[Senate Report 104-187]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 280
104th Congress                                                   Report
                                 SENATE

 1st Session                                                    104-187
_______________________________________________________________________


 
                     IRAN OIL SANCTIONS ACT OF 1995
                                _______


               December 15, 1995.--Ordered to be printed

_______________________________________________________________________


Mr. D'Amato, from the Committee on Banking, Housing and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1228]

    The Committee on Banking, Housing and Urban Affairs, to 
which was referred to bill (S. 1228) to impose sanctions on 
foreign persons exporting petroleum products, natural gas, or 
related technology to Iran, having considered the same, reports 
favorably thereon with an amendment in the nature of a 
substitute and recommends that the bill as amended do pass.

                              INTRODUCTION

    On December 12, 1995, the Senate Committee on Banking, 
Housing and Urban Affairs marked up and ordered to be reported 
S. 1228, a bill that requires the President to place one or 
more sanctions on any person who makes an investment that 
significantly and materially contributes to the development of 
Iranian petroleum resources.
    Paragraph 7(b) of rule XXVI of the Standing Rules of the 
Senate requires the committee report accompanying a measure 
reported from the committee to include the results of each roll 
call vote taken on the measure and any amendments thereto. In 
addition, the report will include the votes cast by each member 
of the committee on the question of reporting the measure. In 
accordance with that requirement, the following is the 
tabulation of the Tuesday, December 12, 1995 committee vote to 
report S. 1228.
    Measure adopted by: yeas 15, nays 0.
        YEAS                          NAYS
D'Amato
Gramm
Shelby
Bond
Mack
Faircloth
Bennett
Domenici
Sarbanes
Dodd
Kerry
Bryan
Boxer
Moseley-Braun
Murray

                           HISTORY OF S. 1228

    As part of its deliberations on S. 1228, the Iran Oil 
Sanctions Act of 1995 and related issues, the Senate Banking 
Committee held two legislative hearings on the United States' 
foreign policy towards Iran.

March 16, 1995 hearing

    The following witnesses testified before the Committee: 
State Department Under Secretary for Political Affairs Peter 
Tarnoff, John H. Lichtblau, Chairman of the Petroleum Industry 
Research Foundation, Inc., Kenneth Timmerman, Published of the 
Iran Brief, Patrick Clawson, Senior fellow at the Institute for 
National Strategic Studies of the National Defense University.
    The hearing was called to explore and discuss S. 277, the 
Comprehensive Iran Sanctions Act of 1995, the Administration's 
Iran policy, and the Administration's view of a contract 
between the National Iranian Oil Company [NICO] and Conoco, a 
U.S. company to develop off-shore oil fields in Iran.
    The issues the Committee considered during the hearing 
were:
    1. The economic effect of the existing U.S. sanctions on 
Iran.
    2. The Administration's policy of ``Dual Containment''
    3. Iran's Human Rights record and its support for 
international terrorism.

October 11, 1995 hearing

    At its October hearing, the Committee considered U.S. 
sanctions placed on Iran, international cooperation with the 
sanctions and proposals for future sanctions, including those 
in S. 1228. The following witnesses testified before the 
Committee: State Department Under Secretary for Political 
Affairs Peter Tarnoff and Central Intelligence Agency Deputy 
Director of Intelligence John C. Gannon.

