[House Report 107-107]
[From the U.S. Government Publishing Office]


From the House Reports Online via GPO Access
[wais.access.gpo.gov]

[DOCID: f:hr107p1.107]
From the House Reports Online via GPO Access
[wais.access.gpo.gov]

107th Congress                                            Rept. 107-107
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
                       ILSA EXTENSION ACT OF 2001

                                _______
                                

                 June 22, 2001.--Ordered to be printed

                                _______
                                

Mr. Hyde, from the Committee on International Relations, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1954]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on International Relations, to whom was 
referred the bill (H.R. 1954) to extend the authorities of the 
Iran and Libya Sanctions Act of 1996 until 2006, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                           TABLE OF CONTENTS

                                                                   Page
The Amendment....................................................     1
Background and Purpose...........................................     2
Hearings.........................................................     5
Committee Consideration..........................................     5
Votes of the Committee...........................................     6
Committee Oversight Findings.....................................     6
New Budget Authority and Tax Expenditures........................     7
Congressional Budget Office Cost Estimate........................     7
Performance Goals and Objectives.................................     8
Constitutional Authority Statement...............................     8
Section-by-Section Analysis......................................     8
New Advisory Committees..........................................     9
Congressional Accountability Act.................................     9
Federal Mandates.................................................     9

                             The Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``ILSA Extension Act of 2001''.

SEC. 2. IMPOSITION OF SANCTIONS WITH RESPECT TO LIBYA.

    (a) In General.--Section 5(b)(2) of the Iran and Libya Sanctions 
Act of 1996 (50 U.S.C. 1701 note; 110 Stat. 1543) is amended by 
striking ``$40,000,000'' each place it appears and inserting 
``$20,000,000''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to investments made on or after June 13, 2001.

SEC. 3. EXTENSION OF IRAN AND LIBYA SANCTIONS ACT OF 1996.

    Section 13(b) of the Iran and Libya Sanctions Act of 1996 (50 
U.S.C. 1701 note; Public Law 104-172) is amended by striking ``5 
years'' and inserting ``10 years''.

SEC. 4. REVISED DEFINITION OF INVESTMENT.

    Section 14(9) of the Iran and Libya Sanctions Act of 1996 (50 
U.S.C. 1701 note; 110 Stat. 1549) is amended by adding at the end the 
following new sentence: ``For purposes of this paragraph, an amendment 
or other modification that is made, on or after June 13, 2001, to an 
agreement or contract shall be treated as the entry of an agreement or 
contract.''.

                         Background and Purpose

    The Iran-Libya Sanctions Act (PL 104-172) imposes sanctions 
on persons or entities investing in the Iranian or Libyan 
energy sector above the threshold of $20 million and $40 
million respectively in a given year. The President has the 
option of two out of a menu of seven sanctions, and there is a 
national security clause that allows the President to waive all 
sanctions.
    The ILSA Extension Act of 2001 extends the act for an 
additional 5 years, lowers the threshold for foreign investment 
in the Libyan energy sector from $40 million to $20 million, 
the same threshold for Iranian investment, and mandates that 
``an amendment or other modification'' to pre-ILSA contracts in 
Libya be considered as new investment and therefore subject to 
scrutiny under ILSA.

