U.S. Senate Severely Limits U.S. Companies From Dealing With Terrorist-Supporting States

By Andrew Cochran

By a vote of 98-0, the U.S. Senate today approved a measure proposed by Sen. Susan Collins (R-ME) to sharply limit U.S. companies from doing business with states that support terrorism. The measure, an amendment to the FY 2006 Defense Department authorization bill, would prohibit U.S. companies from forming shell companies to circumvent sanctions against countries designated by the State Department. The measure would also bar U.S. companies from direct involvement with existing foreign subsidiaries which conduct business with terrorist-supporting states. The Collins Amendment is not as stringent as one proposed by Sen. Frank Lautenberg (D-NJ), but his measure was heavily opposed by the Administration as overly broad and inviting of foreign retaliation. The text of the bill and Sen. Collins's floor statement yesterday on her amendment (the final vote was delayed until today) follow.

" SEC. __. PROHIBITION ON ENGAGING IN CERTAIN TRANSACTIONS.
(a) Application of IEEPA Prohibitions to Those Attempting to Evade or Avoid the Prohibitions.--Section 206 of the International Emergency Economic Powers Act (50 U.S.C. 1705) is amended to read as follows:

PENALTIES
SEC. 206.
(a) It shall be unlawful for--
(1) a person to violate or attempt to violate any license, order, regulation, or prohibition issued under this title;
(2) a person subject to the jurisdiction of the United States to take any action to evade or avoid, or attempt to evade or avoid, a license, order, regulation, or prohibition issued this title; or
(3) a person subject to the jurisdiction of the United States to approve, facilitate, or provide financing for any action, regardless of who initiates or completes the action, if it would be unlawful for such person to initiate or complete the action.
(b) A civil penalty of not to exceed $250,000 may be imposed on any person who commits an unlawful act described in paragraph (1), (2), or (3) of subsection (a).
(c) A person who willfully commits, or willfully attempts to commit, an unlawful act described in paragraph (1), (2), or (3) of subsection (a) shall, upon conviction, be fined not more than $500,000, or a natural person, may be imprisoned not more than 10 years, or both; and any officer, director, or agent of any person who knowingly participates, or attempts to participate, in such unlawful act may be punished by a like fine, imprisonment, or both.''.

(b) Production of Records.--Section 203(a)(2) of the International Emergency Economic Powers Act (50 U.S.C. 1702(a)(2)) is amended to read as follows:
(2) In exercising the authorities granted by paragraph (1), the President may require any person to keep a full record of, and to furnish under oath, in the form of reports, testimony, answers to questions, or otherwise, complete information relative to any act or transaction referred to in paragraph (1), either before, during, or after the completion thereof, or relative to any interest in foreign property, or relative to any property in which any foreign country or any national thereof has or has had any interest, or as may be otherwise necessary to enforce the provisions of such paragraph. The President may require by subpoena or otherwise the production under oath by any person of all such information, reports, testimony, or answers to questions, as well as the production of any required books of accounts, records, contracts, letters, memoranda, or other papers, in the custody or control of any person. The subpoena or other requirement, in the case of contumacy or refusal to obey, shall be enforceable by order of any appropriate United States district court.''.

(c) Clarification of Jurisdiction To Address IEEPA Violations.--Section 203 of the International Emergency Economic Powers Act (50 U.S.C. 1702) is further amended by adding at the end the following:

(d) The district courts of the United States shall have jurisdiction to issue such process described in subsection (a)(2) as may be necessary and proper in the premises to enforce the provisions of this title.''

Ms. COLLINS. Mr. President, I rise to offer a second-degree amendment to the amendment offered by the distinguished Senator from New Jersey, Mr. Lautenberg. While I take a slightly different approach than my colleague from New Jersey, I wish to be clear that my intent is very similar to his; that is, to close loopholes in current U.S. law that allow U.S. firms to do business in terrorist nations or nations that are known to sponsor terrorism and are under U.S. sanctions.

Denying business investment to states that finance or otherwise support terrorist activities, such as Syria, Iran, or Sudan, is critical to the war on terrorism. The United States has had sanctions in place on the Iranian Government for a long time and for good reasons. These sanctions prohibit U.S. citizens and U.S. corporations from doing business in Iran, a nation known as a state sponsor of terrorism. I fully support the use of these sanctions to deny terrorist states funding and investment from American companies.

Currently, U.S. sanctions provisions in the International Emergency Economic Powers Act prohibit U.S. companies from conducting business with nations that are listed on the terrorist sponsor list. The law does not specifically bar foreign subsidiaries of American companies from doing business with terrorist-supporting nations, as long as these subsidiaries are considered truly independent of the parent company.

