[Senate Report 110-82]
[From the U.S. Government Publishing Office]
Calendar No. 199
110th Congress Report
SENATE
1st Session 110-82
======================================================================
INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT
_______
June 13, 2007.--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. 1612]
The Committee on Banking, Housing and Urban Affairs, having
had under consideration an original bill (S. 1612) to amend the
penalty provisions in the International Emergency Economic
Powers Act, and for other purposes, reports favorably thereon
and recommends that the bill do pass.
I. PURPOSE
The International Emergency Economic Powers Act, also known
as `IEEPA,' codified presidential national emergency powers to
investigate and impose controls on transactions as well as
freeze foreign assets under the jurisdiction of the United
States. The International Emergency Economic Powers Enhancement
Act (hereafter `the Act') amends Section 206 for the purpose of
increasing penalties against violators of sanctions law. The
Act would advance foreign policy objectives and protect the
national security of the United States by providing the
Department of the Treasury and other federal agencies greater
ability to deter wrongful investment and hold violators
accountable for their actions.
II. BACKGROUND
For thirty years, presidents of the United States have
widely exercised their authorities under the International
Emergency Economic Powers Act (50 U.S.C. Chapter 35). Under
this statute, a president declares a national emergency with
respect to an ``unusual and extraordinary threat'' posed by a
country or transnational group. Section 1705 of the law details
the president's specific authorities to impose economic
sanctions against these threats, regulating and prohibiting
foreign exchange transactions, bank payments or credit
transfers, and the importing or exporting of currency or
securities, among other powers.
The Office of Foreign Assets Control (OFAC) at the
Department of Treasury is principally designated to administer
and enforce these economic sanctions activities, in
coordination with agencies at the Departments of State,
Homeland Security, and Justice. Ultimately, however, as Under
Secretary of the Treasury for Terrorism and Financial
Intelligence Stuart Levey pointed out in testimony before the
Committee on March 21, 2007, the cooperation of private firms
is critically important in the success of an economic sanctions
regime. Without their adherence to relevant United States laws
and regulations, it would be nearly impossible to prevent
wrongful investment. By and large, according to the Department
of the Treasury, companies meet their sanctions obligations,
steering clear of countries and groups designated as threats to
the United States. But when private industry does not comply,
OFAC imposes penalties in accordance with Section 1705 of the
International Emergency Economic Powers Act (IEEPA). Currently,
penalties applied by OFAC remain relatively low. The original
penalty amount was set at $10,000 in the IEEPA of 1977. Other
than an inflation adjustment raising the level to $11,000,
there were no increases until the renewal of the USA PATRIOT
Act in 2005 (Public Law 109-177) raised the level to $50,000.
III. DESCRIPTION OF THE BILL
In unanimously approving the International Emergency
Economic Powers Enhancement Act, the Committee recognized that
current penalties are neither adequate nor proportionate in
many cases, for deterring companies from investing in bad
actors.
Penalties
The Act would increase civil fines to $250,000 or twice the
amount of the transaction. Such a change in law would allow the
United States government to impose a penalty commensurate with
the scope of the crime. Conversely, today, if a person makes a
single illegal transaction, he/she will be fined $50,000,
regardless of the size of the transaction. Rather than impose a
single fine to fit every violation, the Act would ensure that
penalties reflect the seriousness of a violation.
In addition, the Act would increase criminal penalties to
$1,000,000 with a maximum jail sentence of 20 years. The Act
further clarifies the purpose of these criminal penalties to be
imposed on a person who intentionally commits or helps support
others' violations of certain United States sanctions laws.
Two recent cases help illustrate the need for these
increases in penalties. According to OFAC, a large foreign bank
with a U.S. presence recently processed 42 transactions
totaling $55 million through the United States, in violation of
OFAC sanctions against Iran, Sudan and Cuba. Under current law
the maximum penalty OFAC could impose for these violations
would be approximately $1.3 million, an apparently
insignificant amount to a multi-national bank. In another
example, a U.S. commodities brokerage firm engaged in a single
transaction involving commodities from Sudan, valued at $1.4
million. Because only a single transaction was involved, the
maximum penalty was limited to $11,000 under then-applicable
law. According to OFAC, even today's maximum penalty of $50,000
seems disproportionately low for such a violation.
The Act would update these penalties to improve sanctions
enforcement. For the foreign bank, penalties could have been
over $100 million. For the commodities brokerage company, the
criminal penalty could be as high as $2.8 million based on the
value of the transactions.
Effective Date
Under the Act, the changes in penalties would apply to all
pending enforcement actions as well as those commenced on or
after the date of the Act's enactment.
Reporting
The Committee notes that under Section 1703 of IEEPA the
president is required in every possible instance to ``consult
with the Congress before exercising any of the authorities
granted by this chapter'' and to ``consult regularly with the
Congress so long as such authorities are exercised.'' In
addition to ``Periodic follow-up reports'' to Congress every
six months as stipulated in Section 1704(c) of this statute,
the president, through his designees shall provide detailed
reports on the use of IEEPA authorities to the Committee. OFAC
shall pay particular attention in these reports to the exercise
of United States foreign policy toward the Islamic Republic of
Iran and the Republic of Sudan as well as organizations
affiliated with Al Qaeda, the Islamic Resistance Movement
(Hamas), Hezbollah, Jemaah Islamiyah, Abu Sayyaf, and the
Revolutionary Armed Forces of Colombia--People's Army (FARC).
