one of only a handful of men in American history to serve as both Secretary of State and Secretary of the Treasury – only three before him, and only one since – George Shultz understood, as few others can, the essential link between America's economic strength here at home and our leadership abroad.

But I suspect that even Secretary Shultz could not have predicted the place that the Treasury Department now occupies in America's national security architecture.    

At the Treasury today, we work to advance our national security interests not only by securing and promoting our country's economic strength, but by systematically and deliberately undermining the financial strength of those who threaten our national security.

So while my colleagues in the Treasury Department are hard at work repairing our economy, laying the foundation for sustained and balanced economic growth and job creation here at home, and working to prevent and mitigate financial instability abroad, we in TFI are focused on leveraging the unique powers and status that comes from being firmly rooted in the United States Department of the Treasury to combat illicit finance and promote financial integrity – all in the service of key U.S. foreign policy and national security objectives.

No other finance ministry in the world houses an operation quite like TFI – an operation that fuses policy-making, financial intelligence, regulation, law enforcement, diplomacy and targeted financial actions.

Two of TFI's offices existed long before TFI was created in 2004 – the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN).

As many of you know, OFAC develops, implements and enforces our economic sanctions programs.   It has unmatched expertise in crafting and imposing targeted financial measures against illicit actors that, I believe, has revolutionized the world of economic sanctions.

FinCEN administers the Bank Secrecy Act, collecting and analyzing suspicious activity reports and other regulatory filings to combat money laundering here at home.  As our country's financial intelligence unit (FIU), FinCEN also works with other FIUs around the world to combat financial crime.

A third office, the Office of Intelligence and Analysis (OIA), was created shortly before TFI was established in 2004.  OIA is Treasury's own fully integrated component of the U.S. intelligence community.  The intelligence professionals who work in OIA make use of all-source intelligence to uncover financial malefactors and map illicit financial networks.  We are the only finance ministry in the world with our own, in-house, intelligence unit.

When TFI was created in 2004, a new office was established to work with OFAC, FinCEN and OIA – the Office of Terrorist Financing and Financial Crimes (TFFC).

TFFC has responsibility for policy-making across the spectrum of illicit finance.  Its policy advisors work with colleagues in the US national security community, in the private financial sector and in foreign governments – especially counterparts in the world's central banks, financial regulatory agencies, finance ministries and foreign ministries – to identify and address threats to the international financial system.  TFFC also leads the U.S. government's work with the Financial Action Task Force, known as "the FATF," which has developed global standards for combating money laundering, terrorist financing and proliferation financing.

Acting together, these components create a unique and formidable role for the Treasury Department in the U.S. national security community and among finance ministries worldwide. 

And while I am grateful to FDD for recognizing TFI as an organization, I do want to emphasize that it is the folks who come to work each day, dedicated to pursuing TFI's mission, that deserve the recognition. 

They are too seldom recognized for their service, and almost never outside the confines of the Treasury Department.  So I'd like to thank you for providing us an opportunity today to publicly highlight the contributions of the dedicated public servants who work in TFI, and provide them some of the recognition they deserve.

We have identified an employee from each of TFI's four component offices to represent their colleagues here today, and I would like to take a moment to introduce you to each of them and to describe for you the contributions they are each making to our national security.

Liz Farrow, who is our representative from OFAC, is part of our critical licensing efforts that help to ensure that our sanctions programs are having an impact on their intended targets, and work to minimize the effects on others.  Liz started working at OFAC in 1980, at the time of the Iran Hostage Crisis, and today serves as a Senior Sanctions Advisor in the Licensing Division at OFAC. 

Katherine Leahy Gupta is our representative from TFFC, and has served for several years as TFFC's point-person on improving global implementation of targeted financial sanctions regimes, particularly to combat terrorist financing.  Katherine has worked with the UN and FATF to develop standards and best practices for sanctions implementation, and she has created and coordinated workshops and bilateral engagements around the world to facilitate implementation of those standards.

Lee Davis is representing FinCEN today.  Lee is a regulatory specialist in FinCEN's Office of Regulatory Policy, where he helps design the regulatory defenses to protect our national security and prevent our financial system from being used for money laundering and other serious financial crimes.

Lee's work is focused on developing the regulations and guidance that financial institutions and the public rely on to comply with a wide variety of Bank Secrecy Act rules and requirements to protect against illicit finance.

