[Congressional Record Volume 142, Number 14 (Thursday, February 1, 1996)]
[Senate]
[Pages S737-S742]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. BROWN:
  S. 1549. A bill to improve regulation of the purchase and sale of 
municipal securities, and for other purposes; to the Committee on 
Banking, Housing, and Urban Affairs.


        the municipal securities investor protection act of 1996

  Mr. BROWN. Mr. President, I rise to offer a bill to protect municipal 
securities investors.
  The Securities Act of 1933, and the Exchange Act of 1934 were drafted 
in response to the stock market crash of 1929. Congress passed the 1933 
and 1934 acts to prevent fraud in the securities markets and ensure 
uniform and reliable information for investors. At that time however, 
Congress decided to exempt the relatively insignificant municipal 
securities market from new laws, because unlike corporations, the 
States, cities, and counties issuing bonds could back their obligations 
with their power to raise taxes.
  Now, with over 52,000 municipal issuers, and $1.2 trillion in 
outstanding debt obligations, the municipal securities market in one of 
the largest unregulated markets in the world. Complex financing 
arrangements are created behind the shelter of the municipal securities 
exemption. Over 70 percent of all municipal bonds are revenue bonds, 
backed not by tax revenues, but the isolated revenues of special 
projects like toll roads, powerplants and airports. Revenue bonds for 
major projects can exceed $1 billion, and are often bought and sold 
internationally by individuals, corporations, banks, and governments. 
These revenue bonds present many of the same investment risks as 
corporate enterprises, but because they are municipal securities, they 
are subject only to voluntary market guidelines and the SEC's authority 
to prevent fraud.
  Since its inception, people have questioned whether the Security and 
Exchange Commission's lack of authority over the municipal securities 
market was adequate to protect investors. A 1993 staff report of the 
Securities and Exchange Commission examined that question and commented 
on the shortcomings of the SEC's authority: ``Because of the voluntary 
nature of municipal issuers disclosure, there is a marked variance in 
the quality of disclosure, during both the primary offering stage and 
in the secondary market.'' Other groups have echoed the SEC's 
sentiment. The Public Securities Association testified that, 
``secondary market information is difficult to come by even for 
professional municipal credit analysts, to say nothing of retail 
investors.'' The SEC staff concluded that while the SEC could take 
steps to improve disclosure, any comprehensive changes to the existing 
system would require congressional action.
  The SEC took an indirect step toward improving municipal securities 
disclosure when it began enforcing 15c2-12 last summer. That rule 
requires municipal securities dealers to contract with issuers for the 
provision of disclosure documents and annual reports. These regulations 
however, fall short of the protections offered investors in the 1933 
and 1934 acts because they do not give the SEC the authority to review 
municipal disclosures, regulate content, or require continuing 
disclosure of financial information.
  This bill would take additional steps toward full disclosure. Under 
my proposal, a municipal security issuer who offers more than $1 
billion in related securities, but does not pledge its taxing authority 
toward repayment of the obligations, must conform to the registration 
and continuous reporting requirements of the Securities Act of 1933 and 
the Exchange Act of 1934. In other words, when a municipal issuer acts 
like a corporation by pledging the revenues of a particular project 
toward repayment of debt, it should be treated like a corporation.
  Recent collapses in the municipal securities market underline the 
need for congressional action:
  New York: After issuing record levels of debt from 1974 through 1975, 
New York City was unable to issue additional debt to cover maturing 
obligations. As a result, $4 billion of the city's short-term bonds 
lost over 45 percent of their value by December 1975, and interest 
rates for municipalities across the Northeast and Mid-Atlantic regions 
rose 0.05 percent. The subsequent SEC investigation uncovered distorted 
financial information including a systematic overstatement of revenues.
  Washington Public Power Supply System: With an initial cost estimate 
of $2.25 billion to build nuclear reactors, the Washington Public Power 
Supply System issued bonds between 1977 and 1981. By the time the final 
bond sale was issued, the project's estimated cost exceeded $12 
billion. Construction was halted, the WPPSS went into default, and the 
SEC began investigating the WPPSS's disclosure practices.
  The SEC found that the WPPSS had mislead investors by not releasing 
reports about cost overruns, that underwriters failed to critically 
analyze the information provided by the WPPSS, that bond rating 
agencies failed to conduct due diligence to confirm WPPSS information, 
and that attorneys provided unqualified legal opinions as to the 
validity of the financing agreements. Ultimately no enforcement action 
was taken because several class action civil suits concluded with the 
Federal district court approving a $580 million global settlement.

