[House Report 105-141]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-141
_______________________________________________________________________


 
    PROHIBITION ON FINANCIAL TRANSACTIONS WITH COUNTRIES SUPPORTING 
                         TERRORISM ACT OF 1997
_______________________________________________________________________


 June 21, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. McCollum, from the Committee on the Judiciary,  submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 748]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 748) to amend the prohibition of title 18, United 
States Code, against financial transactions with terrorists, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Prohibition on Financial Transactions 
With Countries Supporting Terrorism Act of 1997''.

SEC. 2. FINANCIAL TRANSACTIONS WITH TERRORISTS.

  Section 2332d of title 18, United States Code, (relating to financial 
transactions) is amended--
          (1) in subsection (a)--
                  (A) by striking ``Except as provided in regulations 
                issued by the Secretary of the Treasury, in 
                consultation with the Secretary of State, whoever'' and 
                inserting ``Whoever''; and
                  (B) by inserting ``of 1979'' after ``Export 
                Administration Act''; and
          (2) in subsection (b)(1), by inserting after ``1956(c)(4)'' 
        the following: ``, except that such term does not include any 
        transaction ordinarily incident to--
                  ``(A) routine diplomatic relations among countries;
                  ``(B) an official act by a representative of, or an 
                act which is authorized by and conducted on behalf of, 
                the United States Government;
                  ``(C) the broadcasting or reporting of news by 
                organizations regularly engaged in such activity; or
                  ``(D) the provision of assistance intended to relieve 
                human suffering;
                  ``(E) the receipt of emergency medical services;
                  ``(F) any postal, telegraphic, or other personal 
                communication which does not involve a transfer of 
                anything of value;
                  ``(G) the protection of intellectual property rights 
                of any United States person;
                  ``(H) the performance of any contract or agreement 
                that was entered into before June 12, 1997, but not 
                those renewed after such date;
                  ``(I) the provision of hospitality or transportation 
                services; or
                  ``(J) the payment of a claim to any United States 
                person''.

SEC. 3. REPORT ON EFFECTS OF ENACTMENT.

  Beginning not later than one year after the date of enactment of this 
Act, the Secretary of the Treasury, in consultation with the Secretary 
of State, shall issue an annual report to Congress on--
          (1) the impact of this prohibition on United States 
        businesses; and
          (2) any means by which a negative impact might be 
        ameliorated.

                          Purpose and Summary

    H.R. 748, the ``Prohibition on Financial Transactions With 
Countries Supporting Terrorism Act of 1997,'' expands section 
321 of the ``Antiterrorism and Effective Death Penalty Act of 
1996'' by eliminating overly permissive regulations promulgated 
by the Administration last year and the authority to issue such 
regulations in the future. It establishes, in place of the 
regulations, specific exceptions to the prohibition, created by 
section 321, on engaging in financial transactions with 
countries that have been designated as sponsors of terrorism.
    The effect of section 321 is to prohibit financial support 
of U.S. persons by terrorist countries and all financial 
transactions by U.S. persons with these countries, regardless 
of where these transactions take place. The provision also 
authorizes the Department of the Treasury, in consultation with 
the State Department, to make specific exceptions to the ban 
through regulations.
    In August of 1996, the Treasury Department published 
regulations in relation to section 321 which essentially 
reversed the effect of the new prohibition. The regulations 
permit all financial transactions with terrorist list 
governments, except for transactions otherwise prohibited by 
law or which pose a risk of furthering domestic terrorism. The 
regulations prohibit U.S. persons from receiving unlicensed 
donations and from engaging in financial transactions with 
respect to which the U.S. person knows or has reasonable cause 
to believe that the financial transaction poses a risk of 
furthering terrorist acts in the United States.
    H.R. 748 strips the executive branch of its authority to 
issue regulations exempting transactions from the prohibition. 
It establishes instead a legislative exception only for 
specified transactions. The list of permitted activities, and 
transactions incident thereto, include: routine diplomatic 
relations among countries; official acts by representatives of 
the U.S. government; news reporting; humanitarian assistance; 
emergency medical services; postal and telephone services; the 
protection of intellectual property rights; hospitality or 
transportation services; the fulfillment of existing contracts; 
and payments of a claim to U.S. persons.

