1997 Congressional Hearings
Intelligence and Security




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PROHIBITION ON FINANCIAL TRANSACTIONS WITH COUNTRIES SUPPORTING TERRORISM ACT OF 1997

TUESDAY, JUNE 10, 1997
House of Representatives,
Subcommittee on Crime,
Committee on the Judiciary,
Washington, DC

    The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2237, Rayburn House Office Building, Hon. Bill McCollum (chairman of the subcommittee) presiding.

    Present: Representatives Bill McCollum, Steve Chabot, Bob Barr, Asa Hutchinson, Howard Coble, and Charles E. Schumer.

    Also present: Paul J. McNulty, chief counsel; Nicole R. Nason, counsel; Kara R. Norris, staff assistant; and David Yassky, minority counsel.

OPENING STATEMENT OF CHAIRMAN MCCOLLUM

    Mr. MCCOLLUM. The meeting will come to order.

    Today, we begin consideration of H.R. 748, the Prohibition on Financial Transactions with Countries Supporting Terrorism Act of 1997, which I have cosponsored with Mr. Schumer, the ranking member of this subcommittee.
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    The bill will expand the scope of a key provision in last year's antiterrorism bill, section 321, by eliminating overly permissive regulations promulgated by the administration last year and specifically listing exceptions to the prohibition.

    In my view, the forces of militant extremism in the Middle East and Africa are among the greatest international dangers currently facing America and its vital interests. The deadly threat posed by international terrorists must not be underestimated. We have all seen pictures of the bloody slaughter caused by these violent criminals. Yet if hatred and coldheartedness were all that these killers needed, the world would be in even more danger than it already is.

    Terrorists do need more than desire. They need support. They need infrastructure. That is why the presence of terrorist-supporting countries is so harmful to the world community. 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 active assistance of government officials.

    There should be no higher priority for the United States than the battle against terrorism. In my opinion, there should be no higher priority than the elimination of foreign government support for terrorists. This is why section 321 of last year's antiterrorism bill is a vital tool in the battle.
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    This section was specifically and successfully offered as an amendment to the antiterrorism bill by Mr. Schumer and myself. The clear and unambiguous language of the provision states, in part, whoever knowingly or having reasonable cause to know that a country is designated as a country supporting international terrorism and 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.

    The term ''financial transactions'' is defined very broadly to include transactions involving monetary instruments and financial institutions.

    This language was drafted with a dual purpose in mind. First, by prohibiting financial support from terrorist countries to U.S. persons, it attempts to prevent the long arm of terrorism from reaching the shores of the United States through domestic entities. The need for this prohibition came to light last year when the Rev. Louis Farrakhan traveled to Libya and received a personal pledge of significant financial support from Col. Muammar Qadhafi, an infamous supporter of terrorism.

    The second and broader purpose of the provision was to prohibit all financial transactions by U.S. persons with these countries regardless of where these transactions took place. This would have the effect of cutting off terrorist-sponsoring governments from the economic benefit of doing business with U.S. companies.

    Since five of the seven terrorist-list governments are already subject to economic sanctions as a result of executive order, the immediate impact of the ban related particularly to Sudan and Syria.
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    In the course of drafting this amendment last year, we were advised by the administration that the broad wording in the prohibition would have unintended consequences particularly in the area of diplomacy. We agreed to authorize the Department of the Treasury, in consultation with the State Department, to issue regulations which provided some exceptions to the ban.

    We intended these regulations to exclude various innocuous transactions that occur in the course of diplomatic activities and other related official matters. Instead, in August of last year, the Treasury Department published regulations in relation to section 321 which essentially reversed the effect of 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, 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.

    Thus, these regulations completely ignore the second purpose of the prohibition. They ensure a business-as-usual policy and represent a step backward in the effort to isolate Syria and Sudan. The regulations could also permit transactions with other terrorist-list nations if the current executive order should ever be lifted.

    Which brings us to H.R. 748. This bill closes the loophole created by the administration's regulations and prohibits all transactions other than those that are specifically connected to diplomatic activities. The bill strips the executive branch of the authority to issue regulations exempting transactions from the prohibition.
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    It establishes, instead, a legislative exception only for transactions incident to routine diplomatic regulations among countries. By this, we mean only those transactions which arise when officials of this country or representatives of a terrorist-supporting country travel or engage in activities for diplomatic purposes.

    For example, a cab ride from Kennedy Airport to the United Nations building would not be included. Similarly, an American diplomat traveling to Syria on official business would not be included.

    Many will argue that H.R. 748 is too restrictive. In addition to witnesses from the administration, we will hear today from those who believe that H.R. 748 would unnecessarily restrict certain activities that have been going on and may go on in the future which would not necessarily be disadvantageous to American security.

    Among the concerns that will be expressed are those relating to the relief of human suffering in terrorist nations and the impact of the legislation on currently existing business investments.

    I look forward to hearing these discussions. I know that there are instances where we have to be very specific and, perhaps, carve out some additional exceptions to those that are in the bill. But there is a very strong desire on my part and I think on the part of the members of this subcommittee to make sure that, in the process, we are not watering down this legislation as the regulation that was promulgated last year did.

