[Senate Report 110-443]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 939
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-443

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



 
COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY AND DIVESTMENT ACT OF 2008

                                _______
                                

                 August 1, 2008.--Ordered to be printed

                                _______
                                

 Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 3445]

    The Committee on Banking, Housing, and Urban Affairs, 
having had under consideration an original bill (S. 3445) to 
impose sanctions with respect to Iran, to provide for the 
divestment of assets in Iran by State and local governments, 
and to identify countries engaged in transshipment or diversion 
of certain sensitive items to Iran, having considered the same, 
reports favorably thereon and recommends that the bill do pass.

                            I. INTRODUCTION

    On July 17, 2008, the Senate Committee on Banking, Housing 
and Urban Affairs considered a Committee Print, entitled the 
``Comprehensive Iran Sanctions, Accountability and Divestment 
Act of 2008,'' a bill to impose sanctions with respect to Iran; 
to provide for the divestment of assets in Iran by State and 
local governments and others; and to identify countries engaged 
in transshipment or diversion of certain sensitive items to 
Iran, and for other purposes. The Committee voted 19 to 2 to 
report the bill to the Senate. The Committee's consideration of 
the bill comes at a time of heightened international tensions 
surrounding the government of Iran's uranium enrichment 
program.

                              II. PURPOSE

    The Comprehensive Iran Sanctions, Accountability and 
Divestment Act of 2008 (hereafter ``the Act'') imposes a number 
of new sanctions on Iran; provides a legal framework by which 
States, local governments and certain other investors can 
divest Iran-related energy assets from their portfolios, and 
establishes a mechanism to address concerns about sensitive 
technologies being diverted to Iran through other countries.
    Specifically, the Act tightens the current export and 
import ban on Iran, while providing for certain exceptions; 
requires the freezing of assets of certain Iranian persons 
involved in providing support for terrorism or weapons 
proliferation, and their associates; imposes a ban on U.S. 
Government contracts for entities found to be subject to 
sanctions under the Iran Sanctions Act; expands the definition 
of persons subject to the Act; and imposes certain additional 
reporting requirements to increase monitoring of investments in 
Iran's energy sector. It also allows States and local 
governments and private asset fund managers, if they so choose, 
to adopt measures to divest from companies who have invested 
$20 million or more in the energy sector in Iran. Such measures 
may be adopted to reduce the financial or reputational risk 
associated with investments in a country subject to 
international sanctions. Finally, the Act establishes a system 
to strengthen and improve U.S. efforts to combat the diversion 
of sensitive dual use technologies to Iran.

                III. BACKGROUND AND NEED FOR LEGISLATION

    It is in the national interest of the U.S. for Iran to 
suspend its non-compliant uranium enrichment program, end its 
sponsorship of international terrorism, and halt weapons 
proliferation. The need to complement multilateral initiatives 
with legislation designed to address these concerns is also 
clear. It arises from continued threatening statements made by 
officials of the government of Iran and by Iran's persistent 
failure to address the concerns of the International Atomic 
Energy Agency (IAEA) with regard to its nuclear program. Such 
legislation would enhance current economic sanctions, enable 
divestment from Iran, and combat the diversion of sensitive 
technologies to Iran. By these means, this legislation is 
designed to maximize the economic leverage on Iran's 
government--from the U.S., our allies, and U.S. and 
international investors--to bring that government to the 
negotiating table, to change its behavior, and to constrain its 
freedom to act in ways inimical to the interests of the 
international community.
    The Committee recognizes that economic and financial 
sanctions are only one tool of statecraft and, to be effective, 
must be undertaken as part of a broader diplomatic effort. 
Sanctions are a means of providing leverage within a more 
comprehensive, coherent, coordinated diplomatic and political 
strategy to prompt Iran to cease and forswear all nuclear-
related activities that are in contravention of its 
international agreements and responsibilities, and other 
behaviors that undermine regional peace and stability.

