negotiating table especially as we look towards baghdad? >> the path we've been on began the '05, '06 time frame designating institutions involved in iran's nuclear program, working through the un to get resolutions adopted. highlighting iran's failure to comply with its international obligations and also designating people at the u.n. level and working with foreign partners, both in the private sector and governments to have spectacular actions taken to isolate and put pressure on iran. the last you know, three years, we have been pursuing the dual track strategy. on the one hand, offering iranian the opportunity for meaningful, substantive, sincere engagement, but on the other hand, making sure they will face

increasing pressure as long as they don't accept the offer of engagement and we have as the engagement track wasn't bearing any fruit, steadily and aggressively, increased the pressure. additional designations. using new authorities that congress has given us to apply greater pressure on the financial sector in iran which has cull min nated recently in the legislation the president signed that focused on iran's export of oil and transactions with the central bank of iran. we have seen this combined effort our authorities and working with the international community. i cannot overstate the importance of the effect that we are able to generate when we

have our international partners working with us. the e.u. working with us. japan, south korea, switzerland. you name it, and the united nations as well. a very, very broad-based coalition of countries not doing exactly the same thing, but all pushing in the same direction of applying pressure on iran as part of this dual track strategy and the you know, the impact we have seen particularly through the fall of last year and into the spring of this year is a significant deterioration in the iranian economy. the value of their currency, the rial, has dropped like a rock. and that has you know, significant impact on iran's ability to you know, pay for the material that it needs for its

nuclear program and more broadly, just puts pressure on the leadership because the people in iran are feeling this pressure themselves. and you see that in iran's gdp, which is lags well behind its peers. as other countries that are exporters that have been doing well in increasing oil prices, iran hasn't. you can see it in the unemployment rate in iran. which is you know, steadily increasing. it is quite high today. and you can see it in just the overall difficulty that iran has today. in interacting with the international financial community and business community. they are increasingly isolated. both diplomatically and financially and economically. i don't think there's any question that the impact of this

pressure has contributed to the sort of newfound apparent willingness of iran to least come to the table. i don't think anybody is nieve here in thinking that we have turned a major corner. the meeting that was held in istanbul several weeks ago, the iranian came, seemed to be being to engage in a conversation. the proof that the pudding is in the eating. see what happens in baghdad, see what happens going forward. in the meantime, we are going to continue to maintain the pressure. because there's no doubt that the pressure that has been applied has been in part a contributing factor to getting us to where we are today.

and you have the convergence of several events coming this summer. you have baghdad in the meetings. they are coming up. you have the trigging mechanism in terms of sanctions and banks come on june 28th and then the oil embargo from the european union triggered on july 1st. what do you see as treasury policies coming up in the next few weeks? >> this june 28th day is very important. that's the day under the ndaa and new legislation after which any country that purchases oil from iran and pays to the central, whatever financial institution the involved in that transaction can be sanctioned under this new legislation unless the country involved has significantly reduced its oil

imparts from iran and the secretary of state makes a determination that that country is significantly reducing its oil imports. if the country does that, then the financial institutions in that country are able to pay the central bank of iran for 80 days. the idea being to drive down the amount of oil iran is able to sell. for countries that don't receive a significant reduction, after june 28th, any payment to the central bank of iran for oil exposes the financial institutions involved in that transaction to sanctions under u.s. law. we have, there's still a number of countries that are importers of iranian oil that have not received significant reduction

determinatio determinations. maybe all of them will, but maybe not. but we have seen some efforts and there was an article yesterday that i saw that reflects -- to develop payment mechanisms, so vad the strictures of the n ddaa and in this particular one, the idea was that 20% of iran's oil would be sold by some other entity in iran. not the natural iran company. i think it's fair to say that we are going to be very skeptical about efforts to develop a alternative payment mechanisms premised on the fact that under iranian law, it says that all

revenues earned by any government ministry have to be paid to this central bank of iran and the oil resources are owned by the national iranian oil company, so i think our presumption going in is that anyone buying oil from iran is ultima ultimately paying the central bank of iran for that oil even if there is some intermediate step along the way. so we are going to be quite skeptical of efforts to pay, purport to pay other than the central bank of iran for iranian oil. >> that's an important point because you're signalling a max mallist interpretation of the strictures and you're going to be looking at attempts to evade it. >> i don't know if it's max mallist or applying law, anyone who makes a knowing transaction

with the central bank of iran for iranian oil is subject to sanctions. we have made clear that means direct and indirect and that you know or should know that the payment is going to the central bank of iran so we will apply the law in that fashion. >> one final question before we shift gears again. there's been a lot of talk about what is given potentially at the negotiating table. whether or not a lessening of the actions or pressure is on the table. can you talk about you know, what that looks like possiblily and what unwinding of the pressure might look like? we went through an episode like this by the way in 2005 with north korea with efforts that began to impend very strictly on pyonyang and we engaged in an effort to unwind i think somewhat unwisely, but any event, there are historical lessons to you how do the unwinding. have you thought about that? >> yes.