                Background and Need for the Legislation

    On April 24, 1996, President Clinton signed the 
``Antiterrorism and Effective Death Penalty Act of 1996'' (Pub. 
L. 104-132). This comprehensive legislation included reforms to 
the federal death penalty laws, provided additional rights to 
crime victims, and increased penalties for crimes of terrorism 
against the United States.
    The forces of militant extremism in the Middle East and 
Africa are among the greatest international dangers currently 
facing America and its allies. The deadly threat posed by 
international terrorists in this region of the world must not 
be underestimated. Yet, confronting this threat and other 
terrorist threats around the globe means confronting the 
countries which provide desperately needed support to these 
groups.
    A handful of pariah states--Cuba, Libya, North Korea, Iran, 
Iraq, Syria and Sudan--have been designated by the State 
Department, pursuant to section 6(j) of the Export 
Administration Act, as terrorist sponsoring countries or 
``Terrorism List Governments.'' No one should discount the 
significance of this designation. Without the support of these 
countries, terrorists would literally not have a home, much 
less the active assistance of government officials.
    With regard to Sudan specifically, United Nations 
Ambassador Richardson recently described this country as 
follows: ``The Sudanese Government destabilizes its neighbors, 
supports terrorists, commits human rights abuses against its 
own citizens, and pursues civil war inthe south.'' Clearly, the 
training and support of terrorists occurring in Sudan are major 
contributors to the untold human suffering caused by religious 
extremists in this region of the world.
    There should be no higher priority for the United States in 
the battle against terrorism than the elimination of foreign 
government support for terrorists. This is why section 321 of 
the ``Antiterrorism and Effective Death Penalty Act of 1996'' 
is a vital tool in this battle.

Section 321 of the Antiterrorism Act (18 U.S.C. Sec. 2332d)

    Section 321, which prohibits financial transactions between 
U.S. persons and countries which have been designated as 
supporters of terrorism, was drafted with a dual purpose in 
mind. First, it prohibits financial support from terrorist 
countries to U.S. persons, thus attempting to prevent the long-
arm of terrorism from reaching the shores of the United States 
through domestic entities. Second, and more broadly, it 
prohibits all financial transactions by U.S. persons with these 
countries, regardless of where these transactions take place. 
The obvious goal of this language is to cut off terrorist 
sponsoring governments from the economic benefit of doing 
business with U.S. companies. Since five of the seven terrorism 
list governments are already subject to economic sanctions as a 
result of executive order, the immediate impact of the ban 
related to Sudan and Syria.
    In response to administration concerns that the prohibition 
could have unintended consequences, language was included in 
section 321 which permitted the Secretary of the Treasury to 
issue regulations establishing some exceptions to the 
prohibition. This broad authority was mostly intended to cover 
routine diplomatic and consular relations. In implementing 
section 321, the Treasury Department, through its Office of 
Foreign Assets Control, issued the ``Terrorism List Governments 
Sanctions Regulations,'' 31 CFR Part 596. Under these 
regulations, any U.S. person may conduct financial transactions 
with a terrorist list country, unless the person ``knows * * * 
or has reasonable cause to believe that the transfer poses a 
risk of furthering terrorist acts in the United States.'' This 
broad exception captures a much wider range of activities than 
was originally intended.

31 CFR Part 596

    In August of last year, the Treasury Department published 
its regulations in relation to section 321 which effectively 
eliminated the new prohibition. These regulations permit all 
financial transactions with Sudan and Syria, other than those 
which pose a risk of furthering domestic terrorism. The 
regulations prohibit U.S. persons from receiving unlicensed 
donations and from engaging in financial transactions with 
respect to which the United States person knows or has 
reasonable cause to believe that the financial transaction 
poses a risk of furthering terrorist acts in the United States.
    In the view of the original sponsors of section 321, the 
regulatory authority provided in the provision should not have 
been exercised in this manner. This ``business as usual'' 
policy represents a step backwards in the effort to pressure 
Syria and Sudan, as well as the other five countries, from 
severing their ties to terrorist groups.

H.R. 748

    H.R. 748 is intended to close the loophole created by the 
regulations and to prohibit transactions other than those that 
are specifically authorized in statute. The bill strips the 
executive branch of the authority to issue regulations 
exempting transactions from the prohibition. It establishes 
instead a list of legislative exceptions for transactions 
ordinarily incident to a variety of activities.

                                Hearings

    The Committee's Subcommittee on Crime held one (1) day of 
hearings on H.R. 748. Testimony was received from six (6) 
witnesses, representing the Departments of Treasury and State, 
World Vision Relief and Development, ITT Sheraton, Crescent 
Investment Management, L.P., and the Washington Institute for 
Near East Policy.

                        Committee Consideration

    On June 12, 1997, the Subcommittee on Crime met in open 
session and ordered reported the bill H.R. 748, as amended, by 
voice vote, a quorum being present. On June 18, 1997, the 
Committee met in open session and ordered reported favorably 
the bill H.R. 748, with amendment, by voice vote, a quorum 
being present.

                         Vote of the Committee

    There were no recorded votes.

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI 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.

         Committee on Government Reform and Oversight Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that the 
bill will have no significant impact on the federal budget for 
fiscal years 1997-2002. There will not be any significant costs 
incurred in carrying out H.R. 748.

                   Constitutional Authority Statement

    Pursuant to rule XI, clause 2(l)(4) of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, section 8 of the Constitution.

                      Section-by-Section Analysis

Section 1. Short title

    This section states that this Act may be cited as the 
``Prohibition on Financial Transactions With Countries 
Supporting Terrorism Act of 1997.''

