[House Report 110-163]
[From the U.S. Government Publishing Office]
110th Congress Rept. 110-163
HOUSE OF REPRESENTATIVES
1st Session Part I
======================================================================
EXPANSION AND CLARIFICATION OF ENTITIES AGAINST WHICH SANCTIONS MAY BE
IMPOSED PURSUANT TO THE IRAN SANCTIONS ACT OF 1996
_______
May 22, 2007.--Ordered to be printed
_______
Mr. Lantos, from the Committee on Foreign Affairs, submitted the
following
R E P O R T
[To accompany H.R. 957]
[Including cost estimate of the Congressional Budget Office]
The Committee on Foreign Affairs, to whom was referred the
bill (H.R. 957) to amend the Iran Sanctions Act of 1996 to
expand and clarify the entities against which sanctions may be
imposed, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
pass.
TABLE OF CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Hearings and Briefings........................................... 4
Committee Consideration.......................................... 4
Votes of the Committee........................................... 4
Committee Oversight Findings..................................... 4
New Budget Authority and Tax Expenditures........................ 4
Congressional Budget Office Cost Estimate........................ 4
Performance Goals and Objectives................................. 5
Constitutional Authority Statement............................... 5
New Advisory Committees.......................................... 5
Congressional Accountability Act................................. 5
Section-by-Section Analysis...................................... 5
Changes in Existing Law Made by the Bill, as Reported............ 6
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. EXPANSION AND CLARIFICATION OF ENTITIES AGAINST WHICH
SANCTIONS MAY BE IMPOSED PURSUANT TO THE IRAN
SANCTIONS ACT OF 1996.
Section 14 of the Iran Sanctions Act of 1996 (50 U.S.C. 1701 note) is
amended--
(1) in paragraph (13)(B)--
(A) by inserting after ``trust,'' the following:
``financial institution, insurer, underwriter,
guarantor, any other business organization, including
any foreign subsidiaries of the foregoing,''; and
(B) by inserting before the semicolon at the end the
following: ``, such as an export credit agency''; and
(2) in paragraph (14), by inserting after ``petroleum'' the
second place it appears the following: ``, petroleum by-
products, liquified natural gas,''.
SEC. 2. LIABILITY OF PARENT COMPANIES FOR VIOLATIONS OF SANCTIONS BY
FOREIGN ENTITIES.
(a) In General.--In any case in which an entity engages in an act
outside the United States which, if committed in the United States or
by a United States person, would violate Executive Order No. 12959 of
May 6, 1995, Executive Order No. 13059 of August 19, 1997, or any other
prohibition on transactions with respect to Iran that is imposed under
the International Emergency Economic Powers Act (50 U.S.C. 1701 et
seq.) and if that entity was created or availed of for the purpose of
engaging in such an act, the parent company of that entity shall be
subject to the penalties for such violation to the same extent as if
the parent company had engaged in that act.
(b) Definitions.--In this section--
(1) an entity is a ``parent company'' of another entity if it
owns, directly or indirectly, more than 50 percent of the
equity interest in that other entity and is a United States
person; and
(2) the term ``entity'' means a partnership, association,
trust, joint venture, corporation, or other organization.
Purpose and Summary
H.R. 957, to amend the Iran Sanctions Act of 1996 to expand
and clarify the entities against which sanctions may be
imposed, strengthens two earlier laws regarding Iran sanctions:
the Iran and Libya Sanctions Act of 1996, and the Iran Freedom
Support Act. On February 15, 2007, H.R. 957 was considered by
the Committee on Foreign Affairs, and reported favorably to the
House, as amended.
Iran poses a significant threat to the United States and
our allies in the region. It is a vital U.S. national security
priority to undertake steps to prevent Iran from acquiring
weapons of mass destruction, in particular nuclear weapons, and
to end its support for international terrorism.
Iran's economy, and its ability to influence events, is
heavily dependent on the revenue derived from energy exports.