Multilateral initiatives

    The government of Iran has been designated by the United 
States as a state sponsor of terrorism since 1984 and is a 
long-time financial supporter of terrorist organizations such 
as Hezbollah, Hamas, and Palestinian Islamic Jihad. The 
government of Iran has consistently misled the United Nations 
and the International Atomic Energy Agency about the objectives 
and scope of its nuclear activities. For example, IAEA 
inspections since 2003 have revealed two decades' worth of 
undeclared nuclear activities in Iran, including uranium 
enrichment and plutonium separation efforts. Despite a series 
of agreements to suspend its activities in this area, Iran has 
persisted in these activities, and the measures adopted thus 
far by the UN Security Council (UNSC) have proved insufficient 
to curtail Iran's enrichment activities.
    The UNSC has acted on various resolutions in recent years, 
condemning Iran's nuclear activities and urging compliance with 
its international obligations. For example, on December 23, 
2006, UNSC Resolution 1737 was unanimously approved, banning 
supply of nuclear technology and equipment to Iran and freezing 
the assets of organizations and individuals involved in Iran's 
nuclear program, until Iran suspends enrichment of uranium. 
UNSC Resolution 1747 was unanimously approved on March 24, 
2007, imposing a ban on arms sales, expanding the freeze on 
assets, and setting a deadline for Iranian compliance two 
months later. Absent compliance, further sanctions were adopted 
in UNSC Resolution 1803 on March 3, 2008, including a sales ban 
on dual use items; authorization of inspections of cargo 
suspected of containing WMD-related goods; an expanded Iranian 
travel ban list; and a call to ban transactions with Iran's 
Bank Melli and Bank Saderat.
    In addition to UNSC efforts, since 2006 the ``Permanent 
Five Plus 1'' (P5+1), comprised of the United States, Russia, 
China, France, Britain, and Germany, have proposed a blueprint 
for negotiating with Iran including the following proposed 
incentives: (1) Negotiations on EU-Iran trade agreements and 
acceptance of Iran into the World Trade Organization; (2) 
Easing of U.S. sanctions to permit sales to Iran of commercial 
aircraft and aircraft parts; (3) Sale to Iran of a light-water 
nuclear reactor and guarantees of nuclear fuel (including a 
five-year buffer stock of fuel), and possible sales of light-
water research reactors for medicine and agricultural 
applications; (4) an ``energy partnership'' between Iran and 
the European Union, including help for Iran to modernize its 
oil and gas sector and to build export pipelines; (5) Support 
for a regional security forum for the Persian Gulf, and support 
for the objective of a Middle East WMD free zone; (6) the 
possibility of eventually allowing Iran to resume uranium 
enrichment if it complies with all outstanding IAEA 
requirements and proves that its nuclear program is purely for 
peaceful purposes. The P5+1's proposed sanctions for 
noncompliance would include: (1) denial of visas for persons 
involved in Iran's nuclear program and other high-ranking 
Iranian officials; (2) asset freezes of additional Iranian 
officials and institutions; a freeze of Iran's governmental 
assets abroad; and a ban on some financial transactions; (3) a 
ban on sales of advanced technology, arms, and refined oil 
products to Iran; and (4) an end to support for Iran's 
application to the WTO.\1\
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    \1\Congressional Research Service. RS20871--The Iran Sanctions Act 
(ISA). July 23, 2008.
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    On June 14, 2008, a ``refreshed'' package of P5+1-proposed 
incentives was formally presented to Iran by EU envoy Javier 
Solana. At the same time, the European Union has taken steps to 
impose its own set of targeted financial sanctions, recently 
announcing a new round of sanctions against critical Iranian 
financial institutions found to be supporting the financing of 
weapons proliferation and terrorist activities. The European 
initiatives are important steps to increase economic pressure 
against the Iranian regime to change its proliferation-related 
behavior.

Nuclear intentions, technology diversion or transshipment

    In November 2007, a National Intelligence Estimate entitled 
``Iran: Nuclear Intentions and Capabilities'' was released. 
This report offered a thorough analysis of Iran's capability 
and intentions regarding nuclear weapons, taking full account 
of its dual use uranium fuel cycle and those of its nuclear 
activities that are at least partly civil in nature. The report 
concluded with high confidence that Iran had been pursuing a 
nuclear weapons program, and halted that program in 2003, but 
noted with moderate-high confidence that Iran is keeping open 
the option of developing nuclear weapons, and that Iran's 
uranium enrichment program may ultimately provide Iran with the 
capability to develop a nuclear weapon. The NIE also noted that 
the program probably was halted primarily in response to 
international pressure, suggesting that Iran may be more 
vulnerable to influence on the issue than the intelligence 
community had judged previously.
    In December 2007, the U.S. Government Accountability Office 
submitted a report to Congress assessing the effectiveness of 
sanctions on Iran and concluded, among other things, that the 
current sanctions regime should be reviewed, and that the 
current ban on most trade with Iran may be circumvented by the 
transshipment of United States exports through third countries. 
Formal surveys conducted by the Commerce Department to assess 
the verification of U.S. exports' end-use also concluded that 
technology may be easily diverted to Iran through third 
parties. Such concerns were further affirmed in recent reports 
by a reputable American non-governmental organization. Black-
market enterprises established through transshipment networks 
continue to supply dual use products to rogue regimes such as 
Iran and North Korea, facilitating development of their nuclear 
technology.\2\
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    \2\Government Accountability Office, Institute for Science and 
International Security, media reports.
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State and local divestment efforts

