Proceedings of the Standing Senate Committee on
National Security and Defence
Issue 3 - Evidence - Meeting of December 5, 2011
OTTAWA, Monday, December 5, 2011
The Standing Senate Committee on National Security and Defence met this
day at 4:40 p.m. to examine and report on Canada's national security and
defence policies, practices, circumstances and capabilities (topic:
Protecting Canada from Iranian attempts to acquire dual-use technology).
Senator Pamela Wallin (Chair) in the chair.
The Chair: Ladies and gentlemen, welcome to this meeting of the
Standing Senate Committee on National Security and Defence. For the first
part of our meeting today, we are going to continue our look at the
situation in Iran and what is happening vis-à-vis dual-use technology.
Iran is increasingly becoming an international pariah, apparently bent on
developing nuclear weapons, and every day brings more bad news. Of course,
recently we saw the violent occupation of the British embassy in Tehran
while the Iranian regime stood by and watched. Over the weekend, we had news
of a U.S. drone downed, so we do not know what technology they have managed
to find on board that, if it still exists.
This committee, as we all know, has been looking at ways in which Canada
can better prevent Iran from acquiring so-called dual-use technology that
might help it develop nuclear weapons. Today we are pleased to have with us
two witnesses who happen to be conveniently in town for us on a Monday and
who have some thoughts on this. Thank you very much for appearing.
We have Mark Dubowitz, Executive Director of the Foundation for Defense
of Democracies, based in Washington, and Sheryl Saperia, the foundation's
Director of Policy for Canada, based here in Ottawa. I think have you some
brief opening remarks. Please go ahead.
Mark Dubowitz, Executive Director, Foundation for Defense of
Democracies: Thank you very much, Senator Wallin, and to all of you.
Thank you for allowing me to testify before this committee. It is an honour
to be back in Ottawa. I am Canadian. I grew up in Toronto and I have been
down in Washington for the past eight years, so I hope I can bring some
insight both from the American perspective and certainly as a loyal Canadian
who still closely follows events here.
I will talk specifically about the benefits of administrative penalties
for export control violations, and I will also speak about the application
of extraterritorial sanctions and describe a bit about what is done in the
I want to point out that most of my research focuses on Iran sanctions
issues; I have spent a lot of time looking at the Iranian energy sector. We
do significant work on the oil market impact of various sanctions, including
the Central Bank of Iran, which has obviously been of significant focus
recently. We look at the involvement of international companies doing
business in Iran, as well as the Islamic Revolutionary Guard Corps, IRGC,
operations worldwide and in Canada, which my colleague will speak about in
I want to talk about the benefits of administrative penalties for export
control violations. The U.S. government contains robust authority to impose
administrative penalties on corporations or persons that export from the
U.S. to Iran a technology that can be used for a weapon of mass destruction,
WMD. The principal laws containing that authority in the United States are
the Arms Export Control Act, the Export Administration Regulations and the
International Emergency Economic Powers Act, which is known as IEEPA.
What are the benefits of these administrative penalties for export
control violations? The U.S. government's export control assistance programs
recommend to foreign countries that they enact administrative penalties for
export control violations, largely because these administrative penalties
are much easier to impose and they are much faster. In order to deter most
export control violators who are interested in financial gain, it is
important to supplement the slim prospect of a criminal penalty with the
significant greater likelihood of an administrative penalty.
Administrative penalties are frequently used in the United States in
every type of regulatory regime, including environmental, securities, import
and export tax, and communications regulations. They tend to be faster and
easier to impose because there is a lower or non-existent intent
requirement. Rather than a criminal prosecutor having to prove that the
defendant acted knowingly, it may be possible to impose an administrative
penalty by showing only that the violator acted recklessly, negligently or
even, under strict liability, with no mental state.
Administrative violations have a lower burden of proof, and they have
lower procedural requirements. Unlike with criminal prosecutions, they tend
to be easier to settle. The Department of State and the Department of
Commerce almost always reach negotiated settlements in their administrative
cases prior to a formal administrative hearing. They also enable a much more
flexible array of mitigating factors. As a result, administrative
disposition can encourage voluntary self-disclosure. Administrative
settlements often involve a commitment by the violating company to establish
a robust compliance program, and this can help prevent future violations.
There has been much discussion in the international community about the
application of extraterritorial U.S. law. This is U.S. law punishing
non-U.S. persons for violations of U.S. law with respect to Iran sanctions.
