Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?

110th Congress                                            Rept. 110-163
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part I

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



 
EXPANSION AND CLARIFICATION OF ENTITIES AGAINST WHICH SANCTIONS MAY BE 
           IMPOSED PURSUANT TO THE IRAN SANCTIONS ACT OF 1996

                                _______
                                

                  May 22, 2007.--Ordered to be printed

                                _______
                                

   Mr. Lantos, from the Committee on Foreign Affairs, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 957]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Foreign Affairs, to whom was referred the 
bill (H.R. 957) to amend the Iran Sanctions Act of 1996 to 
expand and clarify the entities against which sanctions may be 
imposed, 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....................................................     2
Purpose and Summary..............................................     2
Hearings and Briefings...........................................     4
Committee Consideration..........................................     4
Votes of the Committee...........................................     4
Committee Oversight Findings.....................................     4
New Budget Authority and Tax Expenditures........................     4
Congressional Budget Office Cost Estimate........................     4
Performance Goals and Objectives.................................     5
Constitutional Authority Statement...............................     5
New Advisory Committees..........................................     5
Congressional Accountability Act.................................     5
Section-by-Section Analysis......................................     5
Changes in Existing Law Made by the Bill, as Reported............     6

                             The Amendment

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

SECTION 1. EXPANSION AND CLARIFICATION OF ENTITIES AGAINST WHICH 
                    SANCTIONS MAY BE IMPOSED PURSUANT TO THE IRAN 
                    SANCTIONS ACT OF 1996.

  Section 14 of the Iran Sanctions Act of 1996 (50 U.S.C. 1701 note) is 
amended--
          (1) in paragraph (13)(B)--
                  (A) by inserting after ``trust,'' the following: 
                ``financial institution, insurer, underwriter, 
                guarantor, any other business organization, including 
                any foreign subsidiaries of the foregoing,''; and
                  (B) by inserting before the semicolon at the end the 
                following: ``, such as an export credit agency''; and
          (2) in paragraph (14), by inserting after ``petroleum'' the 
        second place it appears the following: ``, petroleum by-
        products, liquified natural gas,''.

SEC. 2. LIABILITY OF PARENT COMPANIES FOR VIOLATIONS OF SANCTIONS BY 
                    FOREIGN ENTITIES.

  (a) In General.--In any case in which an entity engages in an act 
outside the United States which, if committed in the United States or 
by a United States person, would violate Executive Order No. 12959 of 
May 6, 1995, Executive Order No. 13059 of August 19, 1997, or any other 
prohibition on transactions with respect to Iran that is imposed under 
the International Emergency Economic Powers Act (50 U.S.C. 1701 et 
seq.) and if that entity was created or availed of for the purpose of 
engaging in such an act, the parent company of that entity shall be 
subject to the penalties for such violation to the same extent as if 
the parent company had engaged in that act.
  (b) Definitions.--In this section--
          (1) an entity is a ``parent company'' of another entity if it 
        owns, directly or indirectly, more than 50 percent of the 
        equity interest in that other entity and is a United States 
        person; and
          (2) the term ``entity'' means a partnership, association, 
        trust, joint venture, corporation, or other organization.