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    The intent is very strong. It is desired to send a message. It is desired to cut off future transactions and investments by private American business interests in Syria and in Sudan and in other countries that are on the terrorist list with rare exceptions.

    It has never been the desire of this Member to try to craft the detailed type of exceptions that I am sure we are going to now have to put into statute. It was always my hope that this could be done by leaving this entirely to the regulatory bodies of the administration.

    But it does not appear, having experienced what we just did this past year, that that is going to be a satisfactory solution. As my colleague Mr. Schumer has said, a car bomb could be driven through the loophole that was placed there by those regulations.

    So here we are today. I look forward to, as I say, hearing from the witnesses, both from administration and from private industry, because we have got to draft something that is workable. We have got to make sure that what we put out is the right thing to do. But it has got to be tough, and it has got to carry the general message.

    [The bill, H.R. 748, follows:]

INSERT OFFSET RING FOLIOS 1 TO 2 HERE

    Mr. MCCOLLUM. I understand thatMr. Schumer will be here this morning, though he is not able to be with us at this very moment. In the meantime, I yield to my friend Mr. Coble, if he has any comments.
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    Mr. COBLE. I have no opening statement, Mr. Chairman.

    Mr. MCCOLLUM. Thank you very much, Mr. Coble.

    With that in mind, I will introduce our first panel today. Our first panel this morning consists of Government witnesses from the Departments of State and Treasury with special knowledge of counterterrorism laws and activities.

    From the State Department, we have William Ramsay, the Deputy Assistant Secretary for Energy, Sanctions and Commodities of the Bureau of Economic and Business Affairs. Mr. Ramsay is joined by the Coordinator for Counterterrorism, Ambassador Philip Wilcox; and by the Acting Legal Advisor, Michael Matheson.

    We also have with us this morning Mr. Richard Newcomb from the Department of Treasury. Mr. Newcomb is the Director of the Office of Foreign Assets Control.

    We welcome all of you this morning.

    I am not sure exactly what procedure we are going to use, but I assume, Mr. Ramsay, you would like to go first in this process. Instead of moving from left to right or right to left, we will go right to you; and, please, any statements you have will be made a part of the record without objection. Hearing none, it is so ordered. You may summarize or give us whatever thoughts you wish.

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STATEMENT OF WILLIAM C. RAMSAY, DEPUTY ASSISTANT SECRETARY OF STATE FOR ENERGY, SANCTIONS AND COMMODITIES, BUREAU OF ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE, ACCOMPANIED BY AMBASSADOR PHILIP WILCOX, COORDINATOR FOR COUNTERTERRORISM, AND MICHAEL MATHESON, ACTING LEGAL ADVISOR

    Mr. RAMSAY. Thank you, Mr. Chairman, Mr. Coble. It is, in fact, a pleasure for me to be here to testify this morning, because my last posting was in the Congo. I would certainly rather be here.

    H.R. 748 would flatly prohibit virtually all financial transactions between U.S. persons and the governments of terrorism-list countries.

    We fully agree with your views on the importance of taking unequivocal measures to compel state sponsors of terrorism to end such involvement. Fighting international terrorism is one of this administration's top priorities. Economic sanctions are an important tool in this effort.

    The United States is the world's leader in using these pressures. In fact, the United States has the most stringent set of laws of any country in imposing trade and other sanctions against state sponsors of terrorism—an extensive package of sanctions which bites when the Secretary of State formally designates a country as a terrorist-list state.

    We forbid the export of dual-use items which could be used to support military or terrorism ends. We suspend military sales, foreign aid and Eximbank credits. We deny them GSP. We oppose loans to them in international financial institutions. We deny U.S. persons tax credits for taxes paid to such countries.
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    These sanctions are all relevant to a state's support for terrorism. They are designed to deter further support by depriving terrorist-list states of the means for that support and by increasing their isolation from the international community.

    Beyond that, additional sanctions on each of the terrorist-list states—up to and including full embargoes—reflect our individualized responses to the behavior of these states, to their economic and military pressure points, and to our relationships with each of them.

    Each country has a different set of potential vulnerabilities and circumstances. Thus, our sanctions are tailored for maximum impact.

    But in order to have that impact, we need flexibility—flexibility to ratchet up the pressure, at the best time and in new ways, or to ease it, if there is improvement—to offer inducements as well as threaten punishments. We need flexibility to target vulnerabilities, which vary from country to country. And we need flexibility, including the timing of implementation, to enlist, wherever possible, the participation of our friends and allies in a sanctions regime.

    Flexibility in designing specific measures is vital to the success of sanctions. We have significant concerns with H.R. 748 because it is not inherently adaptable. Because it severely limits our ability to focus sanctions measures so they are aimed at each regime's vulnerabilities, we believe that H.R. 748 will have significant unintended consequences that might divert and detract from our intended focus on combatting terrorism.
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    I would like to cite a few examples of the problems we believe the bill will cause if it is enacted as written.

    U.S. nationals could not receive payments for claims from terrorist-list governments such as Iran, Iraq and Libya, even if the payments were compensation for terrorist acts.