  Orange County: In 1994, a lack of disclosure led many investors of 
Orange County bonds to be surprised when the Orange County investment 
fund declared bankruptcy. The fund's risky investments in derivatives 
led to a loss of over $1.7 billion and put every debt obligation of the 
county at risk.
  Denver International Airport: Original plans called for Denver to 
finance its new $1.3 billion international airport with bonds backed by 
operation revenues following its October 1993 opening. The actual cost 
of the Denver International Airport [DIA] exceeded 

[[Page S738]]
$4.8 billion and construction delays postponed its opening to February 
28, 1995. Questions regarding contracting practices, construction 
problems, and delays caused by its high-technology baggage system led 
to several Federal and State investigations and class action lawsuits, 
including an investigation by the SEC to review Denver's knowledge and 
disclosure of delays with the baggage system.
  These examples demonstrate how the voluntary nature of the municipal 
market is failing to adequately inform investors. Whereas updated, 
accurate information is readily available to investors of corporate 
securities, municipal securities investors are often caught offguard 
and unaware of the risks associated with their investment. Current law 
only encourages municipalities to comply with the voluntary guidelines 
of the Government Finance Officers Association, and only requires 
disclosure of facts so as not to violate the antifraud provisions of 
the 1933 and 1934 acts. In other words, municipal issuers are under no 
obligation to provide annual financial information, conform to 
generally accepted accounting principals, or report conflicts of 
interest. In addition, disclosure is only necessary to avoid making a 
material misstatements of fact, a standard which some commentators 
argue is met by remaining silent even as material events and facts 
change. The end result can be uniformed investors who suffer losses 
from undisclosed risks.
  This legislation is designed to protect investors by requiring 
municipal issuers who act like corporations to meet the same 
requirements as corporations. Instead of receiving guidance from 
voluntary standards, municipalities and investors would have the 
benefit of mandatory guidelines and requirements for judging what 
information needs to be disclosed and what form it needs to take. 
Instead of relying on documents which can be outdated and unaudited, 
investors would be able to review the latest numbers when analyzing 
risk. The end result would be greater information for investors, more 
security for issuers, and lower cost for consumers.
  In Denver's case, the requirements of the 1933 and 1934 acts could 
have eliminated some of the problems the city now faces. Since issuers 
under the 1933 act are strictly liable for misinformation in their 
documents, the city would have taken extra precautions to accurately 
disclose information in a timely manner--a practice which could have 
prevented the facts driving the current SEC investigation. Investors 
would be more willing to invest because they would be able to easily 
obtain current, audited financial information similar in form and 
content to other offerings. Finally, without the specter of pending 
lawsuits and investigations, the cost of borrowing would go down saving 
millions of dollars for the city and allowing it to lower rents to 
airlines. Lower rents in turn would allow the airlines to pass savings 
on to consumers in the form of lower ticket prices.
  As the Denver example shows, everyone can benefit from the accurate 
and continuous disclosure required of corporations by the securities 
acts. If municipalities are going to operate like corporations, and 
back securities with revenues from specific projects, then the 
investing public deserves to receive complete and updated information 
regarding those revenues. This bill takes the commonsense approach of 
bringing municipalities who offer revenue bonds totaling more than $1 
billion, under the same rules and regulations as faced by private 
companies.
  I ask unanimous consent that the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1549

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Municipal Securities 
     Investor Protection Act of 1996''.

     SEC. 2. TREATMENT OF MUNICIPAL SECURITIES IN THE SECURITIES 
                   ACT OF 1933.

       Section 3 of the Securities Act of 1933 (15 U.S.C. 77c) is 
     amended by adding at the end the following new subsection:
       ``(d)(1) Notwithstanding subsection (a)(2), a security 
     issued by a municipal issuer shall only be exempt from the 
     provisions of this title--
       ``(A) if the municipal issuer pledges the full faith and 
     credit or the taxing power of that municipal issuer to make 
     timely payments of principal and interest on the obligation; 
     or
       ``(B) if the municipal issuer--
       ``(i) offers or sells such securities in a single 
     transaction in an aggregate principal amount equal to less 
     than $1,000,000,000; or
       ``(ii) offers or sells such securities in a series of 
     related transactions, and at the time of the offer or sale of 
     such securities, does not reasonably anticipate that the 
     aggregate principal amount of the series of related 
     transactions will exceed $1,000,000,000.
       ``(2) For purposes of this subsection--
       ``(A) the term `municipal issuer' means--
       ``(i) a State, the District of Columbia, or a Territory of 
     the United States; or
       ``(ii) a public instrumentality or political subdivision of 
     an entity referred to in clause (i);
       ``(B) the term `series of related transactions' means a 
     series of separate securities offerings made--
       ``(i) as part of a single plan of financing; or
       ``(ii) for the same general purpose; and
       ``(C) the term `reasonably anticipate' shall have the 
     meaning provided that term by the Commission by regulation, 
     taking into consideration, as necessary or appropriate--
       ``(i) the public interest;
       ``(ii) the protection of investors; and
       ``(iii) the need to prevent the circumvention of the 
     requirements of this subsection.''.