We have a number of extraterritorial sanctions that have been set up by the
U.S. government with respect to WMD. One pertinent piece of legislation is
the Iran-Iraq Arms Nonproliferation Act of 1992. Again, this permits the
U.S. government to impose penalties on non-U.S. persons outside of the
United States that are trading with Iran in banned goods.
You have no doubt heard strenuous objections to U.S. policies that
involve these kinds of extraterritorial sanctions, such as the idea that the
U.S. is seeking to enforce U.S. law outside of U.S. jurisdiction, but I
would contend that a different and we believe more correct approach to
understand U.S. policy and how a similar Canadian policy on this issue can
be presented is that we want to cooperate with other governments, other
countries and other people, but we want to cooperate with those who share
certain basic values and policy objectives. I will discuss this more in the
question and answer period, if you are interested, but U.S. law has been
very effective in using the threat of extraterritorial sanctions to
encourage voluntary compliance by non-U.S. persons.
The Chair: Thank you. Ms. Saperia, do you have comments?
Sheryl Saperia, Director of Policy (Canada), Foundation for Defense of
Democracies: I do. Good afternoon, honourable senators. I want to
commend the committee on its decision to study how best to protect Canada
from Iranian attempts to acquire dual-use technology. Previous witnesses
have discussed the efficacy of SEMA, the United Nations Act and the Export
Control List. These tools are valuable, but designating Iran's Islamic
Revolutionary Guard Corps, the IRGC, as a terrorist organization in Canada
is an additional and crucial measure that must be taken in order to further
diminish Iran's ability to acquire dual-use technology.
A terrorist designation triggers serious consequences, such as rendering
it illegal for Canadian individuals and companies to have any financial
dealings with the listed entity. This terrorist designation must take place
in conjunction with efforts by Western governments, including Canada's, to
expose Iranian companies' connections to the IRGC. It would then become
unlawful to have any financial dealings with those companies. Wilful
blindness to a company's real identity would be prohibited and due diligence
would be compulsory.
IRGC expert Emanuele Ottolenghi has written that profits made by the IRGC
fund the procurement of Iran's nuclear and ballistic missile programs, as
well as the sponsorship of Iran's terrorist proxy groups. IRGC revenue also
enhances their political and economic prestige, which in turn increases
"willingness of public companies to lend their services — both at home and
abroad — to aid in the Guards' efforts to procure forbidden technologies and
raw materials, and to finance their purchases through middlemen in foreign
When IRGC companies are exposed and business deals with them become
criminalized, their attempts to obtain dual-use technology will be impeded
and their revenues will be cut off, which will weaken the IRGC and the
Honourable senators, if we are serious about dealing with the Iranian
threat, we must focus on the IRGC. This entity is not only in charge of
Iran's nuclear program, but it is also responsible for the violent
suppression of Iranian protesters in the aftermath of the 2009 presidential
elections; it trains and finances terrorist groups like Hezbollah and Hamas;
and recent evidence suggests that the IRGC has trained al Qaeda too. It
played a key role in the 1979 hostage crisis in Tehran, just as it is likely
behind the recent attack on the British embassy. It has been implicated in
the attempted assassination of the Saudi ambassador in Washington, and it is
also a money machine, controlling anywhere between 25 to 40 per cent of
With IRGC financial tentacles all over the world, Canada needs to move
beyond sanctioning a few individuals within the IRGC or banning specific
goods for export. We must adopt a more comprehensive approach to preventing
Iranians from acquiring dual-use technology, from pursuing nuclear weapons
and from sponsoring terrorist activity. We must explore every non-military
measure that may have an impact. We must find a fault line that can be
exploited and cracked open. This means listing the IRGC in its entirety as a
terrorist entity in Canada.
The Chair: Thank you both very much for your opening comments.
I have just a couple of points of clarification here, Mr. Dubowitz, to
make sure I heard you clearly. You want these administrative penalties to be
imposed on individuals, not just corporations or companies doing business.
Is that right?
Mr. Dubowitz: That is correct.
The Chair: What is the benefit of that?
Mr. Dubowitz: The benefit of all penalties, including
administrative ones, is that if Canadian companies are doing business with
Iranian entities in the dual-use context, a message needs to be sent out to
them that "supplier beware" and that the due diligence they do must be
stringent and that it is impossible for Canadian authorities and Canadian
intelligence and law enforcement officials to cover the entire country and
look at every business transaction.