    In the U.S. in recent years, there has been an increasing 
interest by States, local governments, educational 
institutions, and private institutions to disassociate 
themselves from companies that directly or indirectly support 
the Government of Iran's efforts to achieve a nuclear weapons 
capability or support international terrorism. Financial 
advisors, policy makers and fund managers may find prudential 
or reputational reasons to divest from companies that accept 
the business risk of operating in countries subject to 
international economic sanctions or that have business 
relationships with countries, governments, or entities with 
which any United States company would be prohibited from 
dealing because of economic sanctions imposed by the United 
States.
    Notwithstanding the wide range of diplomatic and economic 
sanctions that have been pursued by the U.S., many States and 
localities have begun to enact measures restricting their 
agencies' economic transactions with firms that do business 
with, or in, Iran. Eleven States have already enacted some form 
of divestment legislation, and legislation is pending in 
additional state legislatures. Other states and localities have 
taken administrative action to facilitate divestment. Also 
joining this movement are colleges and universities, large 
cities, non-profit organizations, and pension and mutual funds.

Legal and constitutional challenges

    Constitutional challenges to State measures which touch 
upon international relations typically take one or more of 
three forms: (1) that the State measures conflict with and thus 
are pre-empted by Federal law under the Supremacy Clause; (2) 
that they violate the ``dormant foreign commerce clause''; and 
(3) that they violate the so-called ``dormant foreign affairs 
doctrine.''\3\
---------------------------------------------------------------------------
    \3\Congressional Research Service. RL33948--State and Local 
Economic Sanctions: Constitutional Issues. July 2, 2008.
---------------------------------------------------------------------------
    With the reporting of this legislation, the Committee has 
concluded that, with respect to each of these challenges, 
Congress and the President have the constitutional power to 
authorize States to enact divestment measures, and Federal 
consent removes any doubt as to the constitutionality of those 
measures. Thus the Act explicitly states the sense of Congress 
that the United States should support the decisions of State 
and local governments to divest from firms conducting business 
operations in Iran's energy sector, and clearly authorizes 
divestment decisions made consistent with the standards the 
legislation articulates. It also provides ``safe harbor'' for 
changes of investment policies by private asset managers, and 
expresses the sense of Congress that certain divestments, or 
avoidance of investment, do not constitute a breach of 
fiduciary duties under the Employee Retirement Income Security 
Act (ERISA). With regard to pre-emption, the legislation 
supports State and local efforts to divest from companies 
conducting business operations in certain sectors in Iran by 
clearly stating that they are not pre-empted by any Federal law 
or regulation.
    The Committee recognizes that this legislation attempts to 
balance two important interests. The first is the singular 
authority of the Federal Government to conduct foreign policy. 
The second is the ability of State and local governments and 
other entities to invest or divest their funds as they see fit. 
The Committee believes it has struck an appropriate balance by 
targeting state action in such a way that permits state 
divestment measures based on risks to profitability, economic 
well-being, and reputations arising from association with 
investments in a country subject to international sanctions.

                      IV. DESCRIPTION OF THE BILL

    The Act is meant to strengthen all three major categories 
of U.S. sanctions on Iran: the U.S. trade ban against Iran; 
restrictions on foreign entities investing over $20 million in 
Iran's energy sector; and targeted financial measures against 
entities providing financial support for Iran's proliferation 
and terrorist activities. The Act would:
           Expand the scope of foreign companies 
        subject to the Iran Sanctions Act (ISA) to include 
        certain financial institutions, subsidiaries, export 
        credit agencies and other entities;
           Require a semi-annual report on qualifying 
        investments in companies sanctionable under ISA;
           Mandate a U.S. government procurement ban 
        against ISA-sanctionable companies, while providing a 
        national interest waiver;
           Codify U.S. export and import bans on Iran, 
        with allowances for food/medicine export licenses, as 
        well as export and import of certain informational 
        materials;
           Require the freezing of assets of Iranian 
        officials supporting terrorism and proliferation;
           Extend sanctions liability of U.S. companies 
        to foreign subsidiaries established to circumvent U.S. 
        sanctions law and invest substantially in Iran's energy 
        sector;
           Authorize appropriations for the Terrorism 
        and Financial Intelligence Office at the Department of 
        the Treasury;
           Authorize States, local governments and 
        private asset managers to divest from Iran- related 
        energy businesses; and
           Combat transshipment of sensitive technology 
        to Iran, by aiding countries to improve export controls 
        and by further restricting U.S. exports to 
        uncooperative countries.

