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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
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
The Amendment.................................................... 1
Background and Purpose........................................... 2
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 is as follows:
Strike all after the enacting clause and insert the
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
(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
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
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
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 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
Denial of licenses for the export to the U.S.
of military or militarily-useful technology to the
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.
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
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.
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
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
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
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
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.
Dan L. Crippen, Director.
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
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
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
Congressional Accountability Act
H.R. 1954 does not apply to the legislative branch.
H.R. 1954 provides no Federal mandates.