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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.

[English]

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 United States.

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 detail.

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 markets."

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 Iranian regime.

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 Iran's GDP.

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 beware.

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 here.

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 country?

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. government message.

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 quiet outreach.

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 these sanctions?

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 efficacy.

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 penalties.

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 occasion.

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 outlaw.

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 front company.

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 weapons program.

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 purposes.

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 pure consistency.

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 Canadian embassy.

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 with?

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 sanction enforcement.

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 listed now?

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 specifically sanctioned?

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 correct?

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.)