     SEC. 3. TREATMENT OF MUNICIPAL SECURITIES IN THE SECURITIES 
                   EXCHANGE ACT OF 1934.

       (a) In General.--Section 3(a)(12) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) is amended--
       (1) in subparagraph (A), by striking clause (ii) and 
     inserting the following:
       ``(ii) any security issued by a municipal issuer with 
     respect to which the municipal issuer--
       ``(I) pledges the full faith and credit or the taxing power 
     of that municipal issuer to make timely payments of principal 
     and interest on the obligation; or
       ``(II)(aa) offers or sells such securities in a single 
     transaction in an aggregate principal amount equal to less 
     than $1,000,000,000; or
       ``(bb) offers or sells such securities in a series of 
     related transactions, and at the time of the offer or sale of 
     such securities, does not reasonably anticipate that the 
     aggregate principal amount of the series of related 
     transactions will exceed $1,000,000,000;'';
       (2) in subparagraph (B)(ii), by striking ``municipal 
     securities'' and inserting ``the securities described in 
     subparagraph (A)(ii)'';
       (3) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (4) by inserting after subparagraph (B) the following:
       ``(C) For purposes of subparagraph (A)(ii)--
       ``(i) the term `municipal issuer' means--
       ``(I) a State or any political subdivision thereof, or an 
     agency or instrumentality of a State or any political 
     subdivision thereof; or
       ``(II) any municipal corporate instrumentality of a State;
       ``(ii) the term `series of related transactions' means a 
     series of separate securities offerings made--
       ``(I) as part of a single plan of financing; or
       ``(II) for the same general purpose; and
       ``(iii) the term `reasonably anticipate' shall have the 
     meaning provided that term by the Commission by regulation, 
     taking into consideration, as necessary or appropriate--
       ``(I) the public interest;
       ``(II) the protection of investors; and
       ``(III) the need to prevent the circumvention of the 
     requirements of subparagraph (A)(ii).''.
       (b) Treatment of Municipal Securities That Are Not Exempted 
     Securities.--The third sentence of section 15(d) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o(d)) is amended 
     by inserting before the period the following: ``, except 
     that, with respect to a class of municipal securities that 
     are not exempted securities, the duty to file under this 
     subsection may not be suspended by reason of the number of 
     security holders of record of that class of municipal 
     securities''.
       (c) Reporting Prior to the Sale of Securities.--Section 
     15B(d)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78o-4(d)(1)) is amended--
       (1) by striking ``(d)(1) Neither'' and inserting 
     ``(d)(1)(A) Except as provided in subparagraph (B), 
     neither''; and
       (2) by adding at the end the following new subparagraph:
       ``(B) Subparagraph (A) does not apply to an issuer of any 
     municipal security that is not an exempted security.''.

     SEC. 4. TREATMENT OF CERTAIN MUNICIPAL SECURITIES IN THE 
                   TRUST INDENTURE ACT OF 1939.

       Section 304(a)(4) of the Trust Indenture Act of 1939 (15 
     U.S.C. 77ddd(a)(4)) is amended by striking ``of subsection 
     3(a) thereof'' and inserting ``of subsection (a), or 
     subsection (d) of section 3 of that Act''.
                                 ______

      By Mr. DASCHLE:
  S. 1552. A bill to amend the Railroad Retirement Act of 1974 to 
prevent the canceling of annuities to certain divorced spouses of 
workers whose widows elect to receive lump sum payments; to the 
Committee on Labor and Human Resources.