The Chair: Have you discovered in the U.S. context that somehow it
does not work if you impose sanctions on a company? Have you decided that it
would be more effective to impose it on an individual?
Mr. Dubowitz: I think sanctions and penalties, both against
companies and individuals, are necessary in order to accomplish that
objective, which is again to force the CEO of that company to be supplier
The Chair: All right. We have about a half hour for this
discussion. I am sorry our time is short, but we are also working on a
report on the reserves. We will try to get in as many questions as we can
Senator Dallaire: In implementing your extraterritorial sanctions,
is the process always bilateral with the countries in which you find the
companies or individuals who are to be targeted, or is it simply going
specifically at the target and informing the country in which these
operations are happening that you are doing it?
Mr. Dubowitz: That is an excellent question. The sanctions
authorities that the U.S. government has, both legislatively and by
executive authority, are designed to first give the administration the
opportunity to reach out diplomatically with the country and, in many cases,
with the company itself and persuade that company to go quietly into the
night and terminate its ties with Iran. They are encouraged to do so
quietly, without the necessity of penalties being imposed.
The authority that is granted in the United States gives the president a
number of different waivers. He can suspend sanctions against a target based
on a national security interest. He can decide that he will invoke a special
rule that will give the company six months to unwind, for example, its
energy investments in Iran.
The goal of those sanctions is to first give the country and company in
question the opportunity to terminate its ties quietly and only then, if
that is unsuccessful, to impose a variety of escalating penalties to try to
encourage these companies to terminate their ties.
Senator Dallaire: To follow up on that, with regard to your
bilateral arrangement with the country, versus the company that is in that
country, to what extent can you or have you had success in bringing them on
line to reinforce what you are trying to do with the company? Have you had a
sense that you are interfering in their sovereign authority within their
Mr. Dubowitz: There is evidence of both scenarios. In the
financial sector, the U.S. Department of the Treasury has been very
effective in persuading over 80 financial institutions to stop doing
business with Iran. Many of those financial institutions are located in
countries that are close allies of the United States. In many cases the
government itself was very useful in complementing and reinforcing the U.S.
In some cases, where countries have been unwilling to cooperate, the U.S.
has, in select circumstances, imposed penalties on the company itself when
all other alternatives have been exhausted with respect to diplomacy and
Senator Lang: I want to follow up on that question of the
sanctions, so 85 per cent of those that have been approached have withdrawn
their services to Iran. There is 15 per cent that have continued on, I
gather, from what you have just said.
What exactly would the sanctions be, in general terms, on those
particular companies and persons? Are we talking thousands and thousands of
dollars? Are we talking possible criminal charges? Just exactly what are
Mr. Dubowitz: Thank you for the question. First, to clarify, in
the case of the financial industry, over 80 financial institutions have
stopped doing business with Iran. There are scores of others that still do
business with Iran. In the energy sector, scores of companies have stopped.
There are still scores that continue. It is a mixed record with respect to
I would say this, that the sanctions themselves, particularly the
extraterritorial nature of those sanctions, have persuaded many companies,
including companies from China, India and Turkey, to terminate their
business ties where, in the absence of the extraterritoriality of those
sanctions, those companies never would have selected the United States over
Iran. The sanctions are designed to put companies to a choice. If you want
to do business with the United States, you cannot do business with Iran.
Senator Lang: That is basically the sanction.
Mr. Dubowitz: That is the basic philosophy of the sanctions. Quiet
diplomacy or persuading companies to go quietly into the night has been
successful, but the U.S. government has followed on.
To your question on the financial sector, they have sanctioned four
European banks to the tune of $1.6 billion. It was a joint case between the
District Attorney in New York and the Department of the Treasury that
imposed over $1.6 billion of fines on four European banks for violations of
U.S. law. We will see probably another six international banks punished in
the next month or two.
This has not only been quiet diplomacy; real, tough penalties have been
imposed on violators. This is important, because this is a mutually
reinforcing sanction strategy. It gives companies the opportunity to get out
quietly, but if they do not get out they will be subject to fairly tough
Senator Lang: I would like to move on to the Islamic Revolutionary
Guard Corps that our other witness mentioned and described to us. In the
notice that we have, I see the U.S. designated the IRGC in its entirety as a
terrorist entity, yet Europe, the UN and Canada have designated entities and
persons related to the IRGC, so there is a difference.