                          ILSA AND ITS ORIGINS

    The Iran-Libya Sanctions Act (ILSA, P.L. 104-172) is set to 
expire on August 5, 2001, 5 years after enactment. ILSA was 
designed to deter foreign investment in Iran's energy sector in 
response to Iran's weapons-of-mass-destruction programs, its 
support of Islamist terrorist organizations, such as Hezbollah, 
Hamas, and Palestine Islamic Jihad, and Iran's possible role in 
the Khobar Towers bombing in 1996 of U.S. troops in Saudi 
Arabia. ILSA had been preceded by presidential executive orders 
banning all U.S. trade and investment with Iran in 1995, 
including Conoco's agreement to invest in the Iranian oil 
sector.
    Iran had begun to consider foreign investment in its energy 
sector in the mid-1990's for the first time since the fall of 
the Shah in response to declining energy revenues. Oil revenues 
account for almost half of Iran's GDP, and Iran's oil fields, 
as well as its oil industry infrastructure, are old and need 
substantial modernization and investment. Its large natural gas 
resources, believed to be second largest in the world, after 
Russia's, are hardly developed at all.
    Former Senator D'Amato introduced the first version of what 
later became ILSA--the ``Iran Foreign Oil Sanctions Act of 
1995,'' which imposed sanctions on the export to Iran, by 
foreign companies, of sophisticated energy industry technology. 
The bill passed the Senate in December, 1995 (by voice vote) as 
the ``Iran Oil Sanctions Act of 1995'' which, in contrast to 
the introduced version, imposed sanctions on foreign investment 
in Iran's energy sector. This change of approach also took into 
account concerns that U.S. monitoring of foreign exports to 
Iran would be difficult to implement. As passed in the Senate, 
the bill also included identical sanctions on Libya.
    The legislation that was ultimately passed and became law, 
H.R. 3107, was passed by the House on June 19, 1996 by a vote 
of 415-0. The Senate passed a slightly different version on 
July 16, 1996 by unanimous consent. The House agreed to the 
Senate amendment and the President signed the bill into law 
(P.L. 104-172) on August 5, 1996.

                            ILSA Provisions

    ILSA currently requires the President, subject to the 
possibility of waiver, to impose at least two out of a menu of 
seven sanctions on foreign companies that make an 
``investment'' of more than $20 million in 1 year in Iran's 
energy sector, or $40 million in 1 year in Libya's energy 
sector. The sanction with the strongest impact would prevent 
U.S. imports of goods from an offending company. The seven 
sanctions provided for in ILSA (Section 6) are the following:

         Denial of Export-Import Bank loans, credits, 
        or credit guarantees for U.S. exports to the sanctioned 
        firm.

         Denial of licenses for the export to the U.S. 
        of military or militarily-useful technology to the 
        sanctioned firm.

         Denial of U.S. bank loans exceeding $10 
        million in 1 year to the sanctioned firm.

         If the sanctioned firm is a financial 
        institution, a prohibition on that firm's service as a 
        primary dealer in U.S. government bonds; and/or a 
        prohibition on that firm's service as a repository for 
        U.S. government funds. (Each counts as one sanction.)

         Prohibition on U.S. government procurement 
        from the sanctioned firm.

         A restriction on imports from the sanctioned 
        firm, in accordance with the International Economic 
        Powers Act (50 U.S.C. 1701 and following).

                    Waiver and Expiration Provisions

    There are two grounds on which the President may waive ILSA 
sanctions. Under Section 4(c) of ILSA, the President may waive 
sanctions for investment in Iran if the parent country of the 
violating firm agrees to impose economic sanctions on Iran. 
This waiver provision does not apply to Libya. Under Section 
9(c) of the law, the President may waive sanctions on the 
grounds that doing so is important to the U.S. national 
interest. This waiver applies to Iran and Libya.
    ILSA provides for benchmarks under which the sanctions 
provisions would no longer apply. For Iran, the sanctions end 
if Iran ceases its efforts to acquire WMD and is removed from 
the U.S. list of state sponsors of terrorism. For Libya, the 
sanctions end if the President determines that Libya has 
fulfilled the requirements of all U.N. resolutions relating to 
the attack on Pan Am 103.

