Congressional Documents
                                  39 006                                 



                            105 th Congress                             



                                 Report                                 



                                                                            



                                                                             



                        HOUSE OF REPRESENTATIVES                        



                               1st Session                              



                                105 141                                 



                                                                        







           PROHIBITION ON FINANCIAL TRANSACTIONS WITH COUNTRIES SUPPORTING     

                            TERRORISM ACT OF 1997                              



                                                                         



   June 21, 1997.--Committed to the Committee of the Whole House on the  

 State of the Union and ordered to be printed                            

                                                                         



  Mr. McCollum, from the Committee on the Judiciary, submitted the       

 following                                                               

 R E P O R T                                                             



 [To accompany H.R. 748]                                                 



 [Including cost estimate of the Congressional Budget Office]            





      The Committee on the Judiciary, to whom was referred the bill (H.R.  

   748) to amend the prohibition of title 18, United States Code, against  

   financial transactions with terrorists, having considered the same,     

   report favorably thereon with an amendment and recommend that the bill  

   as amended do pass.                                                     

   The amendment is as follows:                                            



      Strike out all after the enacting clause and insert in lieu thereof  

   the following:                                                          



          SECTION 1. SHORT TITLE.                                                 



     This Act may be cited as the ``Prohibition on Financial Transactions 

  With Countries Supporting Terrorism Act of 1997''.                      

          SEC. 2. FINANCIAL TRANSACTIONS WITH TERRORISTS.                         



     Section 2332d of title 18, United States Code, (relating to financial

  transactions) is amended--                                              

    (1) in subsection (a)--                                                



       (A) by striking ``Except as provided in regulations issued by the   

   Secretary of the Treasury, in consultation with the Secretary of State, 

   whoever'' and inserting ``Whoever''; and                                

    (B) by inserting ``of 1979'' after ``Export Administration Act''; and  



       (2) in subsection (b)(1), by inserting after ``1956(c)(4)'' the     

   following: ``, except that such term does not include any transaction   

   ordinarily incident to--                                                

    ``(A) routine diplomatic relations among countries;                    



       ``(B) an official act by a representative of, or an act which is    

   authorized by and conducted on behalf of, the United States Government; 

       ``(C) the broadcasting or reporting of news by organizations        

   regularly engaged in such activity; or                                  

    ``(D) the provision of assistance intended to relieve human suffering; 



    ``(E) the receipt of emergency medical services;                       



       ``(F) any postal, telegraphic, or other personal communication which

   does not involve a transfer of anything of value;                       

       ``(G) the protection of intellectual property rights of any United  

   States person;                                                          

       ``(H) the performance of any contract or agreement that was entered 

   into before June 12, 1997, but not those renewed after such date;       

    ``(I) the provision of hospitality or transportation services; or      



    ``(J) the payment of a claim to any United States person''.            



          SEC. 3. REPORT ON EFFECTS OF ENACTMENT.                                 



     Beginning not later than one year after the date of enactment of this

  Act, the Secretary of the Treasury, in consultation with the Secretary  

  of State, shall issue an annual report to Congress on--                 

    (1) the impact of this prohibition on United States businesses; and    



    (2) any means by which a negative impact might be ameliorated.         





                                    PURPOSE AND SUMMARY                           



      H.R. 748, the ``Prohibition on Financial Transactions With Countries 

   Supporting Terrorism Act of 1997,'' expands section 321 of the          

   ``Antiterrorism and Effective Death Penalty Act of 1996'' by eliminating

   overly permissive regulations promulgated by the Administration last    

   year and the authority to issue such regulations in the future. It      

   establishes, in place of the regulations, specific exceptions to the    

   prohibition, created by section 321, on engaging in financial           

   transactions with countries that have been designated as sponsors of    

   terrorism.                                                              

      The effect of section 321 is to prohibit financial support of U.S.   

   persons by terrorist countries and all financial transactions by U.S.   

   persons with these countries, regardless of where these transactions    

   take place. The provision also authorizes the Department of the         

   Treasury, in consultation with the State Department, to make specific   

   exceptions to the ban through regulations.                              