                               background

    Since the 1979 Islamic revolution in Iran, the United 
States has sought to contain Iran's aggressive behavior, 
including its military buildup, development of weapons of mass 
destruction, and its support for international terrorism and 
groups opposed to the Arab-Israeli peace process.
    In May 1993 the Clinton Administration articulated a policy 
of ``dual containment'' of Iran and Iraq. The Administration 
sought to increase the effectiveness of U.S. sanctions on both 
regimes by trying persuade U.S. allies and other countries to 
deny Iran credits, aid, and arms and technology exports.
    On January 25, 1995 Chairman D'Amato introduced S. 277 
which called for a total U.S. trade embargo on Iran,. On March 
7, 1995 the Conoco Company and the Government of Iran announced 
an agreement whereby a foreign subsidiary of the U.S. company 
would assist Iran in developing two new oil fields in the 
Persian Gulf. On March 14, two days before to the Committee's 
hearing on S. 277, the Administration announced it would issue 
an Executive Order preventing Conoco or any other U.S. company 
from investing in Iran's petroleum industry. That Order, No, 
12957, issued on March 15, 1995, forbade any U.S. person from 
entering into contracts for the financing of or the overall 
management or supervision of the development of petroleum 
resources located in Iran.
    During the March 16 hearing, Chairman, D'Amato recognized 
the significance of the Executive Order but argued that further 
steps were necessary, such as a total trade embargo between the 
United States and Iran as called for in his bill S. 277. On 
March 27, 1995 Chairman D'Amato introduced new Iran sanctions, 
bill S. 630 that placed procurement and export sanctions on any 
foreign person or corporation engaging in any trade with Iran 
in any goods or technology as defined in the Export 
Administration Act of 1979. The bill was designed to stop 
foreign companies from helping Iran increase its foreign 
exchange earnings.
    On May 6. 1995 President Clinton signed Executive Order No. 
12959 imposing virtually a total U.S. economic embargo on Iran. 
In doing so the President stated:

          Responding to the country's sponsorship of 
        international terrorism and its active pursuit of 
        weapons of mass destruction, the new sanctions prohibit 
        trade with Iran, as well as trade financing, loans and 
        related financial service * * * New investment in Iran 
        is also prohibited.

    At the G7 summit meeting in Halifax this past June, the 
Administration urged our allies to support U.S. efforts to use 
economic means to pressure Iran. While most governments refused 
to join in a multilateral trade embargo against Iran, G7 
leaders did condemn the behavior of the Iranian government and 
called on states to avoid any collaboration with Iran which 
might help it develop a nuclear weapons capability.
    Some countries and companies, however, have not cooperated 
with the U.S. embargo. On July 13, 1995 the French oil company 
Total signed a contract with Iran to develop two oil fields off 
Siri Island. Total replaced the U.S. firm Conoco, which 
withdraw from a similar business arrangement with Iran in March 
1995 after President Clinton issued his Executive Order. The 
French Government, which owns 5 percent of Total's stock, said 
it had no authority to block the Total deal, but at the request 
of the U.S. is not providing official credits to help Total 
finance the project.
    On September 1, 1995 The Wall Street Journal reported that 
Iran badly needed revenues to repay foreign debts and modernize 
its oil fields. It noted that Iran has not been able to find 
customers for 200,000 of the 600,000 barrels a day of crude oil 
that U.S. companies had been purchasing. That same article 
reported that the Iranian Government, desperate for cash, had 
invited about 100 European and Asian companies to Tehran in 
November to seek about $6.5 billion dollars worth of investment 
in energy projects in return for a share of the oil and gas 
produced. The Journal of Commerce on that same date published a 
similar story.
    On September 8, Chairman D'Amato and others introduced S. 
1228, a bill aimed at foreign companies that help Iran develop 
its oil and gas resources. It set forth a series of mandatory 
and discretionary sanctions that the President would impose on 
any foreign company that assists Iran to increase its revenues 
by extracting petroleum or natural gas.
    At the October 11 Senate Banking Committee hearing, State 
Department Under Secretary Peter Tarnoff testified that:

          The biggest economic problem faced by Iran today is 
        the Government's shortage of hard currency. Without 
        adequate funds, the Iranian Government cannot buy the 
        imports necessary to properly sustain Iran's industry 
        and maintain its infrastructure. Nor can the Government 
        fully pay the billions of dollars it owes in foreign 
        debt. * * * Because of these cutbacks in imports, 
        Iran's economy suffers from inflation and recession.