Sec. 2. Financial transactions with terrorists

    This section amends Sec. 2332d of title 18, United States 
Code, by striking the language ``Except as provided in 
regulations issued by the Secretary of the Treasury, in 
consultation with the Secretary of State, whoever'' and 
inserting ``Whoever.'' This change removes the broad authority 
currently enjoyed by the Departments of State and Treasury to 
exempt individuals or corporations from the prohibition on 
financial transactions with terrorist list countries.
    Subsection (2) of this section lists specific exceptions to 
the ban on financial transactions with terrorist countries. 
This section states that a financial transaction, ``does not 
include any transaction ordinarily incident to--'' (A) routine 
diplomatic relations among countries; (B) official acts by 
representatives of, or acts which are authorized by and 
conducted on behalf of, the United States Government; (C) the 
broadcasting or reporting of news by organizations regularly 
engaged in such activity; (D) the provision of assistance 
intended to relieve human suffering; (E) the receipt of 
emergency medical services; (F) any postal, telegraphic, or 
other personal communication which does not involve a transfer 
of anything of value; (G) the protection of intellectual 
property rights of any United States person; (H) the 
performance of any contract or agreement that was entered into 
before June 12, 1997, but not those renewed after such date; 
(I) the provision of hospitality or transportation services; or 
(J) the payment of a claim to any United States person.
    The Committee intends by the words ``ordinarily incident 
to'' to exclude from the prohibition any financial transaction 
that is necessarily connected to or arising from the 
performance of a particular activity authorized by this 
legislation. Such transactions include fees and travel related 
expenses. For example, a U.S. government employee conducting 
official business in a terrorist list country may incur 
expenses relating to air travel, living expenses, and 
miscellaneous fees that are unavoidably connected to the 
government of that country. Similarly, those involved in the 
delivery of humanitarian assistance or news reporting may 
engage in such transactions if they are related to the 
permitted activity. Also, any filing fees required in 
connection with the making of a legal claim would not be 
prohibited. Some incidental transactions, such as the purchase 
of postage stamps or the use of a telephone, are specifically 
exempted by the legislation.
    With regard to the exception for broadcasting or reporting 
of news, the Committee notes that this applies only to those 
whose occupation is associated with journalism, including 
editing and technical services. This exception is not intended 
to allow any person to engage in a business transaction with a 
terrorist list country so long as such person reports on his 
experiences.
    The Committee expects that a manager's amendment will be 
adopted by the full House when it gives consideration to H.R. 
748. This amendment will allow the purchase of humanitarian 
assistance. The Committee intends to allow for the transfer of 
humanitarian assistance, which may be donated to, or purchased 
by, the recipient. This assistance may include medical 
services, supplies and equipment. While the Committee intends 
to permit this assistance to be provided both with or without 
charge to the person or entity receiving the assistance, this 
paragraph would not permit the entity providing such assistance 
under this section to engage in other related commercial 
activities such as advertising or manufacturing health care 
products in the terrorist state.
    Paragraph (H) relating to the performance of any contract 
or agreement entered into before June 12, 1997, is intended to 
protect those contracts that were established prior to the 
formal consideration of this legislation. If a party has an 
option to renew a contract sometime after June 12, 1997, such 
renewal should not be considered as a continuation of the 
original contract and would not be included in the exception in 
section 321. This is true even if the party gave consideration 
for such option to renew.

                              Agency Views

    There were no agency views received on H.R. 748 other than 
testimony that was submitted at the hearing held on June 10, 
1997.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 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 (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

             SECTION 2332d OF TITLE 18, UNITED STATES CODE

Sec. 2332d. Financial transactions

    (a) Offense.--[Except as provided in regulations issued by 
the Secretary of the Treasury, in consultation with the 
Secretary of State, whoever] Whoever, being a United States 
person, knowing or having reasonable cause to know that a 
country is designated under section 6(j) of the Export 
Administration Act of 1979 (50 U.S.C. App. 2405) as a country 
supporting international terrorism, engages in a financial 
transaction with the government of that country, shall be fined 
under this title, imprisoned for not more than 10 years, or 
both.
    (b) Definitions.--As used in this section--
          (1) the term ``financial transaction'' has the same 
        meaning as in section 1956(c)(4), except that such term 
        does not include any transaction ordinarily incident 
        to--
                  (A) routine diplomatic relations among 
                countries;
                  (B) an official act by a representative of, 
                or an act which is authorized by and conducted 
                on behalf of, the United States Government;
                  (C) the broadcasting or reporting of news by 
                organizations regularly engaged in such 
                activity; or
                  (D) the provision of assistance intended to 
                relieve human suffering;
                  (E) the receipt of emergency medical 
                services;
                  (F) any postal, telegraphic, or other 
                personal communication which does not involve a 
                transfer of anything of value;
                  (G) the protection of intellectual property 
                rights of any United States person;
                  (H) the performance of any contract or 
                agreement that was entered into before June 12, 
                1997, but not those renewed after such date;
                  (I) the provision of hospitality or 
                transportation services; or
                  (J) the payment of a claim to any United 
                States person; and
          (2) the term ``United States person'' means any--
                  (A) United States citizen or national;
                  (B) permanent resident alien;
                  (C) juridical person organized under the laws 
                of the United States; or
                  (D) any person in the United States.