i guess what i will say is that you know, my colleagues at the state department are responsible for the negotiations and for the puts and takes that occur at baghdad and perhaps there after and we are pursuing this entire endeavor in the construct of this dual strak strategy, which engagement on the one hand, pressure on the other. but as we have said all along, the purpose of pressure is pressure itself. we're not applying sanctions for the sake of applying sanctions. we're applying sanctions to try and induce a behavioral change. that's the purpose of all of our sanctions programs is to try and change behavior. and so, as we approach the specifics of the negotiations with iran in the and of course

in the context of the pf plus one, five permanent members of the security council plus germany are part of these negotiations with us. we are pursuing that in the context of this dual track strategy, where you know, pressure is there to try and induce a change. that has been the objective from the outset and it remains the objective. >> shifting gears a little bit to the arab revolutions, arab spring, whatever we call it these days, not quite sure. but treasury's played a fairly central role in that as well. freezing of libyan assets. well over 30 billion significant success for treasury. but now centrally in the context with respect to the assad regime and syria, people are looking to and talking about the financial pressures. really the only tool we're applying to try to affect change there. can you talk to us about what

the next steps are with respect to financial pressure and whether or not you think this is going to work? >> yeah, and i'm also going to quibble with the premise of your question. i don't think that in syria the only tool we're applying today is financial pressure. but it is an important tool. and it is a tool that we have been you know, relying upon quite substantially since the uprising you know, about a year ago, even more than a year ago, in syria. we have adopted three new sanctions programs on syria in that period. a sanctions program specifically focused on human rights abuses in syria. which i should add has led to a number of designations of syrian officials as well as iranian officials who have been supporting the abuse of human rights in syria.

the sanctions program focused on syrian government officials and then last august, a sanctions program focused on the entire government of syria as a whole. including the central bank of syria. this effort has been undertaken again in conjunction with an effort that the e.u. has undertaken to apply financial pressure and sanctions on syria, that turkey has undertaken to apply sanctions on syria, and that i think importantly that the arab league has undertaken. really i think for the first time in the arab league's history, there was a decision to adopt sanctions. now, what we have been doing in addition to applying sanctions under our own authorities and we have designated i think close to 50 individuals and entities under the new authorities that have been created over the past

year. is we've been working very closely with the e.u., turkey and more importantly, the arab league to improve and enhance the effectiveness of this, of these other sanctions efforts. there was a meeting the end of april of a working group on sanctions that brought together those i think 50 countries attended to talk about how to more effectively implement economic sanctions on syria. there's going to be another meeting in several weeks here in washington to follow up on that where the purpose is to enhance and increase the financial pressure on syria. and it is having an impact. you know, again, so the macro economic indicators in syria much like what you see in iran. their gdp in 2009 i think was

growing at 6%. i think the last year declined by 3% and expected to contract 6% this year. you know, their currency has devalued i think 25% on the official rate and anywhere from 50 to 75% on the unofficial market. their budget deficit is widening substantially because the sources of revenue for the syrian government which are largely oil exports and tourism have almost completely dried up. they're not earning basely not earning any money from their oil or from their tourism industry. that is obviously the revenue side, they're not earning and on the expenditure side, they're spending money to try and keep inflation down by subsidizing

feud and fuel and they're spending a lot of money frankly pursuing the violence against their own people. and the combined effect of this is that the economic situation in syria today is quite perilous. the objective of that is to encourage the business class in syria to recognize that their future prosperity, the preservation of their wealth, their children's future economic stability depends on assad leaving power. and peeling away that business community support from the regime is one of the you know, it's an important objectives we're pursuining through these sanctions. >> an interesting corollary to this as well is an action you took about a year ago using

treasury's section 311 of the patriot act to designate a bank as the primary money laundering concern. the work treasury did along with the dba to uncover a drug money laundering scheme and you were recently in beirut and there's been a lot of attention ton the lebanese banking system as a hub for syrian activity and iranian activity. nothing new or surprising, of course, but can you talk to us about next steps you're talking about in terms of the lebanese banking system? >> i can tell you what we are continuing to focus on. in lebanon. and that is i would support it into two buckets. one is continued focus on the use of a lebanese financial system for the sorts of money laundering and elicit finance

activities that were the focus of the lebanese canadian bank action. that was an action taken against a bank that was centrally involved in an enormous international drug money laundering scheme, running money through the the united states involving used cars being sold into africa was a very complex scheme and you know, it was affecting the u.s. financial system. it was sending wires into the u.s. that were the proceeds of narcotics trades and we will and we've been very clear with the lebanese authorities about this, we will do what we need to do to protect the u.s. financial system from that sort of elicit activity. that's one bucket and we're continuing to work with the lebanese, both on the lebanese canadian bank issue specifically and more broadly, working with

them to have them be more effective in policing their own financial sector. the other budget is syria and iran. and we have been as clear as we possibly could be with the lebanese and that that is a red line. that if we see either the assad regime or its cronies using the lebanese financial system as a way to escape the sanctions, weaken the sanctions, we will act. like wise as iran is under increasing financial pressure and has lost access to financial centers around the world. you know, we are concerned that the iranian will look to beirut. which is an international financial center, has been for some time.