    Iran has made efforts to attract foreign investors to help 
it develop its oil and gas resources in order to increase its 
inflow of hard currency. In November 1995, the National Iranian 
Oil Company [NIOC] held an international oil and gas seminar at 
which the NIOC presented eleven large oil and gas proposals to 
a gathering of foreign investors, proposals to help Iran 
dramatically increase its oil and gas production. If the 
proposals were acted on it would pose a direct threat to the 
United States' national security interests. For as Under 
Secretary Tarnoff stated at the October 11 hearing on S. 1228, 
``a straight line links Iran's oil income and its ability to 
sponsor terrorism (and) build weapons of mass destruction'' and 
that any ``private company that helps Iran to expand its oil 
(sector) must accept that it is indirectly contributing to this 
menace.''
    Iran is also in the process of acquiring four nuclear 
reactors from Russia and increased oil revenues could help it 
finance the purchase. On Thursday, September 7, 1995, Russia 
announced that it would proceed with the sale despite strong 
U.S. opposition which included a personal plea from President 
Clinton during his visit with Russian President Boris Yeltsin 
earlier this year. Russian and Iranian officials have claimed 
that these reactors are only for ``research.'' (Washington 
Post, 9/7/95) Iran has made substantial gains toward developing 
a nuclear weapon. Earlier this year, a senior U.S. official 
said, ``Until fairly recently there wasn't a lot of evidence 
that (Iran's nuclear program) was beyond a basic stage, but now 
it is beyond a basic stage'' and that Iran's ``quest for 
centrifuge equipment marks a new intensity in Iran's effort to 
acquire nuclear technology.'' (Washington Post, 4/17/95)

                     objective of this legislation

    Passage of S. 1228 is important to slow Iran's development 
of its oil and gas resources and its access to revenues to fund 
behavior harmful to the international community. Total S.A., a 
French company, wants to help Iran develop its oil resources. 
S. 1228 would make it vastly more difficult for Total S.A. or 
other companies to do so. Total S.A. and all other foreign 
companies that invest in Iran under this bill would be forced 
to make a choice whether they want to conduct business with the 
U.S. or Iran. As Chairman D'Amato said, ``Simply put, a foreign 
corporation or person will have to choose between * * * the 
United States or Iran.'' (3/27/95)
    The U.S. needs other nations to join our embargo of Iran in 
order to effectively stop Iran from using oil revenues to 
finance terrorist activities and its pursuit of weapons of mass 
destruction. During a May 7, 1995 address, President Clinton 
stated that we must do everything to convince other nations and 
foreign companies to join the U.S. in the fight against Iranian 
sponsored terrorism and nuclearization. The legislation is 
designed to help obtain such cooperation from other nations.
    The current U.S. embargo has produced results as shown by 
Iran's declining economy and shortage of hard currency, but 
constant pressure must be applied in order to force Iran to 
change its ways. Multi-lateral cooperation with economic 
sanctions on Iran is the most effective way to not only reduce, 
but eliminate Iran's ability to support terrorism and to 
acquire nuclear weapons.
    After discussions between the Administration and the 
Majority and Minority members of the Senate Banking Committee, 
the bill targets new investment contracts because it is these 
significant investments that are crucial to Iran's ability to 
develop new oil and gas fields. The bill also provides the 
President the necessary flexibility to determine the best mix 
of sanctions by which to deter companies from investing in 
Iran's oil fields. In using this authority, the President 
should consider factors such as the significance of an 
investment, the prospects for cooperation with other 
governments, U.S. international commitments, and the effect of 
sanctions on U.S. economic interests and regional policies. 
Finally, the bill authorizes the Secretary of State to provide 
advisory opinions on whether a proposed activity would be 
covered to avoid unnecessary uncertainty on the part of 
companies and friction with allies.

                      section-by section analysis

    The bill is designed to prevent Iran from being able to 
increase its revenue through the development of petroleum 
resources in Iran. Any significant increase in the revenue to 
support its weapons of mass destruction and terrorism policies 
should be viewed as a threat to the national security and 
foreign policy interests of the United States.
    The bill provides a series of sanctions that the President 
of the United States shall choose from and place upon any 
person who invest $40,000,000 or more that significantly and 
materially contributes to the development of oil revenues in 
Iran. Such investments encompass ``into a contract that 
includes responsibility for the development of petroleum 
resources located in Iran, or the entry into a contract 
providing for the general supervision and guarantee of another 
person's performance of such a contract.'' The President is 
required to choose one or more sanctions that are specified.

Section 1. Short title.

    This Act may be cited as the ``Iran Oil Sanctions Act of 
1995''.

Section 2. Findings.

    The Government of Iran's efforts to acquire weapons of mass 
destruction and the means to deliver them and its support of 
international terrorism endangers the national security and 
foreign policy interests of the United States and its allies. 
Additional efforts are needed to deny Iran the financial means 
to sustain its efforts to acquire weapons of mass destruction 
and the means to deliver them and its support of international 
terrorism.

