Countering the Financial Networks of Weapons Proliferation

Chairman Pierce, Ranking Member Perlmutter, members of the subcommittee, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for inviting me to testify.

The Islamic Republic of Iran has been under U.S. sanctions since late 1979. From 2006 to 2016, Iran’s nuclear and ballistic missile programs were the target of a United Nations sanctions regime, which the United States, the European Union, and their Western allies (Australia, Canada, Japan, New Zealand, Norway, South Korea, and Switzerland) subsequently expanded with their own set of far-reaching measures. Initially designed to both punish and prevent proliferation attempts, these sanctions over time became wider in scope, eventually targeting Iran’s energy industry, financial sector (including its Central Bank and most of its banking institutions), shipping, aviation, insurance, and oil exports.

Beginning in January 2016, the Joint Comprehensive Plan of Action, or JCPOA, granted Iran sanctions relief, though non-nuclear sanctions remained in force. Due to President Trump’s May 2018 decision to withdraw from the JCPOA, Iran again faces U.S. sanctions, including secondary sanctions, which are already causing numerous international companies to withdraw from the Iranian market. Iran is therefore likely to ramp up its sanctions evasion efforts.

Sanctions significantly inhibit Tehran’s ability to trade with the world. Still, Iran has adapted, engaging sanctions enforcers in a complex and evolving cat-and-mouse game. With over three decades of experience eluding sanctions, Iran has displayed ingenuity and inventiveness to defy the embargo on its oil and petrochemical exports, bypass financial restrictions on its banking activities, and procure critical technology. Its responses to new sanctions have been quick and sophisticated. As a result, Iran has been able to mitigate sanctions’ impact on its efforts to advance its nuclear and ballistic missile programs while keeping its economy afloat.

My testimony will outline how Iran evaded sanctions in the past, offering typologies as well as case studies in four areas of sanctions evasion: procurement, financial networks, fraudulent practices, and reliance on ancillary services.