      In August of 1996, the Treasury Department published regulations in  

   relation to section 321 which essentially reversed the effect of the new

   prohibition. The regulations permit all financial transactions with     

   terrorist list governments, except for transactions otherwise prohibited

   by law or which pose a risk of furthering domestic terrorism. The       

   regulations prohibit U.S. persons from receiving unlicensed donations   

   and from engaging in financial transactions with respect to which the   

   U.S. person knows or has reasonable cause to believe that the financial 

   transaction poses a risk of furthering terrorist acts in the United     

   States.                                                                 

      H.R. 748 strips the executive branch of its authority to issue       

   regulations exempting transactions from the prohibition. It establishes 

   instead a legislative exception only for specified transactions. The    

   list of permitted activities, and transactions incident thereto,        

   include: routine diplomatic relations among countries; official acts by 

   representatives of the U.S. government; news reporting; humanitarian    

   assistance; emergency medical services; postal and telephone services;  

   the protection of intellectual property rights; hospitality or          

   transportation services; the fulfillment of existing contracts; and     

   payments of a claim to U.S. persons.                                    

                          BACKGROUND AND NEED FOR THE LEGISLATION                 



      On April 24, 1996, President Clinton signed the ``Antiterrorism and  

   Effective Death Penalty Act of 1996'' (Pub. L. 104 132). This           

   comprehensive legislation included reforms to the federal death penalty 

   laws, provided additional rights to crime victims, and increased        

   penalties for crimes of terrorism against the United States.            

      The forces of militant extremism in the Middle East and Africa are   

   among the greatest international dangers currently facing America and   

   its allies. The deadly threat posed by international terrorists in this 

   region of the world must not be underestimated. Yet, confronting this   

   threat and other terrorist threats around the globe means confronting   

   the countries which provide desperately needed support to these groups. 

      A handful of pariah states--Cuba, Libya, North Korea, Iran, Iraq,    

   Syria and Sudan--have been designated by the State Department, pursuant 

   to section 6(j) of the Export Administration Act, as terrorist          

   sponsoring countries or ``Terrorism List Governments.'' No one should   

   discount the significance of this designation. Without the support of   

   these countries, terrorists would literally not have a home, much less  

   the active assistance of government officials.                          

      With regard to Sudan specifically, United Nations Ambassador         

   Richardson recently described this country as follows: ``The Sudanese   

   Government destabilizes its neighbors, supports terrorists, commits     

   human rights abuses against its own citizens, and pursues civil war in  



                    the south.'' Clearly, the training and support of terrorists  

          occurring in Sudan are major contributors to the untold human suffering 

          caused by religious extremists in this region of the world.             

      There should be no higher priority for the United States in the      

   battle against terrorism than the elimination of foreign government     

   support for terrorists. This is why section 321 of the ``Antiterrorism  

   and Effective Death Penalty Act of 1996'' is a vital tool in this       

   battle.                                                                 

           Section 321 of the Antiterrorism Act (18 U.S.C. 2332d)                  



      Section 321, which prohibits financial transactions between U.S.     

   persons and countries which have been designated as supporters of       

   terrorism, was drafted with a dual purpose in mind. First, it prohibits 

   financial support from terrorist countries to U.S. persons, thus        

   attempting to prevent the long-arm of terrorism from reaching the shores

   of the United States through domestic entities. Second, and more        

   broadly, it prohibits all financial transactions by U.S. persons with   

   these countries, regardless of where these transactions take place. The 

   obvious goal of this language is to cut off terrorist sponsoring        

   governments from the economic benefit of doing business with U.S.       

   companies. Since five of the seven terrorism list governments are       

   already subject to economic sanctions as a result of executive order,   

   the immediate impact of the ban related to Sudan and Syria.             

      In response to administration concerns that the prohibition could    

   have unintended consequences, language was included in section 321 which

   permitted the Secretary of the Treasury to issue regulations            

   establishing some exceptions to the prohibition. This broad authority   

   was mostly intended to cover routine diplomatic and consular relations. 

   In implementing section 321, the Treasury Department, through its Office

   of Foreign Assets Control, issued the ``Terrorism List Governments      

   Sanctions Regulations,'' 31 CFR Part 596. Under these regulations, any  

   U.S. person may conduct financial transactions with a terrorist list    

   country, unless the person ``knows * * * or has reasonable cause to     

   believe that the transfer poses a risk of furthering terrorist acts in  

   the United States.'' This broad exception captures a much wider range of

   activities than was originally intended.                                