Perhaps you can explain to us at this stage why it is those allies of the
United States have chosen to stay that one step removed from that
designation. Do you know why?
Ms. Saperia: One of the reasons may be what Emanuele Ottolenghi
has referred to as the diapers-to-missiles problem. The IRGC does just about
everything in Iran. Some of it is diapers. Diapers are good. Some of it is
missiles. Missiles are bad. How do you target the illegitimate activities as
opposed to the legitimate ones? That is a valid concern.
However, the important thing to keep in mind is that Iran's legitimate
and illegitimate business endeavours cannot be easily disentangled or
separated. The profits from the former, the legitimate activities, end up
financing the latter. IRGC leaders have actually come out and said that on
Similar concerns, I believe, took place with regard to Canada's decision
to list Hezbollah or Hamas where there were some social activities that they
did, and Canada was not sure whether they ought to support those activities.
Ultimately Canada decided that you cannot separate these things. Ultimately
you need to cut off the finances of that organization, and that would be the
argument with regard to the IRGC.
Mr. Dubowitz: Ms. Saperia is exactly right. First, the question of
precedent — the European Union has not designated Hezbollah. Certainly some
individual countries have, but the EU in its entirety has not. The UN has
not designated Hezbollah or Hamas or a whole range of terrorist
organizations that are currently listed by Canada and the United States.
With respect to the IRGC, there is growing momentum, particularly in
Europe, in understanding the full spectrum of the IRGC's nefarious
activities, from nuclear to terrorism to human rights abuses. There is a
growing recognition in Europe that the IRGC is a nefarious actor that is
deserving of international isolation and being treated as an international
As evidence of that, there has been recent activity around the Central
Bank of Iran. Essentially, the United States has designated the Central Bank
of Iran, in fact the whole territory of Iran, as a territory of primary
money laundering concern. The main reason for that is its connection with
the IRGC. The CBI, the Central Bank of Iran, is inextricably linked to the
whole IRGC global supply chain, financial, energy, et cetera.
You will see growing movement in Europe — we have seen it with the U.K.
now — to go after the Central Bank of Iran. You are seeing literally
hundreds of entities that have been sanctioned by the Europeans and, indeed,
by the UN as being linked to the IRGC. We are here to make the argument that
Canada should be a leader with respect to IRGC designations, and that a
blanket designation would be much easier for Canadian intelligence and law
enforcement officials to enforce than the approach that is currently being
undertaken under SEMA. That approach is to go after every sub-entity, locate
every front organization and end up in an endless game of whack-a-mole. That
is, every time you designate an entity, they just spin out additional front
organizations. Our Canadian intelligence community and law enforcement
community have their resources stretched thin trying to locate the next
Ms. Saperia: I will follow up on that. I absolutely agree that
playing catch-up to these organizations and individuals is not productive. I
will leave you with a little sound bite, which is that the IRGC can be seen
as a dual-use organization. Some of what they do is legitimate; most is not.
Ultimately, all their profits go back into funding their nefarious
activities, including, most importantly, their nuclear and their terrorist
activities. As a result, you have to shut down the entire commercial
enterprise, which would involve listing the entire organization as a whole.
Senator Mitchell: Thank you very much. I would like to follow on
that to begin with. What would be driving the different approach? Why would
there be a reluctance to do a blanket approach to say that the whole
organization is a problem and avoid the approach that we are doing? Is there
a justification somewhere for that? Why would we choose to do it that way?
Mr. Dubowitz: From a Canadian perspective, I think there are a
number of countervailing considerations at play.
The first is an intelligence consideration. I think that there is
probably concern within the Canadian intelligence community that, were
Canada to decide to designate the IRGC, the Iranian response would be to cut
off diplomatic ties with Canada and force the removal of the Canadian
embassy. That embassy is considered to be useful for a number of reasons.
I think there is a concern, which I disagree with but it is out there.
However, it is a reasonable concern that needs to be addressed, namely, that
somehow the IRGC is a state institution and is deserving of state immunity,
that we do not list state institutions, and that the Criminal Code was
designed to go after non-state terrorist actors. That is an argument that
has been advanced. We are both happy to address that, but I think it is a
reasonable argument and it needs to be put on the table.
The Chair: Should we have you do that?
Mr. Dubowitz: Only if there is interest.