                 V. SECTION-BY-SECTION ANALYSIS OF BILL

    Section 1.--Short Title: This section establishes the short 
title of the bill as the ``Comprehensive Iran Sanctions, 
Accountability, and Divestment Act of 2008''.

Title I.--Sanctions

    Section 101.--Definitions: This section defines terms used 
in this title including: agricultural commodity, executive 
agency, appropriate Congressional Committees, information and 
informational materials, investment, medical device, and 
medicine.
    Section 102.--Definition of Person and Petroleum Resources 
under the Iran Sanctions Act: This section expands key 
definitions within the Iran Sanctions Act (ISA). ISA recognizes 
the dominant role of Iran's oil and gas industry in generating 
revenue for the regime's proliferation and international 
terrorism activities, and requires the President to impose at 
least two out of a menu of several sanctions on foreign 
``persons'' that make an ``investment'' of more than $20 
million annually in Iran's energy sector. The sanctions 
(Section 6) include (1) denial of Export-Import Bank loans, 
credits, or credit guarantees for U.S. exports to the 
sanctioned entity; (2) denial of licenses for the U.S. export 
of military or militarily-useful technology to the entity; (3) 
denial of U.S. bank loans exceeding $10 million in one year to 
the entity; (4) if the entity is a financial institution, a 
prohibition on its service as a primary dealer in U.S. 
government bonds; and/or a prohibition on its serving as a 
repository for U.S. government funds (each counts as one 
sanction); (5) prohibition on U.S. government procurement from 
the entity; and (6) restriction on imports from the entity, in 
accordance with the International Emergency Economic Powers Act 
(IEEPA, 50 U.S.C. 1701). The President may waive the sanctions 
on Iran if the parent country of the violating firm agrees to 
impose economic sanctions on Iran (Section 4(c)), or if the 
President certifies that doing so is important to the U.S. 
national interest (Section 9(c)). Section 102 of the Act would 
clarify that foreign companies subject to ISA include financial 
institutions, subsidiaries, and other entities, and that the 
relevant investments in Iran's energy industry involve not only 
petroleum and oil or liquefied gas, but also certain means of 
shipping such products, such as tankers and pipelines.
    Section 103.--Economic Sanctions Relating to Iran: This 
section codifies critical restrictions on imports from and 
exports to Iran, currently authorized by the President in 
accordance with IEEPA. Consistent with IEEPA, exceptions to the 
import ban are made for informational materials that may be 
used, for example, in the conduct of news reporting, or in 
mapping for air travel over land. Similarly, exceptions to the 
export ban include food, medicine, humanitarian assistance, 
informational materials, and goods used to ensure safety of 
flight for U.S.-made aircraft. Consistent with his authority 
under Executive Order 13059, the President is authorized to, 
and shall, as necessary, issue such regulations, orders, and 
licenses to implement these provisions. In addition, this 
section requires asset freezes for persons, including officials 
of Iranian agencies specified in ISA, that have engaged in 
activities such as terrorism or weapons proliferation under 
IEEPA sanction. To limit sanctioned persons' ability to evade 
U.S. scrutiny and penalty, this section further stipulates that 
the assets freeze should extend to those assets which 
sanctioned persons transfer to family members or associates. 
The Committee recognizes that agencies involved in implementing 
these measures will require time to prepare appropriate 
evidentiary materials before executing corresponding sanctions, 
which this section requires to be imposed immediately. This 
section would also prohibit U.S. or foreign firms from entering 
into procurement contracts with the federal government if the 
entity meets the criteria for sanctions under ISA. Finally, the 
provisions of this section may be waived if such a waiver is 
deemed by the President to be in the national interest.
    Section 104.--Liability of Parent Companies for Sanctions 
Violations by Foreign Subsidiaries: This section strengthens 
U.S. law by holding parent companies liable for activities 
conducted by foreign subsidiaries that were established for the 
purpose of circumventing U.S. sanctions statutes and who engage 
in activities which, if committed in the U.S. or by a U.S. 
person, would violate U.S. sanctions law. The President may 
waive the provisions of this section on national interest 
grounds.
    Section 105.--Increased Capacity for Efforts to Combat 
Unlawful or Terrorist Financing: This section authorizes full 
funding for the Office of Terrorism and Financial Intelligence 
of the Department of the Treasury consistent with the 
President's budget request for fiscal year 2009.
    Section 106.--Reporting Requirement to Increase Monitoring 
of Investment in Iran: ISA requires the President to impose 
sanctions on a U.S. or foreign natural person if the President 
determines that the person invested $20,000,000 or more in 
Iran's petroleum or natural gas sectors, but the President has 
for years failed to do so even though foreign companies have 
invested more than the specified amount.\4\ The measure 
requires the President, within 180 days of enactment of the 
bill and every 180 days thereafter, to report to the 
appropriate Congressional Committees on eligible foreign 
investments made in Iran's energy sector since January 1, 2008 
and the determination of the President on whether such 
investments qualify as sanctionable offenses. To address any 
national security concerns about the impact of publicizing 
certain parts of this report, this section allows for a 
classified annex.
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    \4\Congressional Research Service. RS20871--The Iran Sanctions Act 
(ISA). July 23, 2008.
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Title II.--Divestment