           31 CFR Part 596                                                         



      In August of last year, the Treasury Department published its        

   regulations in relation to section 321 which effectively eliminated the 

   new prohibition. These regulations permit all financial transactions    

   with Sudan and Syria, other than those which pose a risk of furthering  

   domestic terrorism. The regulations prohibit U.S. persons from receiving

   unlicensed donations and from engaging in financial transactions with   

   respect to which the United States person knows or has reasonable cause 

   to believe that the financial transaction poses a risk of furthering    

   terrorist acts in the United States.                                    

      In the view of the original sponsors of section 321, the regulatory  

   authority provided in the provision should not have been exercised in   

   this manner. This ``business as usual'' policy represents a step        

   backwards in the effort to pressure Syria and Sudan, as well as the     

   other five countries, from severing their ties to terrorist groups.     

           H.R. 748                                                                



      H.R. 748 is intended to close the loophole created by the regulations

   and to prohibit transactions other than those that are specifically     

   authorized in statute. The bill strips the executive branch of the      

   authority to issue regulations exempting transactions from the          

   prohibition. It establishes instead a list of legislative exceptions for

   transactions ordinarily incident to a variety of activities.            



                                          HEARINGS                                



      The Committee's Subcommittee on Crime held one (1) day of hearings on

   H.R. 748. Testimony was received from six (6) witnesses, representing   

   the Departments of Treasury and State, World Vision Relief and          

   Development, ITT Sheraton, Crescent Investment Management, L.P., and the

   Washington Institute for Near East Policy.                              

                                  COMMITTEE CONSIDERATION                         



      On June 12, 1997, the Subcommittee on Crime met in open session and  

   ordered reported the bill H.R. 748, as amended, by voice vote, a quorum 

   being present. On June 18, 1997, the Committee met in open session and  

   ordered reported favorably the bill H.R. 748, with amendment, by voice  

   vote, a quorum being present.                                           

                                   VOTE OF THE COMMITTEE                          



   There were no recorded votes.                                           



                                COMMITTEE OVERSIGHT FINDINGS                      



      In compliance with clause 2(l)(3)(A) of rule XI 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.            

                   COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT FINDINGS          



      No findings or recommendations of the Committee on Government Reform 

   and Oversight were received as referred to in clause 2(l)(3)(D) of rule 

   XI of the Rules of the House of Representatives.                        

                         NEW BUDGET AUTHORITY AND TAX EXPENDITURES                



      Clause 2(l)(3)(B) of House rule XI is inapplicable because this      

   legislation does not provide new budgetary authority or increased tax   

   expenditures.                                                           

                                  COMMITTEE COST ESTIMATE                         



      In compliance with clause 7(a) of rule XIII of the Rules of the House

   of Representatives, the Committee believes that the bill will have no   

   significant impact on the federal budget for fiscal years 1997 2002.    

   There will not be any significant costs incurred in carrying out H.R.   

   748.                                                                    

                             CONSTITUTIONAL AUTHORITY STATEMENT                   



      Pursuant to rule XI, clause 2(l)(4) of the Rules of the House of     

   Representatives, the Committee finds the authority for this legislation 

   in Article I, section 8 of the Constitution.                            



                                SECTION-BY-SECTION ANALYSIS                       



           Section 1. Short title                                                  



      This section states that this Act may be cited as the ``Prohibition  

   on Financial Transactions With Countries Supporting Terrorism Act of    

   1997.''                                                                 

           Sec. 2. Financial transactions with terrorists                          



      This section amends 2332d of title 18, United States Code, by        

   striking the language ``Except as provided in regulations issued by the 

   Secretary of the Treasury, in consultation with the Secretary of State, 

   whoever'' and inserting ``Whoever.'' This change removes the broad      

   authority currently enjoyed by the Departments of State and Treasury to 

   exempt individuals or corporations from the prohibition on financial    

   transactions with terrorist list countries.                             

      Subsection (2) of this section lists specific exceptions to the ban  

   on financial transactions with terrorist countries. This section states 

   that a financial transaction, ``does not include any transaction        

   ordinarily incident to--'' (A) routine diplomatic relations among       

   countries; (B) official acts by representatives of, or acts which are   

   authorized by and conducted on behalf of, the United States Government; 

   (C) the broadcasting or reporting of news by organizations regularly    

   engaged in such activity; (D) the provision of assistance intended to   

   relieve human suffering; (E) the receipt of emergency medical services; 

   (F) any postal, telegraphic, or other personal communication which does 

   not involve a transfer of anything of value; (G) the protection of      

   intellectual property rights of any United States person; (H) the       

   performance of any contract or agreement that was entered into before   

   June 12, 1997, but not those renewed after such date; (I) the provision 

   of hospitality or transportation services; or (J) the payment of a claim

   to any United States person.                                            

      The Committee intends by the words ``ordinarily incident to'' to     

   exclude from the prohibition any financial transaction that is          

   necessarily connected to or arising from the performance of a particular

   activity authorized by this legislation. Such transactions include fees 

   and travel related expenses. For example, a U.S. government employee    

   conducting official business in a terrorist list country may incur      

   expenses relating to air travel, living expenses, and miscellaneous fees

   that are unavoidably connected to the government of that country.       