There have, however, been reports that some U.S. companies have exploited this exception in the law by creating foreign subsidiaries of U.S. companies in order to do business with such nations. The allegations are that these foreign subsidiaries are formed and incorporated overseas for the specific purpose of bypassing U.S. sanctions laws that prohibit American corporations from doing business with terrorist-sponsoring nations such as Syria and Iran. There is no doubt that this practice cannot be allowed to continue.

I supported Senator Lautenberg's amendment last year because it was the only proposal before us to deal with this very real problem. The Senator from New Jersey has been very eloquent in speaking about this exploitation of the exceptions in the current sanctions laws. The examples that we have heard, where American firms simply create new shell corporations to execute transactions that they themselves are prohibited from engaging in, are truly outrageous. Clearly, the law does need to be tightened. But we need to be careful about how we go about addressing this problem. I have long felt that while the Senator from New Jersey is correct in his intentions, the specific language of his amendment needs improvement.

We have worked very closely--my staff and I--during the past 6 months, with the administration to draft a proposal that closes the loophole without overreaching. We must draft this measure in a manner that gets at these egregious cases that are so outrageous without overstepping the traditional legal notions of jurisdiction. Otherwise, we may find ourselves harming the war on terror rather than helping.

Some truly independent foreign subsidiaries are incorporated under the laws of the country in which they do business and are subject to that country's laws, to that legal jurisdiction. There is a great deal of difference between a corporation set up in a day, without any real employees or assets, and one that has been in existence for many years and that gets purchased, in part, by a U.S. firm. That foreign company may even be an American firm with a controlling interest in that foreign company, but under the law, it is still considered to be a foreign corporation.

Senator Lautenberg's proposal requires foreign subsidiaries and their parents to obey both U.S. and applicable foreign law at the same time, even if they are in conflict. Not only does this complicate our relations with other countries, it also puts U.S. subsidiaries of foreign parent companies in danger of being subjected to other nations' laws in retaliation. It also raises all sorts of questions when there are conflicts in the two sets of laws. At a time when we are seeking the maximum active foreign cooperation possible in the global war against terrorism, exerting U.S. law over all foreign companies owned or controlled by U.S. firms and their foreign operations seems to be an imprudent and excessive move. The administration agrees.

Rather than simply declaring many foreign entities subject to U.S. law regardless of their particular situation, my amendment would take four strong steps to improve U.S. sanctions laws--specifically, the International Emergency Economic Powers Act--without raising the concerns that come forth if we take the approach recommended by Senator Lautenberg.

First, my amendment would prohibit any action by a U.S. firm that would avoid or evade U.S. sanctions. This would clearly prohibit the creation of a new shell company for the purposes of evading U.S. sanctions, a situation that has occurred and that we need to prevent.

Second, my amendment would prohibit American firms from ``approving, facilitating or financing'' actions that would violate U.S. sanctions laws if undertaken by a U.S. firm. This would prohibit any involvement by a U.S. parent firm with an existing subsidiary that was engaged in a transaction that violated the International Emergency Economic Powers Act. In order to comply with the law, the U.S. parent firm would need to be totally passive in any transaction. But if the American firm is, in fact, approving the actions of that foreign subsidiary that is doing business in a prohibited country or facilitating it in any way--that is a pretty broad word--or financing those prohibited actions, that would be a violation of our law.

Third, my amendment would increase the maximum penalties per violation under the act from $10,000 to $250,000 for a civil violation and from $50,000 to $500,000. For companies who think that the risk of getting caught is worth it, they will need to think again because now the penalties are sufficient that they have real bite.

Finally, our amendment would provide explicit subpoena authority to obtain records related to transactions covered by the act. Right now, there has been a difficulty in enforcing the sanctions in terms of getting the information that is needed. This would provide subpoena power.

Specifically, by increasing penalties and providing for explicit subpoena authority, I believe my amendment results in a much stronger sanctions regime but without invoking many of the concerns that have been voiced with regard to Senator Lautenberg's amendment.

Again, I want to make clear that I think the goals of the Senator from New Jersey and myself are very similar. The question is how to craft a solution that addresses the problem without overreaching and without causing the possibility of a foreign country retaliating against the American subsidiaries of that country's firm.

I believe that my amendment is the right approach to this critical problem. It will make clear that U.S. corporations cannot circumvent U.S. law. They cannot set up phony shell corporations for the purpose of evading the law. They can't direct a foreign subsidiary to do what they are prohibited from doing under our laws. It will also greatly strengthen and improve the enforcement of the law through the increase in penalties and by vesting subpoena power. At the same time, my approach is carefully crafted to avoid unintended consequences that will harm our relations with our international allies.

I encourage my colleagues to support this balanced approach.

TrackBack