    Section 201.--Definitions: This section defines terms used 
in this title including: energy sector, financial institution, 
Iran, person, state, and State or local government.
    Section 202.--Authority of State and Local Governments to 
Divest from Certain Companies that Invest in Iran: This section 
authorizes States and localities to divest from companies 
involved in investments of $20 million or more in Iran's energy 
sector and sets standards for them to do so. While not 
mandating divestment, this section authorizes State and local 
governments, if they so choose, to divest public assets from 
certain companies doing business in Iran. In its formulation of 
this section, the Committee recognized that divestment actions 
are being taken by investors for prudential and economic 
reasons, as expressed in subsection (a), including to address 
concerns over reputational and financial risks associated with 
investment in Iran and to sever indirect business ties to a 
government that is subject to international sanctions.
    The Committee requires that a State or local government 
provide notice to the Department of Justice when it enacts an 
Iran-related divestment law. Companies are to be informed in 
writing by the State or local government before divestment. 
Companies then have at least 90 days to comment on that 
decision.
    Section 203.--Safe Harbor for Changes in Investment 
Policies by Asset Managers: This section adds to measures 
authored by the Committee and enacted last year authorizing 
divestment from Sudan-related assets (Public Law 110-174), 
allowing private asset managers, if they so choose, to divest 
from the securities of companies investing $20 million or more 
in Iran's energy sector, and provides a ``safe harbor'' for 
divestment decisions made in accordance with the Act. A major 
concern inhibiting divestment has been the possibility of a 
breach of fiduciary responsibility by asset managers who decide 
to divest. The Committee thus finds that fund managers may have 
financial or reputational reasons to divest from companies that 
accept the business risk of operating in countries subject to 
international economic sanctions. Fund managers will still be 
required to observe all other normal fiduciary 
responsibilities. The Securities and Exchange Commission is 
required to promulgate rules as necessary that require fund 
managers to disclose their divestment decisions made pursuant 
to Section 203 of this legislation in regular periodic reports 
filed with the Commission.
    Section 204.--Sense of Congress Regarding Certain ERISA 
Plan Investments: This section expresses the sense of Congress 
affirming pension managers' rights to divest from companies 
investing $20 million or more in Iran's energy sector in 
accordance with an interpretative bulletin issued by the 
Department of Labor in 1994, and printed in the Code of Federal 
Regulations in section 2509.94-1 of title 29. Under the 
regulations, making such ``economically targeted investment'' 
(ETI) decisions is allowed under sections 403 and 404 of the 
Employee Retirement Income Security Act of 1974 (ERISA), as 
long as the fiduciary making such a decision has diversified 
his portfolio adequately and made the decisions in the interest 
of the plan's participants and beneficiaries.