                          ILSA Implementation

    None of the ILSA sanctions have been applied against 
foreign entities, largely because of strong opposition from the 
European Union. The European Union strongly opposes ILSA on the 
ground that it is an extraterritorial application of U.S. law. 
It has threatened taking the issue to the World Trade 
Organization, and adopted measures forbidding EU firms to 
cooperate in implementing the law.
    In 1998, President Clinton waived on national security 
grounds ILSA sanctions against the first foreign investment 
consortium, involving Total SA of France (now Totalfina ELF) 
and its minority partners, Gazprom of Russia and Petronas of 
Malaysia, which had won an award of a $2 billion contract to 
develop the large South Pars off-shore gas field. (Iran is less 
sensitive about off-shore than on-shore foreign investment.) 
Gazprom would have been the only firm that could have been 
immediately affected by ILSA legislation since it had access to 
Eximbank credits; the other two firms did not have financial 
interests in the United States that would have been effected.
    In return for the waiver, the EU and Russia promised 
greater cooperation on counter-terrorism and limiting the 
transfer of technology to Iran.
    Since then, a number of other foreign firms have decided to 
enter the Iranian energy sector. In 1999, France's Elf 
Aquitaine (now merged with Totalfina) and Italy ENI were 
awarded a $1 billion deal, Elf and a Canadian firm, Bow Valley, 
a $300 million project, and Royal Dutch/Shell a $800 million 
project. The Clinton Administration placed these projects under 
review for ILSA, but did not decide whether to impose 
sanctions. These projects have recently begun their 
implementation phases.
    President Bush said on April 20 said that he has no 
immediate plans to end sanctions on Iran or Libya. The 
President said that Libya must pay compensation and acknowledge 
responsibility for the destruction of Pan AM 103. The remarks 
were in response to questions about an energy task force headed 
by Vice President Cheney, which is examining the sanctions 
issue in the context of U.S. energy supplies.

                   Arguments in Favor of ILSA Renewal

    Supporters of ILSA renewal make the argument that ILSA has 
succeeded in deterring Japanese investment, and has probably 
deterred some European investors from investing in the energy 
sector. By limiting the numbers of foreign investors, ILSA has 
reduced Iranian revenues since there are fewer foreign 
companies that can be pitted against each other to increase 
revenues in the bidding process. Supporters also believe that 
ILSA strengthens the case for existing prohibitions against 
U.S. investment in the Iranian energy sector.
    Supporters of ILSA also point out that Iran has not changed 
those policies that the United States finds objectionable, 
despite the election of President Khatemi and large numbers of 
pragmatists to the Iranian parliament. According to 
unclassified studies by the Central Intelligence Agency, Iran 
continues its weapons-of-mass destruction programs, including 
nuclear, chemical, and biological, and the missiles to deliver 
them. Iran already has manufactured and stockpiled several 
thousand tons of chemical weapons. Tehran is expanding its 
efforts to seek dual-use biotechnical materials, equipment, and 
expertise from abroad. Iran is cooperating broadly with Russia 
on its nuclear program. A number of foreign entities continue 
to supply numerous components for Iran's missile program.
    Iran has increased its support to Islamic radical movements 
that carry out operations against Israel. Iran supports these 
groups with varying amounts of money, training, and weapons. 
These groups have carried out terrorist attacks against Israeli 
civilians inside Israel.
    Supporters also believe that not renewing ILSA would 
indicate that the United States is less concerned with the 
offensive Iranian behavior.
    Supporters apply similar arguments to the case of Libya. In 
particular, they point to insufficient change in Libyan 
behavior. Libya handed over two Pan Am 103 suspects in April 
1999, triggering a suspension of U.N. sanctions, and one of 
these suspects, who is closely linked to the Libyan government, 
was convicted of the bombing in January 2000. Nevertheless, 
Libya still refuses to acknowledge culpability for the bombing 
or to compensate the families of the victims. As is the case 
regarding Iran, supporters believe that ending or easing 
application of ILSA sanctions on Libya would suggest a 
weakening of U.S. resolve.

                                Hearings

    The Committee's Subcommittee on the Middle East and South 
Asia hosted a classified briefing for Committee Members held by 
staff of the Central Intelligence Agency on Wednesday, May 9, 
2001. Members of the Committee were briefed on the Iranian 
program to develop weapons of mass destruction and Iran's 
support of terrorism. On May 9, 2001, the Subcommittee on the 
Middle East and South Asia held a hearing on issues related to 
the Iran-Libya Sanctions Act. Testimony was received from: 
Former U.S. Senator Alfonse D'Amato (via video conference); Dr. 
Patrick Clawson, Director for Research, The Washington 
Institute for Near East Policy; Mr. Howard A. Kohr, Executive 
Director, American Israel Public Affairs Committee; and the 
Honorable William A. Reinsch, President, National Foreign Trade 
Council, Inc. In addition, Deputy Assistant Secretary of State 
for Energy, Sanctions, and Commodities, Anna Borg, expressed 
the Administration's position during the Committee's markup of 
H.R. 1954.