             the railroad retirement amendment act of 1996

  Mr. DASCHLE. Mr. President, today I am introducing legislation on 
behalf 

[[Page S739]]
of Valoris Carlson of Aberdeen, SD, and the handful of others like her 
whose lives have been terribly disrupted. This legislation will right a 
wrong that was not due to any error or deception on Valoris' part, but 
due to an administrative error by the Railroad Retirement Board [RRB].
  In 1984 Valoris, as the divorced spouse of a deceased railroad 
employee, applied for a survivor's pension. The RRB failed to check if 
a lump sum withdrawal had previously been made on the account at the 
time of her former spouse's death--even though Valoris clearly stated 
on her application that there was a surviving widow. In fact, a lump 
sum payment had been made, but not identified. The RRB began paying 
Valoris $587 per month in 1984 and continued to pay her benefits for 11 
years. Only recently did they discover that an error had been made over 
a decade ago.
  Not until 1995 was Valoris told she was not eligible for the pension 
she was awarded in 1984. Had the RRB reviewed their records, they would 
have seen that a lump-sum payment had been made on that account. 
Valoris, who was married for 26 years, lost her eligibility to the 
widow of the railroad worker who had been married to him for only 3 
years. Valoris made an honest application for benefits. The RRB failed 
to do their job properly, resulting in 11 years of ``overpayments'' to 
Valoris.
  These payments affected Valoris' planning for the future. Valoris 
planned her retirement on that modest sum of $587. Had she been told 
she was not eligible for benefits, she would have worked longer to 
build up her own Social Security benefits. Her railroad divorced 
widow's pension has been her only steady income. She has picked up a 
few dollars here and there by renting out rooms in her home, but 
without her pension income, Valoris does not know how she will live.
  The bill I am introducing today will address the errors made by the 
RRB that have disrupted the life of Valoris Carlson and others like 
her. The RRB advises that 17 other widows are similarly situated, and 
their pensions would also be restored by this bill.
  The bill, which was developed with technical assistance from the RRB, 
would allow the 18 women impacted by the RRB's administrative error to 
begin receiving their monthly benefits again. It requires them to repay 
the lump sum, but they are allowed to do so through a marginal 
withholding from their monthly benefit. The monthly withholding can be 
waived if it would cause excessive hardship for a widow.
  Mr. President, I will work to enact this legislation as quickly as 
possible to restore the benefits to those women who are now suffering 
as a result of the Government's mistakes. There is no excuse for 
further delay in providing these Americans with benefits they were led 
to expect by the RRB.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Railroad Retirement 
     Amendment Act of 1996''.

     SEC. 2. PROTECTION OF DIVORCED SPOUSES.

       (a) In General.--Section 6(c) of the Railroad Retirement 
     Act of 1974 is amended--
       (1) in the last sentence of paragraph (1), by inserting 
     ``(other then to a survivor in the circumstances described in 
     paragraph (3))'' after ``no further benefits shall be paid''; 
     and
       (2) by adding at the end the following:
       ``(3) Notwithstanding the last sentence of paragraph (1), 
     benefits shall be paid to a survivor who--
       ``(A) is a divorced wife; and
       ``(B) through administrative error received benefits 
     otherwise precluded by the making of a lump sum payment under 
     this section to widow;

     if that divorced wife makes an election to repay to the Board 
     the lump sum payment. The Board may withhold up to 10 percent 
     of each benefit amount paid after the date of the enactment 
     of this paragraph toward such reimbursement. The Board may 
     waive such repayment to the extent the Board determines it 
     would cause an unjust financial hardship for the 
     beneficiary.''.
       (b) Application of Amendment.--The amendment made by this 
     section shall apply with respect to any benefits paid before 
     the date of enactment of this Act as well as to benefits 
     payable on or after the date of the enactment of this Act.
                                 ______

      By Mr. McCAIN:
  S. 1553. A bill to provide that members of the Armed Forces 
performing services for the peacekeeping effort in the Republic of 
Bosnia and Herzegovina shall be entitled to certain tax benefits in the 
same manner as if such services were performed in a combat zone; to the 
Committee on Finance.


                         tax relief legislation

  Mr. McCAIN. Mr. President, as we continue to debate a balanced 
budget, 20,000 of our service men and women are participating in 
Operation Joint Endeavor in war torn Bosnia and Herzegovina.
  The bill I am introducing today is designed to provide some peace of 
mind to our troops and their families. This bill is identical to H.R. 
2778 introduced earlier this month by Congressman Bunning from 
Kentucky. Specifically, this bill would provide a tax exemption and 
additional benefits for our service men and women serving in Bosnia, 
which is but a small gesture showing our support.
  I hope and pray that this operation will remain a peaceful 
deployment, but the fact remains that the lives of our military 
personnel are continually at risk from landmines, sniper fire, or 
accident in this peacekeeping operation.
  I know personally the character of the Americans who take up arms to 
defend our Nation's interests and to advance our democratic values. I 
know of all the battles, all the grim tests of courage and character, 
that have made our Armed Forces the envy of our allies and enemies 
alike.
  Our people are our greatest asset. They make sacrifices day after 
day, and are prepared to make the ultimate sacrifice. Without the ``can 
do'' attitude our military personnel persistently display, we would not 
have the finest military force in the world today. As our troops carry 
out their assigned duties in Bosnia, we must do our part to let them 
know how much their dedication and efforts are appreciated by the 
American people.
  Because it is a peacekeeping mission, Bosnia has not been declared a 
``combat zone'' by the Department of Defense. Had the designation been 
made, tax exemptions and other benefits, as well as hazardous duty pay, 
would automatically be invoked without this bill. This bill would 
ensure that tax and certain other benefits are provided. I want to 
point out, however, that it does not authorize hazardous duty pay which 
would entail a very significant cost. In these times of fiscal 
constraint, we must take a conscientious look at the financial impact 
on the Federal budget of this initiative and how this standard may be 
applied to future peacekeeping or other non-combat missions.
  I hope that the potential danger to our troops remains low. If, 
however, any U.S. soldiers were to be fatally injured while serving in 
this peacekeeping operation, this bill would provide additional 
benefits to their families.
  Mr. President, the men and women participating in Operation Restore 
Hope in Somalia did not receive these benefits, and unfortunately some 
of those men lost their lives in a mission gone tragically awry. This 
bill is intended to help relieve some of the financial burdens on our 
service men and women caused by their deployment and allay the economic 
concerns of their families. I believe this measure deserves our careful 
and full review, and I intend to seek expeditious consideration of this 
legislation.
                                 ______