Section 3. Declaration of policy.

    It is the policy of the United States to deny Iran the 
ability to support its terrorist activities and its attempt to 
acquire weapons of mass destruction and the means to deliver 
them by limiting the revenue from development of petroleum 
resources in Iran.

Section 4. Imposition of sanctions.

    Section 4(a) requires the President to impose one or more 
of the sanctions described in Section 5 on any person making an 
investment of more than $40,000,000 (or any combination of 
$10,000,000 investments of at least $10,000,000 each, which 
exceeds $40,000,000 in any 12 month period) that significantly 
and materially contributes to the development of petroleum 
resources in Iran.
    Section 4(b) details that the sanctions may be imposed on 
any person that: (1) has carried out the activities described 
subsection (a); (2) is a successor entity to that person; (3) 
is a person that is a parent or subsidiary of the person if 
that parent with actual knowledge engaged in the sanctioned 
activities; and (4) is a person that is an affiliate of that 
person if that affiliate with actual knowledge engaged in the 
activities and if that affiliate is controlled in fact by that 
person.
    Section 4(c) requires the President to publish the names of 
persons that are subject to sanction.
    Section 4(d) states that: (1) any products or services 
provided under contracts entered into prior to the date on 
which the President publishes his intention to impose the 
sanctions; or (2) medicines, medical supplies, or other 
humanitarian items are not subject to sanctions under 
subsection (a).

Section 5. Description of sanctions that may be imposed under section 
        4(a)

            (1) Prohibition against Export-Import Bank assistance for 
                    exports to sanctioned persons
    No Ex-Im guarantees, credit, or insurance for goods or 
services to sanctioned companies or persons.
            (2) Export sanction
    The President may order not to issue any specific license 
or grant any other specific permission or authority to export 
any goods or technology to a sanctioned person or company.
            (3) Loans from U.S. financial institutions
    The U.S. government may prohibit U.S. financial 
institutions from making any loan or providing any credit in an 
amount exceeding $10,000,000 in any 12-month period (or two or 
more loans of more than $5,000,000 each totaling more than 
$10,000,000 in such period) to any sanctioned person or 
company, except to relieve human suffering.
            (4) Prohibitions on financial institutions
    (A) A sanctioned financial institution will lose its 
designation as a primary dealer in U.S. government debt 
instruments.
    (B) A sanctioned financial institution shall not serve as 
an agent of the U.S. Government or serve as repository of U.S. 
Government funds.

Section 6. Advisory opinions

    The Secretary of State may, upon the request of any person, 
issue an advisory opinion to that person a to whether a 
proposed activity by that person would subject that person to 
sanctions under this Act.

Section 7. duration of sanctions; Presidential waiver

    Section 7(a)(1) If the President makes a determination 
under section 4(a), he is urged to consult with the government 
with primary jurisdiction over a person with respect to the 
imposition of sanctions under this Act.
    Section 7(a)(2) allows the President to delay the 
imposition of the sanctions for 90 days if the President finds 
that the appropriate government with primary jurisdiction over 
that foreign person has taken specific and effective actions, 
including the imposition of appropriate penalties, to terminate 
the involvement of the person in the activities that led to 
sanctions concerning such person.
    Section 7(a)(3) allows the President to delay the 
imposition of the sanctions an additional 90 days if the 
President determines and certifies to the Congress that the 
appropriate government is in the process of taking actions 
described in paragraph (2).
    Section 7(a)(4) requires the President to submit to the 
Committee on Banking, Housing and Urban Affairs of the Senate 
and the Committee on International Relations of the House of 
Representatives a report which shall include information
    Section 7(b) requires the sanctions to remain in effect 
until the President determines that the sanctioned person is no 
longer engaging in the activity that led to the imposition of 
sanctions.
    Section 7(c)(1) allows the president to waive the 
imposition of sanctions or the continued imposition of 
sanctions 15 days after it is determined and reported to the 
Committee on Banking, Housing, and Urban Affairs and the 
Committee on International Relations of the House of 
Representatives that it is important to the national interest 
of the United States to exercise such waiver authority.
    Section 7(c)(2) states that any report shall provide a 
specific and detailed rationale for such determination that 
will include: (A) a description of the conduct that resulted in 
the determination; (B) in the case of a foreign person, an 
explanation of the efforts to secure the cooperation of the 
government with primary jurisdiction of the sanctioned person 
to terminate or, as appropriate, penalize the activities that 
resulted in the determination; (C) an estimate as to the 
significance of the investment to Iran's ability to develop its 
petroleum resources and (D) a statement as to the response of 
the United States in the event that such person engages in 
other activities that would be subject to section 4(a).