I can address the first argument. I cannot do a cost-benefit analysis on
the relative benefits of having a Canadian embassy in Iran from a diplomatic
and intelligence perspective versus what I think are the significant
benefits to help law enforcement intelligence here in Canada from a blanket
IRGC designation. That is something that you and the appropriate security
officials have to weigh.
With respect to the state immunity, that has become a less persuasive
argument as we started to recognize that IRGC is no longer a state
institution. The IRGC has become the praetorian guard of this clerical
regime and it is no longer deserving of state immunity because it has acted
in a way that crosses all red lines with respect to state behaviour.
The IRGC today, according to many terrorism officials, is the most
dangerous terrorist organization in the world, but it is a terrorist
organization that operates with diplomatic immunity. It uses embassies
around the world, where it stations its assets and plans operations. It
travels freely, and it has used those assets to blow up the Israeli embassy
in Buenos Aires, in 1992, and the Jewish cultural centre in Buenos Aires, in
1994. It has used those assets to plan operations in Lebanon, Africa, Kenya
and Tanzania. It is using those assets, I believe, today in Canada to run
procurement networks for the acquisition of dual-use technology for Iran's
The argument is that the IRGC today is an international outlaw that has
crossed all red lines with respect to state immunity. There is growing
recognition that these institutions within the Iranian regime are all
crossing red lines, which is why the Central Bank of Iran is now treated as
an international financial outlaw not deserving of state immunity.
Ms. Saperia: I would like to jump in on this issue. I have many
things to say about it.
First, with regard to state immunity, the State Immunity Act is about
preventing foreign states and their agencies from being civilly sued in a
Canadian court. This has nothing to do with listing a terrorist organization
under the Criminal Code in Canada. If you look at the language in the
Criminal Code, on the listing provisions you are going to see that there is
nothing in there that prevents an agency of a state from being listed. The
word that they use about listing an organization is "entity," and "entity," as you know, is a broad legal term. Nothing in there is
preventing a state agency from being considered an entity for those
The entity has to either knowingly carry out or attempt to carry out or
participate in a terrorist activity, which the IRGC does; or the entity is
knowingly acting on behalf of or in association with another listed entity.
We know it does that, too. The IRGC finances Hezbollah, which is an
Iranian-controlled subsidiary altogether. Within the actual Criminal Code
criteria for why an entity ought to be listed, the IRGC absolutely,
unequivocally fulfills those criteria.
There is an argument to be made that "terrorist activity" in the
Criminal Code sets out what "terrorist activity" means, and there is a
little line there that says that but if it is undertaken in the context of
their official duties as a state military force, that may not be considered
terrorist activity. There is a potential argument. If you keep reading, it
says that those activities need to be consistent with international law.
IRGC activities most certainly are not. Therefore, again, there is nothing
within the Criminal Code that is preventing the IRGC from being listed.
I want to make two more points. I am sorry to take so much time on this,
but I feel passionate about it.
The IRGC is such an unusual organization; there is nothing quite like it.
They are so powerful, so independent and so wealthy, with a very unusual
mandate to protect the Islamic revolution as opposed to borders and peoples,
that it should not be considered a conventional military force to be subject
to all the same types of treatment as a regular state agency might. In that
respect, you could still consider it to be a rogue organization.
Finally on the subject of state immunity, the justice for victims of
terrorism act, which is now part of Bill C-10, the government's omnibus
crime bill that is about to go to third reading, has to do with state
immunity, lifting state immunity for states' sponsorship of terrorism. That
involves the government listing certain states that they are going to
designate as state sponsors of terror.
Once you are prepared to call a state itself a "sponsor of terror,"
surely you are prepared to call a state agency a terrorist entity, just for
Senator Lang: Mr. Dubowitz mentioned the Canadian embassy. Are you
telling us that if Canada were to designate the IRGC, in all likelihood we
would move our embassy? Did you say that? I got that inference from you.
Mr. Dubowitz: I am suggesting that should that be a consideration
in this evaluation, it may be — and I underscore "may" because I am not
sure how the Iranians would respond — the case. If the Canadian government
took the step of listing the IRGC as a terrorist organization under the
Canadian Criminal Code, the Iranian response to that might be to move the
I would say that a graduated process is still possible. The Canadian
government could start by listing the Quds Force, which is the overseas unit
of the IRGC. If you were to break down the IRGC into its various component
parts, the strongest argument on terrorist grounds for terrorist activities
is the Quds Force because that is what the IRGC uses for its overseas
operations for its terrorist activities. It is a key component of the IRGC
and a key arm of the Revolutionary Guard Corps in the Iranian government.