And Bill Sunderman, who is representing the Office of Intelligence and Analysis, has served the American people for 45 years, in both military and civilian roles.  He has been with OIA since 2004, and provides vital support to our sanctions efforts by working with the rest of the intelligence community to ensure that the fantastic intelligence that is gathered can be used to support our actions. 
Bill's efforts have helped us educate foreign governments, the public and financial institutions about the deceptive and illicit financial activities of Iran, terrorist financiers, and others targets of our sanctions programs, and is critical to our efforts to secure strong enforcement of our sanctions programs worldwide.  

As a result of the work of Liz, Katherine, Lee and Bill and their colleagues, we are able to provide the President and his national security team new tools that help bridge the gap between diplomacy and force. 

From Qaddafi to Assad, from Hizballah to the Taliban, from Los Zetas to the Brothers Circle, from al Qaeda senior leadership to the al Qaeda affiliates, and from Tehran to Pyongyang – my Treasury colleagues identify, design and implement the innovative strategies that help advance our most critical national security and foreign policy goals.

Let me now turn to one area where we see this work in action – applying pressure to Iran.

As this audience is well aware, we devote a substantial portion of our time and resources to Iran.  Through intense and unrelenting pressure, we seek to make clear to the regime in Tehran that it faces a simple, inescapable choice: to address, in a meaningful and concrete fashion, the international community's very serious concerns about its nuclear program or face ever-increasing financial and economic pressure.

The campaign of increasing financial pressure on Iran has been years in the making.  Beginning with measures targeting specific Iranian financial institutions for their involvement in proliferation activity, Treasury engaged in a multi-year international outreach campaign to emphasize to financial institutions around the world the risks of doing business with Iran – all the while adding more and more Iranian entities to the list.

I can't emphasize enough the importance of that work – our quiet but forceful conversations with our counterparts prepared the battlefield for the more aggressive and more public effort that followed.

​Building on that foundation, over the past two and a half years, the joint efforts of Congress and the Administration – through legislation, through executive orders, and through constant, aggressive outreach to the private sector and to foreign governments – have substantially increased the pressure on the Iranian government.

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 – CISADA –charted new territory.  It offered foreign banks a clear choice: you can do business with designated Iranian banks, or you can do business with the U.S., but you can't do both. 

With that powerful authority in place, Treasury again embarked on a global outreach campaign to engage with governments and financial institutions around the world; to warn them off business that could make them pariahs in the U.S. and, indeed, internationally.

Today, designated Iranian banks have largely been forced out of the international financial system.  Last summer, we imposed CISADA sanctions on two foreign banks – Kunlun Bank in China and Elaf Islamic Bank in Iraq – that failed to terminate their business with designated Iranian banks, ending their ability to access the U.S. financial system and putting the world on notice of their activity. 
Where we have encountered resistance, we have acted – no matter how complicated or sensitive the relationship.

Turning the heat higher, legislation enacted at the end of last year adopted the CISADA model of secondary sanctions and used it to target the Iranian regime's most important source of revenue and the heart of the its financial system: its oil and the Central Bank of Iran (CBI).

With that new legislation in hand, Treasury – with colleagues from the Departments of State and Energy – again launched a global campaign to explain the law and its implications – and to encourage corresponding action by partners around the world. 

Today, the Central Bank of Iran has been largely isolated.  Its ability to conduct international transactions is severely limited. 

Amplifying the effect of our measures, the EU adopted its own asset freeze of the CBI as well as measures to target Iran's oil revenues, putting in place a complete embargo on EU imports of Iranian oil as of last July. 

Continuing the drumbeat of amplified pressure, this summer, the President issued an Executive Order designed to preclude Iran from developing work-arounds to the measures focused on the CBI.  As a result of this action by the President, transactions for the purchase or acquisition of Iranian crude, petroleum products, or petrochemicals – regardless of whether it involves the CBI – are potentially sanctionable. 

These measures, combined with complementary international efforts to drive down Iranian exports, have hit the regime hard.  Its crude exports have plummeted by more than 50%, costing Iran up to $5 billion a month.  This has put stress on Iran's already mismanaged budget, as oil exports have historically comprised about two-thirds of the Iranian government's budget revenue.  We have seen reports of Iran having to cut back on some key programs because it lacks the necessary funding.