   Similarly, those involved in the delivery of humanitarian assistance or 

   news reporting may engage in such transactions if they are related to   

   the permitted activity. Also, any filing fees required in connection    

   with the making of a legal claim would not be prohibited. Some          

   incidental transactions, such as the purchase of postage stamps or the  

   use of a telephone, are specifically exempted by the legislation.       

      With regard to the exception for broadcasting or reporting of news,  

   the Committee notes that this applies only to those whose occupation is 

   associated with journalism, including editing and technical services.   

   This exception is not intended to allow any person to engage in a       

   business transaction with a terrorist list country so long as such      

   person reports on his experiences.                                      

      The Committee expects that a manager's amendment will be adopted by  

   the full House when it gives consideration to H.R. 748. This amendment  

   will allow the purchase of humanitarian assistance. The Committee       

   intends to allow for the transfer of humanitarian assistance, which may 

   be donated to, or purchased by, the recipient. This assistance may      

   include medical services, supplies and equipment. While the Committee   

   intends to permit this assistance to be provided both with or without   

   charge to the person or entity receiving the assistance, this paragraph 

   would not permit the entity providing such assistance under this section

   to engage in other related commercial activities such as advertising or 

   manufacturing health care products in the terrorist state.              

      Paragraph (H) relating to the performance of any contract or         

   agreement entered into before June 12, 1997, is intended to protect     

   those contracts that were established prior to the formal consideration 

   of this legislation. If a party has an option to renew a contract       

   sometime after June 12, 1997, such renewal should not be considered as a

   continuation of the original contract and would not be included in the  

   exception in section 321. This is true even if the party gave           

   consideration for such option to renew.                                 



                                        AGENCY VIEWS                              



      There were no agency views received on H.R. 748 other than testimony 

   that was submitted at the hearing held on June 10, 1997.                

                   CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED          



      In compliance with clause 3 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 (existing law proposed to be omitted is enclosed in

   black brackets, new matter is printed in italic, existing law in which  

   no change is proposed is shown in roman):                               

                        SECTION 2332D OF TITLE 18, UNITED STATES CODE             



          2332d. Financial transactions                                           



      (a) Offense.--Except as provided in regulations issued by the        

   Secretary of the Treasury, in consultation with the Secretary of State, 

   whoever Whoever , being a United States person, knowing or having       

   reasonable cause to know that a country is designated under section 6(j)

   of the Export Administration Act of 1979 (50 U.S.C. App. 2405) as a     

   country supporting international terrorism, engages in a financial      

   transaction with the government of that country, shall be fined under   

   this title, imprisoned for not more than 10 years, or both.             

   (b)  Definitions.--As used in this section--                            



       (1) the term ``financial transaction'' has the same meaning as in   

   section 1956(c)(4) , except that such term does not include any         

   transaction ordinarily incident to--                                    



    (A) routine diplomatic relations among countries;                      



       (B) an official act by a representative of, or an act which is      

   authorized by and conducted on behalf of, the United States Government; 

       (C) the broadcasting or reporting of news by organizations regularly

   engaged in such activity; or                                            

    (D) the provision of assistance intended to relieve human suffering;   



    (E) the receipt of emergency medical services;                         



       (F) any postal, telegraphic, or other personal communication which  

   does not involve a transfer of anything of value;                       

       (G) the protection of intellectual property rights of any United    

   States person;                                                          

       (H) the performance of any contract or agreement that was entered   

   into before June 12, 1997, but not those renewed after such date;       

    (I) the provision of hospitality or transportation services; or        





     (J) the payment of a claim to any United States person ; and          



    (2) the term ``United States person'' means any--                      



    (A) United States citizen or national;                                 



    (B) permanent resident alien;                                          



    (C) juridical person organized under the laws of the United States; or 



    (D) any person in the United States.