As such, recent U.S. efforts to prevent Iran from acquiring
weapons of mass destruction have focused on deterring and
prohibiting investment in Iran's petroleum sector.
Although U.S. law prohibits American firms from investing
in Iran, foreign entities which fall outside of United States
jurisdiction continue to invest there. Such activity has
enhanced the Iranian economy, allowed Iran access to
sophisticated technology and know-how, as well as foreign
currency, and thereby contributed significantly to Iran's
ability to fund terror groups, and to finance the regime's
weapons of mass destruction programs, including its nuclear
program.
To address this problem, Congress passed, and President
Bill Clinton signed into law, Public Law 104-172, the ``Iran
and Libya Sanctions Act of 1996'' (ILSA). The purpose of this
law was to discourage foreign entities from investing in Iran's
petroleum sector by imposing certain sanctions on them.
However, since its enactment, not a single entity has been
sanctioned pursuant to P.L. 104-172. Presidential authority has
been used to waive sanctions against foreign entities investing
in Iran's petroleum sector, and a number of investigations of
possible investment in Iran remain active.
To further strengthen sanctions targeting these
investments, on September 30, 2006, Congress passed, and
President George W. Bush signed into law, Public Law 109-293,
the ``Iran Freedom Support Act'' (IFSA).
Among other provisions, the IFSA strengthened sanctions
under the Iran Sanctions Act (``ISA''--as the former ``Iran and
Libya Sanctions Act of 2006'' is now known), including by
raising certain waiver thresholds to ``vital to the national
security interests of the United States,'' by enlarging the
scope of those who might be subject to sanctions, and by
enhancing tools for using financial means to address Iran's
activities of concern.
Since enactment of Public Law 109-293, there have been
multiple reports of memoranda of understanding regarding
investment deals in Iran's energy sector that would be in
violation of the ISA. Some of the firms named include Royal
Dutch Shell Oil Company, China's National Offshore Oil
Corporation (CNOOC), Australian LNG Co., and Malaysia's SKS. In
many of these proposed investment deals, foreign governments
and export credit agencies helped subsidize these investments.
In February 2007, Gregory L. Schulte, the chief U.S.
representative to the International Atomic Energy Agency,
called on European governments to cease giving credits to
``subsidize exports to Iran,'' and to take ``more measures to
discourage investment and financial transactions'' with Iran.
The enacted version of IFSA did not include language that
would make export credit agencies, insurers, and other
financial institutions subject to sanctions for their
facilitation of investments in Iran's oil industry. To address
these gaps, the House Foreign Affairs Committee passed H.R.
957. This bill also expands the activities covered under the
law to include production of petrochemicals and liquefied
natural gas.
Although the IFSA codified Section 3 of Executive Order
12959 (which authorizes the Secretary of the Treasury to take
legal action against United States persons based on oil
transactions engaged in by their foreign affiliates with Iran),
and Section 2(f) of Executive Order 13059 (which includes
foreign subsidiaries as entities subject to sanctions for
violating U.S. law), concerns remained that existing law
required the clarification that sanctions under the ISA should
apply to certain foreign subsidiaries of U.S. companies.
To eliminate these concerns, H.R. 957 was amended by an
Amendment in the Nature of a Substitute, which was adopted
during consideration of the bill by the House Foreign Affairs
Committee on February 15, 2007. The amendment provided for
imposition of liability on parent companies for violations of
sanctions by their foreign subsidiaries.
Hearings and Briefings
In recent years, the Full Committee has held several
hearings regarding Iran:
February 26, 2003 (Russia's Policies Toward the Axis of
Evil: Money and Geopolitics in Iraq and Iran); June 4, 2003
(U.S. Nonproliferation Policy After Iraq); March 30, 2004 (The
Bush Administration and Nonproliferation: A New Strategy
Emerges); and February 16, 2005 and March 8, 2006 (both
entitled `United States Policy Toward Iran--Next Steps'). The
Full Committee recently held a briefing about Iran--January 11,
2007 (Next Steps in the Iran Crisis), and a hearing--January
31, 2007 (Understanding the Iran Crisis).