The designation of the Quds Force would be entirely consistent with Canadian
precedent. Again, it is at least a part of a graduated escalation curve. If
you were concerned about the blowback from an entire blanket designation of
the IRGC, you could start with the Quds Force.
I would also point out that the IRGC should not be confused with the
Iranian military. The Iranian conventional military is a completely
different institution. We would never advocate for the designation of the
Iranian military. It is an organization that the regime distrusts, which is
one of the reasons they set up the IRGC in the first place. It is obviously
something to which people are conscripted. They serve in the military. We
may not agree with the Iranian military's international goals, but I think
it is a conventional military in the truest sense. The IRGC is not.
Senator Mitchell: Under our Special Economics Measures Act, SEMA,
if I understand correctly, the distinction is drawn when you are considering
sanctions between a company that would make new investment and an investment
it has already made. I believe we see that in the Syrian case where there
are Canadian companies functioning and one of them produces a great deal of
power. Who would it hurt if we really cut them off? Is that a distinction
you draw? If it is bad enough that we should sanction new investment, does
it automatically mean we should sanction existing investment and ask
companies like that to shut down and move out?
Mr. Dubowitz: That is a great question and the subject of much
debate in Washington.
I would say that on one hand we need to respect the integrity of
contracts and be sensitive to the fact that perhaps there are penalties
associated with a breach of contract on existing contracts. On the other
hand, I would say that it is a loophole you can drive an oil tanker through
because the difference between existing business and new business is often
very difficult to substantiate.
The way the U.S. government has handled this in the past is to use a
special rule that is currently under the Comprehensive Iran Sanctions,
Accountability and Divestment Act, which was signed into law by President
Obama last year. The special rule gives companies time to unwind their
existing business. It does not automatically require sanctions on a company
for existing contracts, but it acknowledges that our policy goal is to
unwind all business, not just new business, and so it gives companies time
to unwind that business. Six months under the Comprehensive Iran Sanctions,
Accountability and Divestment Act — you could allow more — but it is
important that we do not allow that loophole to permit companies to hide
their activities or re-characterize their activities ad infinitum.
Senator Manning: You have referenced companies with any connection
whatsoever that could go by the wayside during the night, and that is an
easy approach. I believe you referred to something along that line.
Is the identity of those companies public knowledge? How is that dealt
Mr. Dubowitz: It is available through the open sources. For
example, we did a report on Iran's Chinese energy partners where, based on
open-source information, we detailed the Chinese companies that are doing
business in the Iranian energy centre. That business included investments,
transfer of technology and supply of refined petroleum. Much of this
information is available in open sources. It is available in trade
publications. It is available by speaking to people in the industry.
Organizations like Foundation for Defense of Democracies maintain a detailed
database that tracks many companies.
The interaction between our organization and the U.S. government is also
fairly fluid. We will provide open source suggestions and information to the
U.S. government. The U.S. Department of State and the U.S. Department of the
Treasury, which are responsible for sanctions enforcement, will then use
that information and supplement it with non-open source information that
they get from the intelligence community and from trade sources.
It is absolutely possible to find out what companies are doing business.
I would make a corollary point, which is that I think it is critical that
Canadian sanctions be extraterritorial. What ultimately persuades these
companies to go quietly into the night is being put to a fundamental choice
between doing business in Iran and doing business in North America.
Canada is an energy superpower. Canada has a lot of leverage in the
international arena, and there is a real opportunity for the Canadian
government to say to a company, "You can either do business with Iran or
you can do business with us." In fact, the Canadian government, as a huge
market both as a consumer and in energy, could say, "You can do business
with either Iran or with North America." It is that choice that has
persuaded many companies to stop doing business with Iran.
If Canada were to follow suit and provide that choice to many other
companies, I think we would be much further ahead with respect to rigorous
Senator Manning: You also mentioned the extraterritorial sanctions
with non-U.S. citizens. How does that work? What is the success rate on
that? Have attempts been made to further that?
Mr. Dubowitz: They have. In the past year the U.S. Department of
State has imposed sanctions against 10 non-U.S. companies engaged in
business with Iran in energy, in refined petroleum sales and in shipping.