                        Committee Consideration

    On June 13, 2001, the International Relations Committee 
marked up the bill, H.R. 1954, pursuant to notice, in open 
session. The Committee agreed by voice vote to an amendment 
offered by Mr. Lantos which makes two changes to the Iran-Libya 
Sanctions Act (P.L. 104-172). First, it lowers the dollar 
threshold (from $40 to $20 million) that triggers sanctions 
against foreign companies that make oil investments in Libya, 
making it consistent with the threshold that applies to Iran. 
Second, the amendment clarifies that an amendment or 
modification to a contract that existed prior to the enactment 
of the Iran-Libya Sanctions Act shall be treated as a new 
contract for purposes of evaluating whether such amendment or 
modification triggers the sanctions provided under the act. The 
Committee has received a number of reports that companies 
operating in Iran and Libya under contracts entered into prior 
to the enactment of ILSA (activities that were 
``grandfathered'' by the act) are amending or modifying 
contracts rather than entering into new contracts in order to 
avoid ILSA sanctions. This amendment addresses these attempted 
circumventions of the act. The Committee recessed subject to 
the call of the Chair on June 13 without completing 
consideration of the bill.
    The markup continued on June 20, 2001. Mr. Paul offered an 
amendment to extend the act for 2 years instead of 5. The 
amendment was defeated by a record vote of 9 ayes to 34 noes. A 
motion offered by Chairman Hyde to favorably report H.R. 1954 
to the House of Representatives, as amended, was agreed to by a 
record vote of 41 ayes to 3 noes, a quorum being present.

                         Votes of the Committee

    Clause (3)(b) of rule XIII of the Rules of the House of 
Representatives requires that the results of each record vote 
on an amendment or motion to report, together with the names of 
those voting for or against, be printed in the Committee 
report.

     Description of Amendment, Motion, Order, or Other Proposition:

