http://thecable.foreignpolicy.com/posts/2011/03/10/senators_demand_to_know_if_state_dept_will_punish_chinese_firms_doing_business_with

The wide-ranging sanctions law passed by Congress and signed into law by President Barack Obama last July calls for the administration to punish companies from third-party countries that are still doing business in Iran. However, U.S. senators still aren’t sure whether the administration will follow through with this punishment, especially when it comes to companies in China.

A bipartisan group of 10 U.S. senators, led by Sens. John Kyl (R-KY) and Robert Menendez (D-NJ), wrote to Secretary of State Hillary Clinton on Thursday to demand an update on the State Department’s investigation into these companies’ ongoing business with the Iranian regime. Their letter was subsequently obtained by The Cable. Deputy Secretary of State James Steinberg announced that State’s investigation began on Sept. 29, which means that law requires the results to arrive by March 29, the senators wrote.

“It appears that Chinese firms in the energy and banking sectors have conducted significant activity in violation of U.S. law,” the senators stated. “We cannot afford to create the impression that China will be given free rein to conduct economic activity in Iran when more responsible nations have chosen to follow the course we have asked of them. We are sure you agree.”

The State Department’s Bob Einhorn is briefing senators on Capitol Hill on this very issue on Friday, a senior GOP Senate aide told The Cable.

In remarks at the Carnegie Endowment for International Peace on Wednesday, Einhorn addressed the issue directly, saying that “we continue to have concerns about the transfer of proliferation-sensitive equipment and materials to Iran by Chinese companies, there is substantial evidence that Beijing has taken a cautious, go-slow approach toward its energy cooperation with Iran.”

That explanation won’t be enough to satisfy the senators’ demands for more active confrontation if Chinese companies are indeed flouting sanctions.

One of the main concerns on Capitol Hill is that as countries pull out from Iran, other countries will take over contracts, thereby nullifying the effect of the sanctions — a practice known as “backfilling.”

For example, the administration and Congress worked hard to convince Japan and South Korea to impose unilateral measures against Iran. However, there’s particular concern that China firms will simply come in and take over those contracts.

Kyl and Sen. Chuck Schumer (D-NY) sent a letter to Clinton last October on this very issue, noting reports that China National Petroleum Company (CNPC) replaced the Japanese firm Inpex and agreed to invest around $2 billion to develop Iran’s South Azadegan oil fields last year.

One week later, the Government Accountability Office (GAO) released a report that identified 16 companies that sold petroleum products to Iran between Jan. 1, 2009, and June 30, 2010. Of those 16, the GAO reported that five have shown no signs of curtailing business with Iran. Three of those companies are based in China, one in Singapore, and one in the UAE.

Other lawmakers who have pressed the administration to enforce Iran sanctions against China include Sens. Joe Lieberman (I-CT), Susan Collins (R-ME), Mark Kirk (R-IL), and Rep. Howard Berman (D-CA).

“Clearly, Congress — on both sides of the aisle — is losing patience and expects the administration to act,” said Josh Block, a senior fellow at the Progressive Policy Institute and former spokesman for AIPAC. “If not, what kind of message are we sending to these companies in China and Venezuela and Turkey and elsewhere — and their governments — that are helping Iran break international isolation?”