                          Purpose and Summary

    H.R. 957, to amend the Iran Sanctions Act of 1996 to expand 
and clarify the entities against which sanctions may be 
imposed, strengthens two earlier laws regarding Iran sanctions: 
the Iran and Libya Sanctions Act of 1996, and the Iran Freedom 
Support Act. On February 15, 2007, H.R. 957 was considered by 
the Committee on Foreign Affairs, and reported favorably to the 
House, as amended.
    Iran poses a significant threat to the United States and 
our allies in the region. It is a vital U.S. national security 
priority to undertake steps to prevent Iran from acquiring 
weapons of mass destruction, in particular nuclear weapons, and 
to end its support for international terrorism.
    Iran's economy, and its ability to influence events, is 
heavily dependent on the revenue derived from energy exports. 
As such, recent U.S. efforts to prevent Iran from acquiring 
weapons of mass destruction have focused on deterring and 
prohibiting investment in Iran's petroleum sector.
    Although U.S. law prohibits American firms from investing 
in Iran, foreign entities which fall outside of United States 
jurisdiction continue to invest there. Such activity has 
enhanced the Iranian economy, allowed Iran access to 
sophisticated technology and know-how, as well as foreign 
currency, and thereby contributed significantly to Iran's 
ability to fund terror groups, and to finance the regime's 
weapons of mass destruction programs, including its nuclear 
program.
    To address this problem, Congress passed, and President 
Bill Clinton signed into law, Public Law 104-172, the ``Iran 
and Libya Sanctions Act of 1996'' (ILSA). The purpose of this 
law was to discourage foreign entities from investing in Iran's 
petroleum sector by imposing certain sanctions on them. 
However, since its enactment, not a single entity has been 
sanctioned pursuant to P.L. 104-172. Presidential authority has 
been used to waive sanctions against foreign entities investing 
in Iran's petroleum sector, and a number of investigations of 
possible investment in Iran remain active.
    To further strengthen sanctions targeting these 
investments, on September 30, 2006, Congress passed, and 
President George W. Bush signed into law, Public Law 109-293, 
the ``Iran Freedom Support Act'' (IFSA).
    Among other provisions, the IFSA strengthened sanctions 
under the Iran Sanctions Act (``ISA''--as the former ``Iran and 
Libya Sanctions Act of 2006'' is now known), including by 
raising certain waiver thresholds to ``vital to the national 
security interests of the United States,'' by enlarging the 
scope of those who might be subject to sanctions, and by 
enhancing tools for using financial means to address Iran's 
activities of concern.
    Since enactment of Public Law 109-293, there have been 
multiple reports of memoranda of understanding regarding 
investment deals in Iran's energy sector that would be in 
violation of the ISA. Some of the firms named include Royal 
Dutch Shell Oil Company, China's National Offshore Oil 
Corporation (CNOOC), Australian LNG Co., and Malaysia's SKS. In 
many of these proposed investment deals, foreign governments 
and export credit agencies helped subsidize these investments.
    In February 2007, Gregory L. Schulte, the chief U.S. 
representative to the International Atomic Energy Agency, 
called on European governments to cease giving credits to 
``subsidize exports to Iran,'' and to take ``more measures to 
discourage investment and financial transactions'' with Iran.
    The enacted version of IFSA did not include language that 
would make export credit agencies, insurers, and other 
financial institutions subject to sanctions for their 
facilitation of investments in Iran's oil industry. To address 
these gaps, the House Foreign Affairs Committee passed H.R. 
957. This bill also expands the activities covered under the 
law to include production of petrochemicals and liquefied 
natural gas.
    Although the IFSA codified Section 3 of Executive Order 
12959 (which authorizes the Secretary of the Treasury to take 
legal action against United States persons based on oil 
transactions engaged in by their foreign affiliates with Iran), 
and Section 2(f) of Executive Order 13059 (which includes 
foreign subsidiaries as entities subject to sanctions for 
violating U.S. law), concerns remained that existing law 
required the clarification that sanctions under the ISA should 
apply to certain foreign subsidiaries of U.S. companies.
    To eliminate these concerns, H.R. 957 was amended by an 
Amendment in the Nature of a Substitute, which was adopted 
during consideration of the bill by the House Foreign Affairs 
Committee on February 15, 2007. The amendment provided for 
imposition of liability on parent companies for violations of 
sanctions by their foreign subsidiaries.

                         Hearings and Briefings

    In recent years, the Full Committee has held several 
hearings regarding Iran:
    February 26, 2003 (Russia's Policies Toward the Axis of 
Evil: Money and Geopolitics in Iraq and Iran); June 4, 2003 
(U.S. Nonproliferation Policy After Iraq); March 30, 2004 (The 
Bush Administration and Nonproliferation: A New Strategy 
Emerges); and February 16, 2005 and March 8, 2006 (both 
entitled `United States Policy Toward Iran--Next Steps'). The 
Full Committee recently held a briefing about Iran--January 11, 
2007 (Next Steps in the Iran Crisis), and a hearing--January 
31, 2007 (Understanding the Iran Crisis).