Vote 1 (11:35 a.m.): Paul Amendment to extend the act until 2003 
        instead of 2006.
    Voting yes: Bereuter, Rohrabacher, Houghton, Cooksey, Paul, 
Nick Smith, Flake, Hilliard, and Blumenauer.
    Voting no: Gilman, Leach, Chris Smith, Burton, Gallegly, 
Ros-Lehtinen, Ballenger, King, Chabot, Burr, Tancredo, Pitts, 
Issa, Cantor, Kerns, Jo Ann Davis, Lantos, Berman, Ackerman, 
Faleomavaega, Payne, Menendez, Wexler, Jim Davis, Engel, Meeks, 
Lee, Crowley, Hoeffel, Berkley, Napolitano, Schiff, Watson and 
Hyde.
    Ayes 9. Noes 34.
Vote 2 (11:39 a.m.): Hyde motion to favorably report to the House of 
        Representatives H.R. 1954, as amended.
    Voting yes: Gilman, Leach, Bereuter, Chris Smith, Burton, 
Gallegly, Ros-Lehtinen, Ballenger, Rohrabacher, King, Chabot, 
McHugh, Burr, Cooksey, Tancredo, Nick Smith, Pitts, Issa, 
Cantor, Flake, Kerns, Jo Ann Davis, Lantos, Ackerman, 
Faleomavaega, Payne, Menendez, Sherman, Wexler, Jim Davis, 
Engel, Meeks, Lee, Crowley, Hoeffel, Blumenauer, Berkley, 
Napolitano, Schiff, Watson, and Hyde.
    Voting no: Houghton, Paul, and Hilliard.
    Ayes 41. Noes 3.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1954, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 21, 2001.
Hon. Henry J. Hyde, Chairman,
Committee on International Relations,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1954, the ILSA 
Extension Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Joseph C. 
Whitehill (for federal costs), who can be reached at 226-2840, 
and Paige Piper/Bach (for the private-sector impact), who can 
be reached at 226-2940.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable Tom Lantos
        Ranking Democratic Member
H.R. 1954--ILSA Extension Act of 2001.
    H.R. 1954 would extend the authorities of the Iran and 
Libya Sanctions Act (ILSA) of 1996 for an additional five years 
through 2006. The bill would lower the threshold of investments 
in Libya that could trigger sanctions under the act from $40 
million to $20 million, and it would revise the definition of 
investment to include any amendment or modification of existing 
contracts that would exceed the threshold amount. CBO estimates 
that implementing H.R. 1954 would not significantly affect 
discretionary spending. The bill would not affect direct 
spending or receipts; therefore, pay-as-you-go procedures would 
not apply.
    Based on information from the Department of State, CBO 
estimates that H.R. 1954 would result in a substantial increase 
in the number of investments in Libya that could be subject to 
the sanctions in ILSA. CBO estimates that the additional 
workload necessary to identify such investments would increase 
the department's spending by less than $500,000 annually, 
assuming the availability of appropriated funds.
    H.R. 1954 could impose a private-sector mandate as defined 
by the Unfunded Mandates Reform Act (UMRA). The President would 
be required to impose certain sanctions on U.S. entities or 
foreign companies that have invested more than a specified 
amount of money ($20 million for Libya, $40 million for Iran) 
in developing the petroleum and natural gas resources of Libya 
or Iran. Among the sanctions available under the bill, the 
President could impose certain restrictions on U.S. offices of 
a sanctioned company or on entities and financial institutions 
engaged in business transactions with a sanctioned entity. The 
bill would, however, allow the President the discretion to make 
exceptions in applying such sanctions. Since passage of the 
Iran and Libya Sanctions Act of 1996, no such sanctions have 
been imposed. Consequently, CBO expects that sanctions are 
unlikely to be imposed under this act and that the direct cost 
of the mandate would fall below the annual threshold 
established by UMRA for private-sector mandates ($113 million 
in 2001, adjusted annually for inflation).
    H.R. 1954 contains no intergovernmental mandates as defined 
in UMRA and would not affect the budgets of state, local, or 
tribal governments.
    The CBO staff contact for federal costs is Joseph C. 
Whitehill, who can be reached at 226-2840. The CBO staff 
contact for private-sector mandates is Paige Piper/Bach, who 
can be reached at 226-2940. This estimate was approved by 
Robert A. Sunshine, Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    ILSA is intended to change Iranian and Libyan behavior by 
making more costly foreign investors' access to their energy 
resources. It was the intent of this bill that Iran and Libya 
would change their objectionable behavior or face the prospect 
of less foreign investment.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 3, and article 
I, section 8, clause 18 of the Constitution.

               Section-by-Section Analysis and Discussion

    The Iran Libya Sanctions Act of 1996 (50 U.S.C. 1701 note: 
Public Law 104-172) is modified in the following ways:
    Section 1 is the short title of the bill.
    Section 2 amends the Iran and Libya Sanctions Act by 
lowering the threshold that would trigger sanctions on foreign 
investment in Libya's energy sector from $40 million to $20 
million--the same as Iran. It specifically amends section 5(b) 
(2) by striking ``$40,000,000 each of the two places it appears 
and inserting $20,000.000''.
    Section 3 amends Section 13(b) of the Iran and Libya 
Sanctions Act of 1996 is by striking ``5 years'' and inserting 
``10 years.'' This section extends the sanctions for an 
additional 5 years.
    Section 4 provides a revised definition of investment, 
specifically by amending section 14(9), mandates that ``an 
amendment or other modification'' to pre-ILSA contracts in 
Libya be considered as new investment and therefore liable to 
scrutiny under ILSA. This was done to prevent foreign companies 
from avoiding scrutiny by claiming that new operations adjacent 
to old oil fields are part of the pre-ILSA contracts, and not 
covered by ILSA.

                        New Advisory Committees

    H.R. 1954 does not establish or authorize any new advisory 
committees.

                    Congressional Accountability Act

    H.R. 1954 does not apply to the legislative branch.

                            Federal Mandates

    H.R. 1954 provides no Federal mandates.

                                  
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