Export Administration
The Committee recognizes that the International Emergency
Economic Powers Act has been applied to authorities outside
this law's principal purpose of establishing a framework for
the government to impose foreign economic sanctions.
Specifically, for the last six years, export controls on `dual
use' technologies have been implemented through the invocation
of IEEPA.
In absence of more robust authorities and penalties
previously in force by authorization of the Export
Administration Act (EAA), the Bureau of Industry and Security
(BIS) at the Department of Commerce has been compelled to
invoke IEEPA in its execution of investigations and export
enforcement activities. According to BIS, such practices have
severely hampered investigations and caused reluctance among
some prosecutors to bring criminal indictments for export
control violations. In addition, the ability to lead other
countries to adopt comprehensive export control legislation, as
called for by U.N. Security Council Resolution 1540, is
undercut by the absence of the United States' own EAA
authority.
As the Congressional Research Service recently reported,
since 1989, a long-term extension of the Export Administration
Act has not been enacted. The export control process was
continued from 1989-1994 by temporary statutory extensions of
EAA. Thereafter, it was periodically reauthorized for short
periods of time, most recently expiring in August 2001.
The Committee does not consider the International Emergency
Economic Powers Enhancement Act a substitution for legislation
required to update and renew the Export Administration Act.
Enacting meaningful export control legislation remains an
important objective of this Committee to bar highly sensitive
products and know-how from rogue states and terrorist groups,
to protect critical technology, and to help curb the
proliferation of nuclear, biological, and chemical weaponry.
On March 21, 2007, the Committee on Banking, Housing, and
Urban Affairs conducted a hearing entitled ``Minimizing
Potential Threats from Iran: Assessing the Effectiveness of
Current US Sanctions on Iran.'' In his testimony, Acting Under
Secretary for the BIS Mark Foulon concurred with this
assessment, pointing out that the Commerce Department's export
control investigations of 16 cases under these authorities last
year led to penalties totaling only $1.6 million in fines.
IV. HEARINGS
The Committee on Banking, Housing, and Urban Affairs held
the following public hearing on United States sanctions policy:
On March 21, 2007: Minimizing Potential Threats from Iran:
Assessing the Effectiveness of Current U.S. Sanctions on Iran.
Witnesses: Ambassador 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; Mr. Mark Foulon, Acting Under
Secretary for the Bureau of Industry and Security, Department
of Commerce
V. DEPARTMENT OF THE TREASURY COMMENT
The Department of the Treasury submitted the following
letter of endorsement for the Act.
May 15, 2007.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Department of the Treasury strongly
supports the International Emergency Economic Powers
Enhancement Act of 2007 and appreciates the leadership of the
Chairman and Ranking Member in proposing legislation that
significantly enhances the enforcement and deterrent effects of
the International Emergency Economic Powers Act (IEEPA)
sanctions.
Through IEEPA, the President may respond to unusual and
extraordinary threats originating in substantial part outside
the United States by, among other things, prohibiting
transactions associated with the identified threat. The current
penalties under IEEPA do not constitute an effective deterrent
to entities that violate IEEPA by engaging in prohibited
transactions. This legislation will remedy that problem.
IEEPA is an important tool in the effort to combat
terrorist financing and other illicit activity such as WMD
proliferation. The Department urges the Committee to approve
this critical improvement to IEEPA.
The Office of Management and Budget has advised there is no
objection from the standpoint of the President to the language
submitted to the Committee by the Department of the Treasury.
Sincerely,
Kevin I. Fromer,
Assistant Secretary for Legislative Affairs,
Department of the Treasury.
VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
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 of the proposed legislation. The
Congressional Budget Office has provided the following cost
estimate and estimate of costs of private-sector mandates.
June 13, 2007.
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 International
Emergency Economic Powers Enhancement Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Daniel
Hoople.
Sincerely,
Peter R. Orszag.
Enclosure.
International Emergency Economic Powers Enhancement Act
The bill would amend the International Emergency Economic
Powers Act (IEEPA) to increase the maximum civil and criminal
penalties that may result from violations of that act. IEEPA
authorizes the President to investigate, regulate, and prohibit
certain financial transactions following a declaration of an
``unusual and extraordinary threat'' originating outside the
United States. Under current law, individuals and entities that
violate regulations promulgated under IEEPA are subject to
civil penalties of up to $10,000, and criminal penalties of up
to $250,000 and 10 years' imprisonment. Under this legislation,
the maximum penalty would be increased to $250,000 for civil
violations and $1 million and 20 years' imprisonment for
criminal violations.
Enacting this bill could increase federal revenues as a
result of the collection of additional civil and criminal
penalties assessed for violations of IEEPA regulations. Civil
penalties are typically assessed by the Office of Foreign
Assets Control (OFAC) of the U.S. Treasury, while criminal
penalties are assessed in the federal courts. Amounts collected
from civil penalties are recorded in the budget as revenues and
are deposited into the General Fund of the Treasury. Criminal
fines are recorded as revenues, then deposited in the Crime
Victims Fund, and later spent. Based on information from OFAC
and the Administrative Office of the United States Courts, CBO
expects that the increases proposed by this legislation would
affect relatively few cases per year. As such, we estimate that
enacting this bill would probably have an insignificant effect
on the federal budget over the next 10 years.
This bill contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Daniel Hoople.
This estimate was approved by Peter H. Fontaine, Deputy
Assistant Director for Budget Analysis.
VII. COMMITTEE CONSIDERATION
The Committee on Banking, Housing, and Urban Affairs met in
open session on May 16, 2007, and ordered the bill reported, as
amended.