as their jumping off point back into the international financial system. and so again, we have been very clear with the lebanese that is very attentive to and will respond to if we have the predication. >> i think we can talk for like 12 hours if we were given the chance. i'm going to ask one more question and then open it up to the audience. david, how do you think about and deal with the rise of the chinese economy, the chinese banking system? we see in the newspapers today the federal reserve announcing the allowance for chinese banks to expand their presence in the u.s., significant announcement, i think. how do you deal with the chinese in part when they are not as cooperative as we would like them to be on some of these issues, whether it's north korea or iran or syria? and how do you contend with the fact that their economy is rising, their banking sector is powerful, and they in some way

are becoming a force in this financial battle space? >> so obviously the relationship with china has many, many important dimensions to it, including work with the chinese on a variety of foreign policy national security issues that we have -- that we have on our plate. at one level, we deal with the chinese the exact same way we deal with everybody else on these same issues, which is that we explain what our laws are, explain how it is that, you know, our laws operate so that the governments can instruct its financial community and so that the financial community itself understands where the lines are, where they can get cross-wise with us. whether it's china or any other financial sector that is looking

to be a player on the world stage, and you know the fed yesterday gave permission to a big chinese bank, icbc to purchase a bank here in the united states, the financial sector itself has a very, very keen interest in ensuring the integrity of its own operations. and that's true for the financial sector broadly, and it's true for each individual bank within the financial sector. and so part of what we do is in addition to dealing with governments and talking to governments and trying to coordinate with governments is to communicate directly to the financial sector about the importance of combatting elicit finance, the importance of financial integrity, you know, and the importance of maintaining reputation. because that is what will assist

them as they want to be players on the international financial stage. so we approach the chinese, as i said, in the same fashion as we approach other countries on that issue. and, you know, we will continue to do that. >> you raise a great point, because i think one of the keys to your success is the recognition that reputation is the coin of the realm when talking about the international financial system. >> right. >> and those who want to appear legitimate. >> right. >> that's good. i think that's enough question from me. i have about 20 others i could ask david. but why don't we start with questions -- what i ask you to do is wait for a microphone, identify yourself, please, and then pose a question. and we've got several hands up. start with arno up front, please. >> mr. secretary, when we liberated kabul, we discovered

in a safe house that was al qaeda safe house apparently evidence that the uss cole operation a year before cost them about $10,000. and for that they immobilized a $10 billion warship, killed 17 u.s. sailors. the ship was out of action for two years. next the system is of course very important. and bob at treasury told me that was the single biggest problem. i was wondering what headway you have made on the huwala system. >> it's a great question. the huwala system, which for those who don't know, although i assume most people here do is a way to move money not involving the formal financial sector, but through communications between trusted partners.

sort of a -- it's akin to western union, but somewhat more -- somewhat more simplified system. we are focused on particularly on the use of the hawala system domestically and internationally. it exists all around the world in different ways. what makes it difficult is it is in some respects a little bit sort of below the threshold. it's not -- it isn't because it's not part of the formal financial sector, it isn't quite as amenable to our traditional tools as banking transactions would be. just last week, there was a new executive order that the president signed on foreign sanctions evaders, specifically with respect to iran and syria.

one of the areas where we are focused in using this new tool is on the sort of exchange houses, the training companies, the hawalas that may be involved in moving money, moving funds in a way that is contrary to our sanctions on iran and syria. and we now have a new tool that will allow us to identify those who are involved in that activity and exclude them from the u.s. market and publicize who it is that is involved in this activity. so to get to your question specifically, it remains something that we are very much focused on. in some respects, our success in combatting terrorist financing through the formal financial sector has revealed this

alternative mechanism for moving money, and, you know, this is -- this effort is ongoing. you know, we're not -- i don't think we have the view that we are going to ever completely solve this problem. and the next frontier and now with the new tool in the foreign sanctions evader executive order is to really hone in on some of these mechanisms. >> yes, ma'am? the microphone is right there. >> thank you. elise lavin with cnn. i was wondering if you could flesh out a little bit more on syria. specifically, are you seeing any capital flight? are you seeing any indication that the business class is truly abandoning assad? and could you talk about indicators of what you think the

tipping point would be, whether that's any time soon? and on the question of you talked about iran and lebanon in terms of using their banking systems and trying to help syria circumvent the sanctions. what about countries like russia that are an ally of ours but are certainly supporting the regime to sustain itself. thanks. >> so we -- there has been some capital flight from syria. you know, one of the things that makes this a difficult endeavor is on the one hand, we want to facilitate the capital flight of individuals in syria who are not supporters of the regime and who want to leave syria and want to take their money with them. there is no reason that we would want to interfere with that. but at the same time, of course, we want to be as careful as possible that the regime, its

cronies, its allies who may be trying to shield their assets are not able to do so. and so in working particularly with the lebanese financial sector, which is very integrated with the syrian financial sector. they have long-standing relationships there are a number of lebanese banks that have operations in syria. one of the points we have made is they need to exercise extra special diligence on transaction was syria to ensure that, you know, good money is able to leave. bad money is not. so we are seeing some capital flight. the desire is to improve the overall power and effectiveness of the sanctions programs that have been adopted by, as i