engagement. and we have, you know, 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, even greater pressure on the financial sector in iran, which has culminated most recent lip in t ly with the lechbt slachs the president signed last year focusing on iran's export of oil and transactions with the central bank of iran. we have seen this combined effort of our authorities and working with the international community, and i cannot overstate the importance of the -- the effect that we are able to generate when we have our international partners

working with us, with the eu working with us, japan, south korea, australia, switzerland, i mean, you name it, we have a -- 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 really as part of this dual track strategy and, you know, the impact of that that we have seen particularly sort of through the fall of last year and into the spring of this year is, really, you know, a very significant deterioration in the iranian economy. the value of their currency that real has dropped like a rock, and that has, you know, significant impact on iran's ability to the, you know, pay for the material that it needs

for its nuclear program and more broadly, just puts pressure other than the leadership, because the people in iran are feeling this pressure themselves. and you see that in, you know, iran's gdp, which is, lags well behind its peers, as, you know, other countries that are oil exporters have been frankly doing well in an environment of increasing oil prices, iran hasn't. you can see it in the unemployment in iran which is steadily increasing. you can see it in the overall difficulty iran has today in interacting with the international financial community and financial 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 new-found apparent willingness of iran to at least come to the table. you know, i don't think anybody is naive here in thinking that we have, you know, turned a major corner. but, you know, the meeting that was held in istanbul several weeks ago, you know, the iranians came, seemed to be at least willing to engage in a conversation. the proof of the pudding is in the eating. when they see what happens in baghdad, see what happens going forward, in the meantime, we are going to continue to maintain the pressure, because i think, as i said, there's no doubt that the pressure that has been applied has been at least in part a contributing factor to getting us to where we are today. >> and you have the convergence

of several events coming this summer. right? you have, obviously, baghdad in the meetings that are coming up. you have the triggering of mechanism in terms of sanctions on banks in the legislation coming june 28th and then you have the oil embargo from the european union triggered on july 1st. >> right. >> what do you see as treasury policy sort of given those seminole events coming up in the next few weeks? >> yeah. i mean, those are, in particular, this june 28th date is very important. that's the date under the ndaa, under the new legislation, after which any country that purchase oil from iran and pays to the central bank of iran for its oil. whatever financial institution is involved in that transaction can be sanctioned under this new legislation, unless the country involved has significantly reduced its oil imports from

iran and the secretary of state make as 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 oil for 180 days. then they need to demonstrate again that they're significantly reducing. the idea being to drive down the amount of oil that iran is able to sell. for countries that don't receive significant reduction determination, 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 determinations. surely some of them will. maybe all of them will.

but maybe not. we'll see how that develops, but we have seen some efforts and there was an article yesterday that i saw that reflected this. efforts to develop alternative payment mechanisms, just to try and sort of evade the stricters of the ndaa. and in this particular one the idea was that 20% of iran's oil would be sold by some other entity in iran. some private entity in iran, not the national oil company, which is the government ministry that owns all the oil. i think it's fair to say that we are going to be very skeptical about efforts to develop alternative payments mechanisms. premised on the fact that under iranian law, it says that all revenues earned by any

government ministry have to be paid to the central bank of iran, and the oil resources are owned by the national iranian oil company. so i think our presumption going in is anyone buying oil from iran is 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, as i said, quite -- quite skeptical of efforts to pay, you know, purport to pay someone other than the central bank of iran for iranian oil. >> that's an important point, because you're signaling a maximalist interpretation of the signatures and looking carefully of the steps to evade it? >> i don't know if it's maximalist or just applying the liu as the way it's written which says anyone who make as

knowing transactions with the central bank of iran for oil is subject to sanctions and we have made clear that, you know that means direct or indirect and that means 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 on iran brn 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 sanctions or pressure is on the table. can you talk about, you know, what that cal cue lik cal cue s we went through this an episode with north korea with episodes that began to impinge strictly on pyongyang, and unwound unwisely. but there are historical lessons how you do the unwinding as part of a negotiation. 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 will occur at baghdad and perhaps thereafter. i know we are pursuing this entire endeavor in the construct of this dual track strategy, which, you know, engagement on the one hand, pressure other than the other. but as we have, you know, said all along, the purpose of pressure isn't pressure itself. we're nort appliesing sanctions for the sake of appliesing sanctions. we're applying sanctions to try and induce as 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, you know -- of course, in the context of the

p5 -- the five permanent members of the security council plus germany are part of the negotiations with us, we are pursuing that in the context of this dual track strategy where pressure is there to try and induce a behavioral change. that has been the objective from the outset and, you know, remains the objective. >> shifting gears a little bit to the arab revolution, the arab spring. whatever we call it these days. not quite sure, but treasury's plays a fairly central role in the midst of that tumult as well. freezing of libyan assets, for example, well over $30 billion suggest consent successful treasury, but now centrally in the context of our strategy with respect to the assad regime until syria, people are looking to and talking about the financial pressures frankly really the only tool we're applying to try to effect change there. can you talk to us about what the next steps are with respect