Title III.--Prevention of Transshipment, Reexportation or Diversion

    Section 301.--Definitions: This section defines terms used 
in this title including: end-user, entity owned or controlled 
by the Government of Iran, Export Administration Regulations, 
government, Iran, state sponsor of terrorism, as well as 
transshipment, reexportation, or diversion.
    Section 302.--Transshipment, Reexportation or Diversion to 
Iran: This section responds to concerns that companies and 
black market proliferation networks are circumventing the U.S. 
trade ban on Iran by shipping major weapons components through 
one or more foreign countries or by deceiving foreign customs 
agencies with false information regarding the items' country of 
origin. This section requires the Director of National 
Intelligence to identify countries where sensitive U.S. 
technology is being illegally transshipped to Iran via other 
countries, and to report annually to the Secretaries of 
Commerce, State and the Treasury, as well as to Congress.
    Section 303.--Destinations of Possible Diversion Concern 
and of Diversion Concern: This section establishes incentives 
for countries to improve their export control regimes. First, 
it requires the Administration to initiate government-to-
government contact with countries of ``possible diversion 
concern.'' Such contact would include technical assistance to 
develop or strengthen export control systems, facilitate export 
control enforcement, improve information sharing, support 
legitimate trade in high-technology goods, and prevent 
terrorists and state sponsors of terrorism from obtaining 
nuclear, biological, and chemical weapons, defense technology, 
and components of improvised explosive devices.
    If countries fail to cooperate with such initiatives, then, 
under subsection (b), the Administration would be required to 
designate a country as a ``Destination of Diversion Concern,'' 
consistent with the Department of Commerce's proposed rule, 
which was published as 15 CFR Part 740 [Docket No. 0612242560-
7024-01], but never implemented. Such a measure would stop 
transshipment flows that, according to the Department of 
Commerce, are augmenting the capabilities of terrorists and 
state sponsors of terrorism, and significantly undermining 
international counterproliferation efforts. The Department of 
Commerce stated in its proposed rule that in recent years, 
diversions have contributed to a number of major cases 
involving the violation of U.S. export control laws for dual 
use goods. Under this section, exports to a country designated 
as a ``Destination of Diversion Concern'' would be subject to 
additional licensure requirements; more stringent license 
review, which could result in fewer approvals or more 
conditions on licenses; delayed authorizations due to increased 
end-user checks; and finally, a decrease in authorizations due 
to diversion risks for such countries. This section provides 45 
days for the Secretary of Commerce to assemble a list of 
controlled items, which should include items already on an 
existing Commerce Control List linked to Iranian terrorist 
activities as well as products from the Control List developed 
for restricting North Korea's proliferation activities. 
Licensing requirements under this section are required within 
180 days after the date of the Act's enactment. The President 
may waive the imposition of the licensing requirement on 
national interest grounds.
    Section 304.--Report on Expanding Diversion Concern System 
to Countries Other than Iran: This section requires the 
Director of National Intelligence to report to Congress on 
whether or not to extend the measures in this title to 
countries that allow diversion to other countries seeking 
weapons of mass destruction or supporting international 
terrorism.

Title IV.--Effective date and sunset

    Section 401.--This section sets an effective date for the 
Act 120 days after the date of the enactment of this Act. It 
also describes the circumstances under which the provisions of 
the Act will terminate, including certification by the 
President that Iran has ceased to provide support for acts of 
international terrorism, and stopped the pursuit, acquisition, 
and development of weapons of mass destruction.

                              VI. HEARINGS

    On March 21, 2007, the Committee on Banking, Housing, and 
Urban Affairs held a public hearing entitled ``Minimizing 
Potential Threats from Iran: Assessing the Effectiveness of 
Current U.S. Sanctions on Iran.'' Witnesses included: Honorable 
R. Nicholas Burns, Under Secretary for Political Affairs, 
Department of State; Honorable Stuart Levey, Under Secretary 
for Terrorism and Financial Intelligence, Department of the 
Treasury; and Mr. Mark Foulon, Acting Under Secretary for 
Export Administration, Department of Commerce.

                      VII. COMMITTEE CONSIDERATION

    The Committee on Banking, Housing, and Urban Affairs met in 
open session on July 17, 2008, and by a vote of 19-2 ordered 
the bill reported, as amended.
                                                     July 31, 2008.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Comprehensive Iran 
Sanctions, Accountability, and Divestment Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

 VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE AND REGULATORY IMPACT 
                               STATEMENT

    Section 11(b) of the Standing Rules of the Senate, and 
Section 403 of the Congressional Budget Impoundment and Control 
Act, require that each committee report on a bill contain a 
statement estimating the cost and regulatory impact of the 
proposed legislation. The Congressional Budget Office has 
provided the following cost estimate and regulatory impact 
statement.
    Summary: Comprehensive Iran Sanctions, Accountability and 
Divestment Act of 2008.
    The bill would authorize appropriations for two programs in 
the Department of the Treasury that combat financial crimes, 
and for the Bureau of Industry Security (BIS) within the 
Department of Commerce, which helps certain countries improve 
their controls over exports. This legislation also would limit 
trade with Iran and allow the President to impose sanctions on 
certain individuals. Finally, the bill would allow state and 
local governments to divest their assets from entities that 
make certain investments in Iran's energy sector.
    CBO estimates that implementing the bill would cost $121 
million in 2009 and $496 million over the 2009-2013 period, 
assuming appropriation of the necessary amounts. In addition, 
CBO estimates that enacting the bill would reduce revenues by 
about $6 million over the 2009-2018 period. Enacting the 
legislation also could increase revenues and direct spending 
because additional criminal penalties might be imposed, but we 
expect that any such increase would not be significant because 
of the relatively small number of cases likely to be involved.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    The legislation would impose private-sector mandates, as 
defined in UMRA, by prohibiting imports from and exports to 
Iran. It also could impose mandates by freezing the assets of 
certain individuals under conditions specified in the bill. In 
addition, the bill would require financial institutions that 
hold the funds and other assets of the individuals subject to 
the sanction to report such information. Finally, the bill 
could impose a mandate on exporters by specifying additional 
license requirements on exports to certain countries that are 
designated by the Secretary of Commerce as Destinations of 
Possible Diversion Concern. The cost of complying with those 
mandates is uncertain because it would depend on whether and 
how some measures would be applied and because CBO lacks 
information on the value of lost profits to importers and 
exporters under the trade ban. Therefore, CBO cannot determine 
whether the aggregate cost to comply with the mandates in the 
bill would exceed the annual threshold for private-sector 
mandates established in UMRA ($136 million in 2008, adjusted 
annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill is shown in the following table. 
The costs of this legislation fall within budget functions 150 
(international affairs), 370 (commerce and housing credit), and 
800 (general government).