The Executive Order issued this summer contains another key provision: It allows us to impose sanctions on anyone – a bank, a business or a person – who assists the Government of Iran in acquiring U.S. dollar bank notes. 

We know that the Iranian central bank has, for a long time, provided physical U.S. dollars to the currency traders in Iran, who sell dollars for rials.  Elementary economics tells you that any restriction on Iran's access to U.S. dollars will tend to drive down the rial's value, particularly as demand for hard currency grows.

Now, we know that the Iranian government has grossly mismanaged its economy for quite some time, which has undoubtedly contributed to the decline in the value of the rial. 

And we can't be sure whether it was the Executive Order, or the mounting impact of the oil sanctions, or the increasing limitations on Iran's ability to access the dwindling revenue it earns from its oil sales, or some combination of these factors and perhaps others – but this fall we witnessed a rapid devaluation of the rial.

In about one week's time in early October, the rial lost 20% of its value against the dollar.  That came after about nine months of steady weakening, during which time the rial had already lost 35% of its value. 

This devaluation of Iran's national currency is putting quite significant stress on Iran's economy.  And based on their public comments, we believe it is putting significant stress on Iran's leadership as well. 

Now, just days after the President issued the Executive Order this summer, he signed legislation that expands even further the range of existing sanctions on Iran.

I'd like to highlight one key provision from that law that, together with this summer's Executive Order, represents perhaps the most dramatic escalation of financial pressure to date. 

Under the new law, as of February 6, 2013 – two months from today – any bank in a country that has received a "significant reduction" determination that is conducting a transaction with the Central Bank of Iran, or a transaction involving the sale of Iranian oil, can avoid sanctions riskonlyif it makes its payment into an account at a bank within the country that is purchasing the Iranian oil, and only if those funds are used to facilitate non-sanctionable, bilateral trade between that country and Iran. 

Let me repeat this, because it is complicated – but critically important. 

Even with the reduced sanctions exposure provided by a significant reduction determination, a foreign bank involved in the payment for Iranian oil must ensure that the payment goes to an account at a bank within the country importing the oil, and then is used only to facilitate permissible trade between that country and Iran, in order to avoid the risk of being cut off from the US financial system. 

The funds can't be transferred to a third country; can't be repatriated to Iran; and can't be used to facilitate third-country trade.

This is a very powerful sanction.  Virtually all countries that purchase oil from Iran run a significant trade deficit – meaning, the value of their oil imports from Iran is greater than the value of their exports to Iran.  As a result, this provision should "lock up" a substantial portion of Iran's earnings in each of these countries. 

As foreign financial institutions will no longer be able to transfer Iran's oil earnings beyond their country's borders without the fear of losing their access to the U.S. financial system, Iran will be severely limited in its ability to transfer funds across jurisdictions.  Iran's oil revenues will largely be shackled within a given country and only useable to purchase goods from that country. 

And as you might have imagined, we've been hitting the road once again, making sure that our partners, and the international financial community, understand the significance of this provision. 

Perhaps the greatest endorsement of our efforts has come from Iranian President Ahmadinejad himself.  Speaking in October, Ahmadinejad said:  "The enemy has announced that it has imposed sanctions… [on] oil purchases from Iran. Well, a considerable share of Iran's hard currency revenues comes from oil sales. Secondly, and even worse, it has imposed banking sanctions. Meaning that if some oil is sold, its revenues are not transferable or movable. […] This is a hidden war. A broad and heavy war, spread across the globe."

I disagree with only two things that he said. 

First, what we are doing is not hidden.  It is being done for all the world to see; and, indeed, it is being done by all the world. 

Second, what we are doing is not a war.  It is the alternative to war. 

We are committed to increasing the financial pressure on Iran as long as necessary, and we will continue to look for innovative ways to make the Iranian regime bear the financial costs of its behavior. 

And although we are uniquely positioned to undertake this work, we recognize that we do not have a monopoly on good ideas. 

We will continue our dialogue with all of the stakeholders in this shared endeavor – Congress, our international counterparts, and the academic and think tank community, including FDD – to ensure we are bringing forward the most effective and creative strategies that we can. 

In doing so, our hope is that we can all draw closer to a peaceful and secure world that respects the universal values of democracy, inclusion, tolerance and respect.

Thank you.

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