toll 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 they in syria the only tool that 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 about a year ago. even more than a year ago in syria. we have adopted three new sanctions programs on syria in that period. the sanctions program specifically forke cused on hum rights abuses in syria, which i should add has led to a number of defsignations 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 eu has undertaken to apply financial pressure and sanctions on syria, that turkey has undertake ton 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 additions 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 eu, turkey and 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 -- more than, 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 -- the purpose is to enhance and increase the financial pressure on syria. and, you know, it is having an impact. you know, again, so the macroeconomic indicators in syria are much like what you see in iran. you you know, 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% in the, on the unofficial market. you know, their budget deficit is widening substantially, because the sources of revenue for the syrian government, which are largely oil exports and tourism and taxes and tourisms, have almost completely dried up. they're not earning -- basically not earning any money from their oil or from their tourist industry. that is, you know, obviously on the revenue side, they're not -- they're not earning and on the expend chirp side they're spending money to try and keep inflation down by subsidizing

food and fuel and they're spending a lot of money, frankly, pursuing the violence against their own people. and the combined effectiveness 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, important objectives that we're pursuing through these sanctions. >> an interesting core lehr to th

corelarry is an action you used, the patriot act authorities, to designate a bank, the lebanese canadian bank as a primary of money laundering and concerns along with the dea to unkovary drug money laundering scheme, hundreds of millions of dollars worth and you were recently in beirut and a lot of attention on treasury's focus on the lebanese banking system as a hub for syrian and iranian activity. nothing new or surprising, of course, but can you talk to us about some next steps you're theiring 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 sort of put it into the two buckets. swun one is continued focus on the use of the lebanese financial system for the sorts of money laundering and elicit finance activities that were the

focus of the lebanese bank action. you know, that was an action taken against a bank that was centrally involved in an enormous international drug money laundering scheme, running money through the united states and, you know, involves used cars being sold into africa. it 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 traded, 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 illicit activity. so that's one bucket, and we're continue 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 bucket is syria and iran. and we have been as clear as we possibly could be with the lebanese 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. likewise, as iran is under increasing financial pressure around has lost access to financial centers around the world, um, you know, we are concerned that the iranians 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 that's something that we are very attentive to and will respond to if we have the president kags. president casian. president kags. president predication. >> 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'd like them to be on some of these issue, whether it's north korea, iran, syria, and how do you contend with the fact that their economy is rising, their banking sector is powerful, and they, in some ways 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 formal policy and national security issues that we have. you know, we have on our plate. at one level we deal with the chinese the exact same way we deal with everybody else on these 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 prose wicros with us. but 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 you know, 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 combating illicit finance. the importance of financial integrity and the importance of maintaining reputation, because that is what, you know, will assist them as they want to be

players on the international financial stage. so, you know, we approach the chinese, as i said, in the same fashion as we approach other countries on that issue, and, you know, and we will continue to do that. >> you raise a great point, because i think one of the keys to your success is the rec nation reputation is the coin of the realm when talking about the international financial system and those who want to the appear legitimate. >> right. >> that's good. well, i think that's enough questions from me. i've got about 20 other ice could ask, david, but why don't with start with confequestions d ask you to wait for a microphone, identify yourself and then pose a question. we've got several hands up. start up front. please. >> mr. secretary, csic, 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 about $10,000. for that they mobilized a $1 million warship, killed sailors, ship out of action for two years, and in that context, the system is, of course, very important and when the treasury, told knme that was the single biggest problem. can you tell me what headway you've made on this system? >> yagreat question. the hawala 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 essentially through communications between trusted partners. sort of its akin to western

union, but somewhat more -- somewhat more simplified system. we are focused particularly on the use of the hawala system, you know, domestically and internationally. it exists all around the world in different ways. what makes it difficult is, it is, in some respects, a little below the threshold. it's not -- it isn't because it's not part of the formal financial sector. 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 company, the hawalas, that may be involved in moving money, moving fundsen 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's involved in this activity. so, yeah. to get to your, you know, your question specifically, it remains something that we are very much focused on. in some respects our success in combating terrorist financing through the formal financial sector has revealed this alternative mechanism from

moving money, and, you know, this is -- this effort is ongoing. you know, we're not -- i don't think we have the, you know, the view that we are going to, you know, 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? microphone's right there. >> thank you. with's cnn. thanks for your comments. i wondered if you could flush out more on syria. specifically, are you seeing any capital flight? are you seeing any indication that the business class is truly abn d abandon s assad and what is the

tipping point? anytime soon? and the question about talking about iran and lebanon in terms of using their banking systems and trying to help syria circumvent the sanctions but what ar countries like russia that are an ally of ours but certainly are supporting the regime to sustain itself? thanks. >> yes. so we -- there has been some capital flight from the 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 supporters of the regime, who want to leave syria and take their money with them. there's no reason 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

crony, its allies, who may be trying to, you know, 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 that we have made is that they need to exercise you know, extra special diligence on transactions with syria to ensure that, you know, good money is able to leave. bad money is not. so we are seeing some capital flight. the -- you know, the desire is to improve the overall power and effectiveness of the sanctions programs that have been adopted by, as i noted, the arab league.

turkey, eu, as well as the united states, to continue to generate the, you know, the choice of the business class there, to withdraw from the regime and leave syria. to leave syria with their money. >> your second question was about other financial sectors other than lebanon. i guess what i would say is t t that, you know, our view that no financial sector should provide a safe haven for the syrian regime applies across the board. and i'll just leave it at that. >> doctor? >> thank you, mr. undersecretary. one of the major causes of the arab uprise hag been the abuse of money by