----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year in millions of dollars--
                                                              --------------------------------------------------
                                                                2009    2010    2011    2012    2013   2009-2013
----------------------------------------------------------------------------------------------------------------
                                 CHANGES IN SPENDING SUBJECT TO APPROPRIATION\1\

Department of the Treasury Programs:
    Estimated Authorization Level............................     153     158     163       0       0       474
    Estimated Outlays........................................     117     156     161      38       0       472
Department of Commerce Programs:
    Estimated Authorization Level............................       3       3       3       3       3        15
    Estimated Outlays........................................       2       3       3       3       3        14
Reports:
    Estimated Authorization Level............................       2       2       2       2       2        10
    Estimated Outlays........................................       2       2       2       2       2        10
Total Changes:
    Estimated Authorization Level............................     158     163     168       5       5       499
    Estimated Outlays........................................     121     161     166      43       5      496
----------------------------------------------------------------------------------------------------------------
\1\Enacting this legislation also would reduce revenues by $2 million over the 2009-2013 period and $6 million
  over the 2009-2018 period.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted near the start of fiscal year 2009 and 
that spending will follow historical patterns for similar 
programs.

Spending subject to appropriation

    The bill would authorize appropriations for programs within 
the Department of the Treasury and the Department of Commerce. 
In total, CBO estimates that implementing those programs would 
cost $496 million over the 2009-2013 period, assuming 
appropriation of the necessary amounts.
    Department of the Treasury Programs. Section 105 would 
authorize the appropriation of $153 million for 2009 and such 
sums as may be necessary for 2010 and 2011 for the Office of 
Financial Terrorism and Financial Intelligence and the 
Financial Crimes Enforcement Network. Based on information from 
the Department of the Treasury, CBO expects that $153 million, 
adjusted for anticipated inflation, would be sufficient for 
fiscal years 2010 and 2011 to continue the additional efforts 
of those offices to ensure the international financial system 
is not used to support terrorism. Under that assumption, CBO 
estimates that implementing section 105 would cost $472 million 
over the 2009-2013 period.
    Department of Commerce Programs. Title III would establish 
new programs within BIS to improve controls over certain 
domestic exports to an end-user that cannot be identified or to 
an entity that is owned or controlled by the government of 
Iran. The bill would require the Secretary of Commerce, in 
consultation with the Secretary of State and the Secretary of 
the Treasury, to identify a list of countries that have 
inadequate export and reexport controls and fail to control 
exports that divert U.S. goods to unknown parties.
    BIS would be authorized to help those countries strengthen 
their systems to control exports. If, after one year, a country 
on the list fails to cooperate with efforts to improve its 
export control system or is found to be involved in the illegal 
diversion of U.S. exports, it would be subject to additional 
export licensing requirements for certain technologies.
    Based on information from BIS, CBO estimates that about 20 
staff members would be needed to track export enforcement 
trends, to monitor activities within the countries of concern, 
to help such countries improve their export control systems, 
and to meet the new licensing requirements. CBO estimates that 
implementing those provisions would cost $2 million in 2009 and 
$14 million over the 2009-2013 period.
    Reports. Several sections would require the Department of 
the Treasury and the President to provide the Congress with a 
variety of reports about Iran, including details of investments 
in Iran by the United States and other countries. The bill also 
would require a report on international efforts to promote the 
peaceful uses of nuclear fuel. Based on the costs to prepare 
similar reports, CBO estimates that preparing those reports 
would cost about $2 million annually.