Section 8. Termination of sanctions against Iran

    Section 8 (1) provides for termination of the sanctions if 
the President determines that Iran has ceased its efforts to 
design, develop, manufacture, or acquire (A) a nuclear 
explosive device or related materials and technology; (B) 
chemical and biological weapons; or (C) ballistic missiles and 
ballistic missile launch technology; and (2) if Iran has been 
removed from the list of state sponsors of international 
terrorism under section 6(j) of the Export Administration Act 
of 1979.

Section 9. Report required

    The President shall continue to transmit reports to 
congress describing the nuclear and other military capabilities 
of Iran and Iran's support of international terrorism.

Section 10

    The following terms are defined in this section:
          (1) The appropriate congressional committees means 
        the Committees on Banking, Housing and Urban Affairs 
        and Foreign Relations of the Senate and the Committees 
        on Banking and Financial Services and International 
        Relations of the House of Representatives.
          (2) Financial institutions include (A) a depository 
        institution (as defined in section 3(c)(1) of the 
        Federal Deposit Insurance Act), including a branch or 
        agency of a foreign bank (as defined in section 1(b)(7) 
        of the International Banking Act of 1978); (B) a credit 
        union; (C) a securities firm, including a broker or 
        dealer; (D) an insurance company, including an agency 
        or underwriter; (E) any other company that provides 
        financial services; or (F) any subsidiary of such 
        financial institution.
          (3) Investment means (A) the entry into a contract 
        that includes responsibility for the development of 
        petroleum resources located in Iran, or the entry into 
        a contract providing for the general supervision and 
        guarantee of another person's performance of such a 
        contract; (B) the purchase of a share of ownership in 
        that development; or (C) the entry into contract 
        providing for participation in royalties, earnings, or 
        profits in that development, without regard to the form 
        of the participation.
          (4) person means a natural person as well as a 
        corporation, business association, partnership, 
        society, trust, any other non-governmental entity, 
        organization, or group, and any governmental entity 
        operating as a business enterprise, and any successor 
        of any such entity.
          (5) petroleum resources includes petroleum and 
        natural gas resources.

                      regulatory impact statement

    Pursuant to rule XXVI, paragraph 11(b), of the Standing 
Rules of the Senate, the Committee has evaluated the regulatory 
impact of the bill and concludes it would result in no net 
increase in the regulatory burden imposed by the Government.

                        changes in existing law

    The Committee has determined that it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of rule XXVI, paragraph 12, of the Standing Rules 
of the Senate, with respect to this legislation.

                          cost of legislation

    The cost estimate of the Congressional Budget Office 
appears below:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, December 13, 1995.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed S. 1228, Iran Oil Sanctions Act of 1995, as ordered 
reported by the Senate Committee on Banking, Housing, and Urban 
Affairs on December 12, 1995. The bill would have no 
significant budgetary impact.
    The bill would require the President to impose one or more 
sanctions against any person that invests $40 million or more 
in the development of the petroleum resources of Iran. The 
President would be able to deny a sanctioned person financing 
under the Export-Import Bank Act or deny an export license 
under any statute that requires prior review and approval by 
the U.S. government. The President also would be empowered to 
prohibit U.S. financial institutions from providing credits to 
a sanctioned person and to prevent a sanctioned financial 
institution from acting as a primary dealer in U.S. government 
debt instruments or as a repository for U.S. government funds.
    Existing monitoring and compliance activities could be 
modified to accommodate the new sanctions at no significant 
cost. The bill would not affect direct spending or revenues of 
the federal government and thus would not be subject to pay-as-
you-go procedures under section 252 of the Balanced Budget and 
Emergency Deficit Control Act of 1985. It would not affect the 
budgets of state or local governments.
    If you wish further details on this estimate, the CBO staff 
contact is Joseph C. Whitehill.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).