      By Mr. COCHRAN:
  s. 1554. A bill to amend the Fair Labor Standards Act of 1938 to 
clarify the exemption for houseparents from the minimum wage and 
maximum hours requirements of that Act, and for other purposes; to the 
Committee on Labor and Human Resources.


       the fair labor standards act of 1938 amendment act of 1996

 Mr. COCHRAN. Mr. President, today I am introducing legislation 
to provide a specific exemption for houseparents from the minimum wage 
and overtime requirements of the Fair Labor Standards Act. This bill 
will provide significant relief to orphanages and group homes 
throughout the United States.
  Houseparents are men and women who work and live in a group home 
setting to care for, nurture, and supervise children. These children 
may live at 

[[Page S740]]
the home for any number of reasons. They may be abused, neglected, 
orphaned, or homeless. The importance of houseparents in providing a 
family-like, healthy environment for these children cannot be 
overstated. It is the love, hard-work, and dedication of these people 
that enables the children at the home to enjoy a caring and stable 
environment.
  As compensation for their services, houseparents receive a very 
unconventional package of benefits, including a fixed annual salary, 
food, housing, and transportation. The Department of Labor, however, 
has determined that these men and women are also entitled to overtime 
wages.
  For example, in Mississippi, the Department of Labor determined that 
since houseparents at a particular home answered long-distance calls, 
opened out-of-State mail, and took the children on trips across the 
State line that houseparents were engaged in commerce and therefore 
covered by the minimum wage and overtime provisions of the Fair Labor 
Standards Act. This interpretation has threatened the houseparent 
system by placing an unbearable burden on the extremely limited 
resources of non-profit group homes.
  The legislation I am introducing today will remedy this situation by 
providing nonprofit group homes with a specific exemption for 
houseparents from minimum wage and overtime requirements. Without such 
an exemption, these homes would be forced to use a shift model of 
employment where quasi-houseparents work 8 hour shifts to care for the 
children. This alternative would not furnish the same family-like 
setting for these children that the houseparent system provides.
  It is important to note that this measure creates only a very narrow 
exemption from the Fair Labor Standards Act. This bill would only 
exempt those houseparents who meet the following criteria: First, the 
houseparents must be employed by nonprofit homes; second, the group 
home in question must be the children's primary residence; third, the 
houseparents must reside with the children at the home for a minimum of 
72 hours per week; and fourth, the houseparent must receive board and 
lodging from the home, free of charge, and be compensated, on a crash 
basis, at an annual rate of not less than $8,000.
  This legislation will allow nonprofit group homes to continue to 
provide the best possible care for children. I hope my colleagues will 
carefully consider it and join me in support of its enactment.
                                 ______

      By Mr. KOHL (for himself and Mr. Specter):
  S. 1556. A bill to prohibit economic espionage, to provide for the 
protection of United States proprietary economic information in 
interstate and foreign commerce, and for other purposes; to the 
Committee on the Judiciary.