Committee Consideration
On February 15, 2007, the Full Committee marked up the
bill, H.R. 957, pursuant to notice, in open session. The
Committee agreed to a motion to favorably report the bill, as
amended, by a voice vote, a quorum being present.
Votes of the Committee
There were no recorded votes taken during consideration of
H.R. 957.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee reports that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House Rule XIII is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 957, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
February 27, 2007
H.R. 957--To amend the Iran Sanctions Act of 1996 to expand and clarify
the entities against which sanctions may be imposed
H.R. 957 would amend current law to expand the definition
of persons who are subject to sanctions for making investments
that increase Iran's ability to develop its petroleum
resources. The new definition would add financial institutions,
insurers, underwriters, guarantors, and any other business
organizations, including any foreign subsidiaries, to the list
of entities already barred from investing in Iran. The bill
also would add several petroleum by-products to the definition
of petroleum resources. Finally, the bill would make parent
companies that create entities to invest in Iran subject to the
same penalties that would apply if the parent company had
actually engaged in such activity. The provisions of H.R. 957
would codify existing prohibitions on the private sector that
are contained in Executive Orders 12957, 12959, and 13059.
CBO estimates that enacting H.R. 957 would have no
significant budgetary effect. H.R. 957 contains no
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA) and would not affect the budgets of state,
local, or tribal governments. This bill contains no new
private-sector mandates as defined in UMRA.
The CBO staff contact for this estimate is Sam Papenfuss.
This estimate was approved by Robert A. Sunshine, Assistant
Director for Budget Analysis.
Intergovernmental and Private Sector Impact
H.R. 957 contains no intergovernmental or private-sector
mandates as defined in UMRA and would not affect the budgets of
state, local, or tribal governments
Performance Goals and Objectives
Pursuant to clause (3)(c) of House rule XIII, upon
enactment of this legislation, the Department of State should
expand its investigation of violations under the Iran Sanctions
Act to include financing of investments in Iran's energy
sector.
Constitutional Authority Statement
Pursuant to clause 3(d) (1) of rule XIII of the Rules of
the House of Representatives, the Committee finds the authority
for this legislation in article I, section 8 of the
Constitution.
New Advisory Committees
H.R. 957 does not establish or authorize any new advisory
committees.
Congressional Accountability Act
H.R. 957 does not apply to the Legislative Branch.
Earmark Identification
H.R. 957 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9(d), 9(e), or 9(f) of rule XXI.
Section-by-Section Analysis
Section 1. Expansion and Clarification of Entities Against Which
Sanctions May be Imposed Pursuant to the Iran Sanctions Act of
1996.
Section 1 amends Section 14 of the Iran Sanctions Act of
1996 by adding financial institutions, guarantors, export
credit agencies and any other business organizations, including
any of their foreign subsidiaries, as subject to sanctions.
Section 2. Liability of Parent Companies for Violations of Sanctions by
Foreign Entities.
Section 2 requires that a parent company be subject to
sanctions for the activities committed by its foreign
subsidiary, if those activities, were they committed by the
parent company itself, would be in violation of U.S. law.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italics and existing law in which no change is
proposed is shown in roman):
SECTION 14 OF THE IRAN SANCTIONS ACT OF 1996
SEC. 14. DEFINITIONS.
As used in this Act:
(1) * * *
* * * * * * *
(13) Person.--The term ``person'' means--
(A) a natural person;
(B) a corporation, business association,
partnership, society, trust, financial
institution, insurer, underwriter, guarantor,
any other business organization, including any
foreign subsidiaries of the foregoing, any
other nongovernmental entity, organization, or
group, and any governmental entity operating as
a business enterprise, such as an export credit
agency; and
* * * * * * *
(14) Petroleum resources.--The term ``petroleum
resources'' includes petroleum, petroleum by-products,
liquified natural gas, and natural gas resources.
* * * * * * *