Revenues and direct spending

    Prohibition on Imports. The bill would prohibit the 
importation to the United States of any product of Iran. Based 
on the composition of recent imports from Iran, CBO expects 
that the aggregate trade volume subject to customs duties would 
decrease, reducing revenues by an estimated $2 million over the 
2009-2013 period and $6 million over the 2009-2018 period.
    Civil and Criminal Penalties. The bill would impose civil 
and criminal penalties for violations of the new sanctions. 
Collections of civil penalties are recorded in the budget as 
revenues. Collections of criminal penalties also are recorded 
in the budget as revenues, deposited in the Crime Victims Fund, 
and later spent without further appropriation. CBO estimates 
that any additional revenues and direct spending that would 
result from those penalties would not be significant because of 
the relatively small number of cases likely to be involved.
    Estimated impact on state, local, and tribal governments: 
The bill contains no intergovernmental mandates as defined in 
UMRA and would not affect the budgets of state, local, or 
tribal governments.
    Estimated impact on the private sector: The legislation 
contains private-sector mandates, as defined in UMRA. However, 
CBO cannot determine whether the aggregate cost to comply with 
those mandates would exceed the annual threshold for private-
sector mandates established in UMRA ($136 million in 2008, 
adjusted annually for inflation).
    The bill would impose mandates on certain businesses by 
banning all imports from and exports to Iran, with the 
exception of agricultural commodities, medicine, medical 
devices, certain informational materials, and other 
humanitarian assistance. According to the Department of 
Commerce, in 2007, the United States imported from Iran 
approximately $173 million in goods, mostly carpets and 
foodstuffs, and exported $146 million in goods, mostly items 
that would be excluded from the export ban. The cost of the ban 
is uncertain because CBO lacks information on the value of lost 
profits to importers and exporters.
    The bill also could impose private-sector mandates by 
directing the President to freeze the funds and other assets of 
certain Iranian government officials, and the assets of their 
family members and associates to whom such officials have 
transferred assets on or after January 1, 2008. Some of those 
individuals may reside in the United States. Because the 
Iranian government officials who would be subject to sanctions 
have not been named, the cost of that mandate also is 
uncertain. The bill also would impose a mandate on financial 
institutions that hold funds and other assets of persons 
subject to sanctions by requiring them to report such 
information. CBO expects the cost to comply with this reporting 
requirement would be small.
    Finally, by imposing new license requirements on exporters 
of certain products, conditioned upon whether the country where 
exports are sent has been designated as a Destination of 
Possible Diversion Concern, the bill could impose a mandate. 
Because of uncertainty about what countries would be 
designated, if any, and what products would be subject to 
additional licensing requirements for export to those 
countries, the cost of complying with the mandate is unknown.
    Previous CBO estimates: On June 26, 2008, CBO transmitted a 
cost estimate for the Iran Sanctions Act of 2008 as ordered 
reported by the Senate Committee on Finance on June 18, 2006. 
Both bills contain provisions for the Department of the 
Treasury programs and the prohibition of imports from Iran. The 
Iran Sanctions Act of 2008 contained provisions for exchange 
programs with Iran and contributions to the International 
Atomic Energy Agency, as well as modified tax treatment for 
certain costs incurred by oil companies after the imposition of 
the sanctions that are not included in this bill. The Finance 
Committee's bill would require a ban on trade with Iran. It 
also would require the President to freeze the assets of 
certain family members and associates of Iranian government 
officials subject to sanctions, and would require any financial 
institution that holds funds and other assets of any designated 
person to report such information. The cost of complying with 
those mandates is uncertain because of a lack of information 
about import markets and the assets that would be subject to 
the sanction. The differences in CBO's estimates of the costs 
of the two bills reflect differences in the legislative 
language.
    On July 11, 2007, CBO transmitted a cost estimate for a 
similar bill, H.R. 1400, the Iran Counter-Proliferation Act of 
2007, as ordered reported by the House Committee on Foreign 
Affairs on June 26, 2007. H.R. 1400 contained similar language 
authorizing programs of the Department of the Treasury. H.R. 
1400 also imposed private-sector mandates by requiring 
sanctions on certain imports and exports with Iran, but CBO 
expected that the direct cost of complying with those mandates 
would fall below UMRA's annual threshold.
    On February 27, 2007, CBO transmitted a cost estimate for 
H.R. 957, a bill to amend the Iran Sanctions Act of 1996 to 
expand and clarify the entities against which sanctions may be 
imposed, as ordered reported by the House Committee on Foreign 
Affairs on February 15, 2007. That bill is similar to sections 
102 and 104 of this legislation, and the estimated costs for 
those sections are the same. CBO determined that H.R. 957 
contained no new mandates as defined in UMRA.

                                  
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