                   the economic espionage act of 1996

 Mr. KOHL. Mr. President, we have a problem in America today: 
The systematic pilfering of our country's economic secrets by our 
trading partners which undermines our economic security. It would not 
be unfair to say that America has become a full-service shopping mall 
for foreign governments and companies who want to jump start their 
businesses with stolen trade secrets.
  Sadly, we are under-unequipped to fight this new war. Our laws have 
glaring gaps, allowing people to steal our economic information with 
vitual impunity.
  So I introduce the Industrial Espionage Act of 1996 with Senator 
Specter. I am also pleased to cosponsor with Senator Specter the 
Economic Security Act of 1996. Together these laws will enable Federal 
law enforcement agencies to catch and vigorously prosecute anyone who 
tries to steal proprietary information from American companies. Our two 
measures should be read together as a unified approach to the problem. 
They are not panaceas, but they are an effort to deal with this problem 
systematically and comprehensively. The Department of Justice and the 
FBI have also been extremely helpful in drafting these pieces of 
legislation, and we look forward to working with them as we move these 
measures forward.
  Mr. President, businesses spend huge amounts of money, time, and 
thought developing proprietary economic information--their customer 
lists, pricing schedules, business agreements, manufacturing processes. 
This information is literally a business's lifeblood. And stealing it 
is the equivalent of shooting a company in the head. But these thefts 
have a far broader impact than on the American company that falls 
victim to an economic spy. The economic strength, competitiveness, and 
security of our country relies upon the ability of industry to compete 
without unfair interference from foreign governments and from their own 
domestic competitors. Without freedom from economic sabotage, our 
companies loose their hard-earned advantages and their competitive 
edge.
  The problem is not new. But with expanding technology and a growing 
global economy, economic espionage is entering its boom years. American 
companies have estimated that in 1992, they lost $1.8 billion from the 
theft of their trade secrets. A 1993 study by the American Society for 
Industrial Security found a 260-percent increase in the theft of 
proprietary information since 1985. And the theft of these secrets is 
not random and disorganized. The press has reported that one government 
study of 173 nations discovered that 57 of them were trying to get 
advanced technologies from American companies. The French intelligence 
service has even admitted to forming a special unit devoted to 
obtaining confidential information from American companies.
  Let me give you a few examples. Just last year, a former employee of 
two major computer companies admitted to stealing vital information on 
the manufacture of microchips and selling it to China, Cuba, and Iran. 
For almost a decade, he copied manufacturing specifications--
information worth millions of dollars. And armed with it, the Chinese, 
Cubans, and Iranians have been able to close the gap on our technology 
leads. Late last year, the FBI arrested this man and charged him with 
the interstate transportation of stolen property and mail fraud. It 
appears that the charges may be a bit of a stretch because he did not 
actually steal tangible property. He only stole ideas.
  Not all of the theft is sponsored by foreign governments. Domestic 
theft is as reprehensible and as threatening as theft by foreign 
governments. For example, in Arizona, an engineer for an automobile air 
bag manufacturer was arrested in 1993 for selling manufacturing 
designs, strategies, and plans. He asked the company's competition for 
more than half a million dollars--to be paid in small bills. And he 
sent potential buyers a laundry list of information they could buy: 
$500 for the company's capital budget plan; $1,000 for a piece of 
equipment; $6,000 for planning and product documents.
  Sadly, current civil remedies are inadequate to deal with these 
problems. Although many companies can privately sue those who have 
stolen from them, these private remedies are too little, too late. A 
private suit against a foreign company or government often just goes 
nowhere, and the company continues to use the stolen information 
without pause.
  Similarly, our current criminal laws are not specifically targeted at 
protection of proprietary economic information. Most of our Federal 
theft statutes deal with tangible property and not intellectual 
property. Federal prosecutors have done a valiant job finding laws they 
can use against these people, but they need something stronger and more 
coherent than what they have gerry-rigged.
  Mr. President, the Industrial Espionage Act and the Economic Security 
Act provide the solution we need. These measures are simple, 
straightforward, and effective. They carefully define proprietary 
economic information--the data that corporations privately develop and 
need to maintain in secrecy. People who steal that information in order 
to harm the business that rightfully owns and developed it are subject 
to criminal penalties. They can serve up to 15 years in jail. And if 
the theft is sponsored by a foreign government, the penalties are even 
harsher. Moreover, the bills include forfeiture provisions, so that 
people will not benefit from their illegal acts. They authorize the 
President to impose sanctions on countries that engage in these 
activities. And they assure companies that their proprietary 
information will 