                        Committee Consideration

    On February 15, 2007, the Full Committee marked up the 
bill, H.R. 957, pursuant to notice, in open session. The 
Committee agreed to a motion to favorably report the bill, as 
amended, by a voice vote, a quorum being present.

                         Votes of the Committee

    There were no recorded votes taken during consideration of 
H.R. 957.

                      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. 957, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:
                                                  February 27, 2007
H.R. 957--To amend the Iran Sanctions Act of 1996 to expand and clarify 
        the entities against which sanctions may be imposed
    H.R. 957 would amend current law to expand the definition 
of persons who are subject to sanctions for making investments 
that increase Iran's ability to develop its petroleum 
resources. The new definition would add financial institutions, 
insurers, underwriters, guarantors, and any other business 
organizations, including any foreign subsidiaries, to the list 
of entities already barred from investing in Iran. The bill 
also would add several petroleum by-products to the definition 
of petroleum resources. Finally, the bill would make parent 
companies that create entities to invest in Iran subject to the 
same penalties that would apply if the parent company had 
actually engaged in such activity. The provisions of H.R. 957 
would codify existing prohibitions on the private sector that 
are contained in Executive Orders 12957, 12959, and 13059.
    CBO estimates that enacting H.R. 957 would have no 
significant budgetary effect. H.R. 957 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. This bill contains no new 
private-sector mandates as defined in UMRA.
    The CBO staff contact for this estimate is Sam Papenfuss. 
This estimate was approved by Robert A. Sunshine, Assistant 
Director for Budget Analysis.
Intergovernmental and Private Sector Impact
    H.R. 957 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments

                    Performance Goals and Objectives

    Pursuant to clause (3)(c) of House rule XIII, upon 
enactment of this legislation, the Department of State should 
expand its investigation of violations under the Iran Sanctions 
Act to include financing of investments in Iran's energy 
sector.

                   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 of the 
Constitution.

                        New Advisory Committees

    H.R. 957 does not establish or authorize any new advisory 
committees.

                    Congressional Accountability Act

    H.R. 957 does not apply to the Legislative Branch.
Earmark Identification
    H.R. 957 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9(d), 9(e), or 9(f) of rule XXI.

                      Section-by-Section Analysis

Section 1. Expansion and Clarification of Entities Against Which 
        Sanctions May be Imposed Pursuant to the Iran Sanctions Act of 
        1996.
    Section 1 amends Section 14 of the Iran Sanctions Act of 
1996 by adding financial institutions, guarantors, export 
credit agencies and any other business organizations, including 
any of their foreign subsidiaries, as subject to sanctions.
Section 2. Liability of Parent Companies for Violations of Sanctions by 
        Foreign Entities.
    Section 2 requires that a parent company be subject to 
sanctions for the activities committed by its foreign 
subsidiary, if those activities, were they committed by the 
parent company itself, would be in violation of U.S. law.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

              SECTION 14 OF THE IRAN SANCTIONS ACT OF 1996

SEC. 14. DEFINITIONS.

  As used in this Act:
          (1) * * *

           *       *       *       *       *       *       *

          (13) Person.--The term ``person'' means--
                  (A) a natural person;
                  (B) a corporation, business association, 
                partnership, society, trust, financial 
                institution, insurer, underwriter, guarantor, 
                any other business organization, including any 
                foreign subsidiaries of the foregoing, any 
                other nongovernmental entity, organization, or 
                group, and any governmental entity operating as 
                a business enterprise, such as an export credit 
                agency; and

           *       *       *       *       *       *       *

          (14) Petroleum resources.--The term ``petroleum 
        resources'' includes petroleum, petroleum by-products, 
        liquified natural gas, and natural gas resources.

           *       *       *       *       *       *       *