Those sanctions, in addition to the other penalties I mentioned earlier,
such as the $1.6 billion imposed on four European financial institutions,
have really sent a shot across the bow to the international energy and
financial industries that penalties will be imposed if you continue to do
business with Iran. The net effect of those penalties has been $60 billion
in foreign investment frozen in the Iranian energy sector.
The U.S. Department of the Treasury estimates that Iranian revenues over
the next five years will decline by $14 billion a year. We have seen
gasoline sales drop by 90 per cent. We have seen a significant impact on the
Iranian economy with respect to inflation and unemployment that has really
targeted the regime. I would argue that sanctions and peaceful alternatives
will not work unless we significantly ratchet up the pressure. Canada can
play a vital role in doing so, rather than relying on the United States only
to implement these sanctions.
Senator Plett: Are there IRGC companies that are currently
operating in Canada? How active are they? In what sectors are they located?
Mr. Dubowitz: I am happy to address that. There are a number of
IRGC companies operating in Canada. We would be happy to provide you with a
list. I can give examples like Kala Naft, which has a Canadian subsidiary
that operates here. Kala Naft is an integral part of the Iranian energy
industry and operates as an overseas procurement arm for that industry.
I would like to underscore this one point: The United Nations Security
Council Resolution 1929 contains specific language in its preamble that
underscores the nexus between the Iranian energy industry and Iran's nuclear
program, and between the Iranian petrochemical industry and dual-use
equipment that is intended for that petrochemical industry but is also being
diverted to Iran's proliferation activities.
By operating through IRGC fund companies like Kala Naft, the Iranian
regime is able to procure specific equipment in Canada that is then diverted
through its proliferation activities. I think a blanket designation of the
IRGC would help your intelligence community and your law enforcement
community clamp down on companies like Kala Naft without playing a game of
whack-a-mole, which I think is the current approach.
The Chairman: We would appreciate that list. Thank you very much.
Senator Day: Are some of those companies on that list registered
as terrorist organizations? We do have some of the front companies
registered now as terrorist organizations in Canada. There is Islamic
Revolutionary Guard Corps, but, as you have pointed out, they just keep
changing their front companies so it is just a game of chasing after them
all the time. On the list that you are going to provide, are some of those
Mr. Dubowitz: Some of the companies that I would provide to you
may already have been subject to Canadian sanctions. The important thing to
take away is that your intelligence and law enforcement communities, which
are responsible for creating the evidentiary basis for a listing of each of
these specific sub-entities, will be overwhelmed, as I imagine they are, if
their responsibility is to go after each of these entities one by one. A
blanket designation of the IRGC in the United States has had a chilling
effect in the U.S. business community because it has essentially sent a
message that if you are selling a part or a component to a company out of
Dubai and you have suspicions that it will be diverted to Iran for nefarious
purposes, the onus is on you as an entity and as the CEO to do that kind of
due diligence, and, if you do not do it, you may be subject to severe
penalties and sanctions.
Senator Day: If the parent company is registered, does that cover
all the wholly owned subsidiaries that might be the other front companies
you talked about?
Mr. Dubowitz: When you say "registered," do you mean
Senator Day: Listed or registered as a terrorist organization.
Mr. Dubowitz: Listed, right. I would assume that Canadian
authorities, as long as they can establish and substantiate the nexus
between the parent company and its operating subsidiaries, would include the
parent and all the subsidiaries on the listing. That is obviously an
evidentiary case that needs to be made.
To put it at the 30,000-foot level again, it is easier to designate the
IRGC in its entirety, or at least the Quds oversees unit, and then get the
business community to help you in this exercise by being aware with respect
to the sales of their equipment rather than relying on what I think is an
incremental approach that is enormously overwhelmingly for the Canadian
government, particularly the intelligence community and the RCMP, who will
have to go after each of these entities and each of these subsidiaries.
Harness the business community.
The Chair: I want to make something clear. In our discussions we
have been talking about the nuclear technology and the dual use that they
might find in something like the energy sector, but I assume that you
include in these discussions chemical, biological or radiological. Is that
Mr. Dubowitz: Correct.
The Chair: I am sorry that we are out of time. You were terrific
in terms of being very succinct and direct. We have to get on with our other
work. Thank you both very much.
Mr. Dubowitz: Thank you for having us.
Senator Day: Could a researcher check on that issue? If a parent
company is registered, are all the subsidiaries automatically covered?
The Chair: It is whether they are listed, not registered. They
will look into that for sure.
Thank you very much. We will now go in camera.
(The committee continued in camera.)