[[Page S741]]
not seep out during a criminal persecution.
  We need to take steps to stem the flow of information out of our 
country. We need a new law that definitively and harshly punishes 
anyone who steals information from American companies. Over the coming 
months, these measures will provide a framework for our discussions 
about the best way to solve this problem, and we plan to hold hearings 
on them in both the Intelligence and Judiciary Committees.
 Mr. SPECTER. Mr. President, I am pleased to join Senator Kohl 
as a cosponsor of this bill to make theft of proprietary information a 
crime. Senator Kohl is also a cosponsor of a bill I have introduced to 
cover economic espionage by foreign governments or those acting on 
their behalf and this bill is designed to protect that same vital 
economic information from theft by nongovernmental entities and 
individuals.
  While economic espionage by foreign governments presents a clear 
issue of national concern, the economic cost of industrial espionage by 
domestic and nongovernment-owned foreign corporations may be even 
greater. Federal law already provides some sanctions to protect 
technology and innovation within the United States. For example, we 
accord protection to patents, trademarks, and copyrights. The Federal 
Government will not enter into a contract with a bidder who has inside 
information of another bidder's price. There are also laws in some 
States that specifically address the theft of proprietary information.
  These laws may not, however, be adequate. Thus, I am also joining 
Senator Kohl in cosponsoring legislation to provide criminal penalties 
in title 18 of the United States Code for cases in which corporations 
and individuals, foreign or domestic, steal proprietary information 
from U.S. entities. While the bill I have introduced amending the 
National Security Act of 1947 focuses on our Nation's economic security 
against foreign governments, similar arguments can be made that 
protection is also needed for domestic economic interests from theft by 
nongovernmental sources. Moreover, even where there are strong 
indications that a foreign government is behind the theft of 
proprietary information, it may not be possible in all cases to prove 
such government involvement.
  The normal recourse for protecting proprietary information from theft 
by private sector sources is through civil remedies governed by State 
law. Some businesses and Federal law enforcement agencies, however, 
believe that current State laws are inadequate and fail to provide 
remedies, particularly with respect to the kind of intangible 
proprietary information that is typical in today's computer age. They 
argue that comprehensive federal criminal sanctions are needed at this 
time to provide an adequate deterrent.
  While I believe there are legitimate questions about the need for 
federal criminal penalties in this context, I am also convinced the 
issue needs to be considered. It may be that after thorough review, 
criminal penalties are the best means of deterring the misappropriation 
of proprietary information by individuals or business competitors. On 
the other hand, we may determine that a more efficient response would 
be to create a federal civil cause of action or to leave it to State 
law to develop sanctions against such theft if not committed by, or 
done on behalf of, a foreign government.
  As part of this effort to address the economic threat from the theft 
of proprietary information from U.S. businesses, I therefore believe we 
need to consider how to address such thefts when carried out by the 
private sector. As a result, I am cosponsoring this second bill, with 
the expectation that it will generate discussion and debate and assist 
us in developing the best approach to this problem. I look forward to 
working with all interested parties to reach such a result.
                                 ______

      By Mr. SPECTER (for himself and Mr. Kohl):
  S. 1557. A bill to prohibit economic espionage, to provide for the 
protection of United States vital proprietary economic information, and 
for other purposes; to the Select Committee on Intelligence.


                   THE ECONOMIC SECURITY ACT OF 1996

 Mr. SPECTER. Mr. President, I am introducing a bill today, 
along with my colleague, Senator Kohl, entitled the ``Economic Security 
Act of 1996,'' which amends the National Security Act of 1947 to 
protect against the theft of vital proprietary economic information by 
or for foreign governments.
  The bill would punish those who steal vital proprietary economic 
information from a U.S. owner for the benefit of a foreign government 
or a corporation, institution, instrumentality, or agent that is owned 
or guided by a foreign government. It provides penalties of up to 
$500,000 in fines or 25 years in prison, except that corporations 
working on behalf of a foreign government can be fined up to 
$10,000,000. The law would ensure that fruits of the espionage would be 
forfeited, and that victims would receive some restitution from funds 
recovered. This bill also provides for a ban for up to 5 years on the 
importation into, or export from, the United States of any product 
produced, made, assembled, or manufactured by a person convicted under 
this provision.
  To address concerns by industry that criminal proceedings might 
result in the disclosure of the very trade secret the prosecution is 
aimed at protecting, the bill also gives courts authority to enter 
protective orders and take any other such measures as may be necessary, 
consistent with the applicable rules and laws. It also provides for an 
interlocutory appeal by the United States from a decision or order of a 
district court authorizing the disclosure of vital proprietary economic 
information.
  The bill provides for extraterritorial jurisdiction where the 
offender is a U.S. person or the victim of the offense is a U.S. owner 
and the offense was intended to have, or had, a direct or substantial 
effect in the United States. In addition, the bill adds this newly 
created crime to the list of offenses in title 18, chapter 119, of the 
United States Code--Wire and Electronic Communications Interception and 
Interception of Oral Communications--so that it may be investigated 
with authorized wire, oral, or electronic intercepts.
  We have drafted this new provision as an amendment to the National 
Security Act of 1947 to emphasize the importance of this issue to the 
national security of our Nation. Anyone who doubts that this is a 
national security issue need only stop to consider why foreign 
governments would devote so much effort to obtaining this information 
from U.S. companies. The reality is that U.S. economic and 
technological information may be far more valuable to a foreign 
government than most of the information that is classified in the 
United States today. The March 1990 and February 1995 national security 
strategies published by the White House focus on economic security as 
an integral part not only of U.S. national interest but also of 
national security.
  Economic espionage by foreign governments targeting U.S. industry and 
innovation is an issue the Senate Select Committee on Intelligence has 
been examining for some time. The Committee has held a number of 
hearings which addressed this issue and has met extensively with the 
intelligence and law enforcement communities. In 1992, then-Director of 
Central Intelligence Robert M. Gates told the Committee:

       We know that some foreign intelligence services have turned 
     from politics to economics and that the United States is 
     their prime target. We have cases of moles being planted in 
     U.S. high-tech companies. We have cases of U.S. businessmen 
     abroad being subjected to bugging, to room searches, and the 
     like * * * [W]e are giving a very high priority to fighting 
     it.

  This reflects a shift from the traditional counterintelligence 
efforts directed at military, ideological, or subversive threats to 
national security. Beginning as early as 1990, the Intelligence and 
Counterintelligence Communities have been directed to detect and deter 
foreign intelligence targeting of U.S. economic and technological 
interests, including efforts to obtain U.S. proprietary information 
from companies and research institutions that form our strategic 
industrial base. These counterintelligence efforts, however, must be 
complemented by, and carefully coordinated with, a coherent and 
rigorous law enforcement effort. It is to strengthen this aspect of the 
fight against economic espionage that I introduce this bill today. 

[[Page S742]]


  Some foreign governments have been quite open about the importance 
they attach to obtaining U.S. commercial secrets. Former French 
Intelligence Director Pierre Marion, for example, was quoted in a 
recent Foreign Affairs article as saying about the French-United States 
relationship: ``In economics, we are competitors, not allies. America 
has the most technical information of relevance. It is easily 
accessible. So naturally your country will receive the most attention 
from the intelligence services.''
  It is important to emphasize that no one country can be singled out 
for engaging in economic espionage. While there are a handful of well-
publicized incidents involving a few countries, the problem is actually 
much more widespread. FBI tells us that 23 countries are being actively 
investigated and that there has been a 100 percent increase in the 
number of investigative matters relating to economic espionage in the 
United States during the past year--from 400 to 800. Thus, this bill is 
not aimed at any one country, or even a handful of countries. It is 
designed to address a widespread threat from a broad spectrum of 
countries, including traditional counterintelligence adversaries and 
traditional allies.
  Last year, the Congress included in the Intelligence Authorization 
Act for fiscal year 1995 a requirement that the President submit an 
annual report on the activities of foreign governments to obtain 
commercial secrets from U.S. companies and how the U.S. Government 
counters this threat. The Intelligence Committee received the first 
report in July 1995, accompanied by a classified annex.
  According to the report, prepared by the National Counterintelligence 
Center in coordination with relevant agencies, ``economic and 
technological information is often not specifically protected by 
Federal laws, making it difficult to prosecute thefts of propriety 
technology or intellectual property. Law enforcement efforts instead 
must rely on less specific criminal laws--such as espionage, fraud and 
stolen property, and export statutes--to build prosecutable cases.'' At 
our request, the FBI has provided some examples of the difficulties 
caused by this patchwork of laws.
  According to the Bureau, there have been three specific declinations 
of prosecution over the past year. In the first, passage to a foreign 
power of proprietary economic information was declined for lack of a 
specific statute. In the second case, the unauthorized disclosure of a 
confidential U.S. Trade Representative document was not prosecuted 
because the document was not considered to contain ``national defense 
information'' as required by the espionage statute. In a third case, a 
foreign government-owned corporation attempted to use its position of 
power after a merger to gain access to proprietary economic information 
despite a specific prohibition in the sales agreement which would have 
provided for a ``Chinese wall'' between the foreign government 
corporation and the information. Again, the U.S. Attorney declined to 
prosecute because of the lack of a specific statutory basis. These 
examples do not include cases that were not fully investigated because 
of the lack of adequate statutory basis.
  A legal review by the Administration has shown that there is 
currently no specific criminal statute that would apply to many of the 
800 cases involving 22 foreign countries currently being investigated.
  The National Counterintelligence Center Report states that ``the 
aggregate losses that can mount as a result of [Foreign economic 
espionage] efforts can reach billions of dollars per year constituting 
a serious national security concern.'' Determining the full qualitative 
and quantitative scope and impact of economic espionage is difficult. 
Industry victims have reported the loss of hundreds of millions of 
dollars, lost jobs, and lost market share. However, U.S. industry may 
in fact be under-reporting these occurrences because of the negative 
impact publicity of a loss could have on stock values and customers' 
confidence, as well as the risk of broader exposure of the trade secret 
itself.
  The industries that have been the targets in most cases of economic 
espionage, according to this report, include those ``of strategic 
interest to the Untied States because they produce classified products 
for the Government, produce dual use technology used in both the public 
and private sectors, and are responsible for leading-edge technologies, 
critical to maintaining U.S. economic security.''
  Mr. President, these are complex issues and I do not assume that this 
bill represents the prefect solution. However, I believe this bill 
represents a reasonable and carefully tailored approach to addressing 
an issue of tremendous importance.

                          ____________________