    The United States could no longer be able to meet its obligations under the Algiers Accords as well as under the 1996 Iran Air Bank claims settlement.

    U.S. media and American journalists, who work to publicize companies in these countries, could no longer pay government fees, such as transmission charges, necessary to work within the terrorism-list countries.

    The repatriation of MIA remains from North Korea might have to cease, along with our involvement in the current freeze and dismantlement of North Korea's nuclear weapons program.

    U.S. participation in U.N. inspections in Iraq might have to stop, effectively ending the U.N.'s mission of detecting and destroying Iraq's weapons of mass destruction.

    U.S. participation and activities to resolve POW–MIA activities related to the Persian Gulf War could end.
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    The orderly, legal and safe migration of Cubans to the United States, one of the key elements of our Cuba policy, might be hampered if monitoring of returnees is not deemed to be a routine diplomatic function.

    Donations of food, medicines and medical supplies, payments for telecommunications services and facilities and direct mail to Cuba might also have to cease.

    The U.S. role in serving as an effective intermediary between Israeli and Syria and their pursuit of a peaceful resolution of their differences would be jeopardized.

    H.R. 748 could bar the U.S. Government from funding or directing humanitarian assistance programs in countries like Sudan, Iraq, and North Korea. Since 1988, the U.S. Government has been the leading contributor of humanitarian assistance to Sudanese civilians suffering from civil war and natural disasters. Most of this assistance is provided through U.N. agencies and operations.

    As Secretary Albright has said, there is no cookie cutter approach to foreign policy. There is no uniform template by which we shape or mold our relations in precisely the same pattern for each country.

    Our interest in combatting terrorism is a constant and basic objective shaping our policy. But while our goals and principles remain constant, our tactics must be flexible to be effective. The differing interests we have in each country and the differing circumstances of each country must necessarily shape the political and practical measures we use to combat terrorism.
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    There are many ways to impose sanctions on a country without causing the foreign policy consequences I have described. To use sanctions in an effective way, we must resort to them only when there is compelling need and after we have carefully assessed the benefits and costs. Specifically, we weigh the impact we hope the sanction will have on the behavior or policies of the targeted country against the identifiable costs to U.S. interests, including our trade and investment, international obligations and overall economic competitiveness.

    The administration's policy is to enlist other nations to support us in imposing sanctions against the targeted nation whenever possible. A multilateral approach can serve two objectives: to maximize the effectiveness of the sanctions by making them as universal as possible, and to distribute the costs of sanctions among other nations to achieve more equitable burden-sharing.

    Country policies are subject to review in light of the changing conditions and vulnerabilities of the target country; and, in fact, our policy towards Sudan, for example, is the subject of a current review. And when changes are necessary in an economic sanctions regime, we already have the legal tools we need to do the job.

    Mr. Chairman, as we examine ways to make our sanctions policy more effective in deterring state support for terrorism, we pledge to consult closely with you and other members of the committee in pursuit of a common position that is best for the United States.

    That concludes my remark, Mr. Chairman; and I would be happy to answer or take any questions you may have.
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    [The prepared statement of Mr. Ramsay follows:]

PREPARED STATEMENT OF WILLIAM C. RAMSAY, DEPUTY ASSISTANT SECRETARY FOR ENERGY, SANCTIONS AND COMMODITIES, BUREAU OF ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF JUSTICE

    The Chairman, thank you very much for the opportunity to testify today on H.R. 748.

    H.R. 748 would flatly prohibit virtually all financial transactions between U.S. persons and the governments of terrorism-list countries.

    We fully agree with your views on the importance of taking unequivocal measures to compel state sponsors of terrorism to end such involvement. Fighting international terrorism is one of this Administration's top priorities. Economic sanctions are an important tool in this effort.

    The United States is the world's leader in using these pressures. In fact, the U.S. has the most stringent set of laws of any country in imposing trade and other sanctions against state sponsors of terrorism—an extensive package of sanctions which bites when the Secretary of State formally designates a country as a terrorist-list state. We forbid the export of dual-use items which could be used to support military or terrorism ends. We suspend military sales, foreign aid, and Ex-Im credits. We deny them GSP. We oppose loans to them in international financial institutions. We deny U.S. persons tax credits for taxes paid to such countries. These sanctions are all relevant to a state's support for terrorism. They are designed to deter further support by depriving terrorist list states of the means for that support, and by increasing their isolation from the international community.
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    Beyond that, additional sanctions on each of the terrorist-list states—up to and including full embargoes—reflect our individualized responses to the behavior of these of these states (which varies); to their economic and military pressure points; and to our relationships with each of them.

    Each country has a different set of potential vulnerabilities and circumstances. Thus, our sanctions are tailored for maximum impact.

    But in order to have that impact, we need flexibility—flexibility to ratchet up the pressure, at the best time, and in new ways, or to ease it, if there is improvement—to offer inducements, as well as threaten punishments. We need flexibility to target vulnerabilities, which vary from country to country. And we need flexibility, including the timing of implementation, to enlist, wherever possible, the participation of our friends and allies in a sanctions regime.

    Flexibility in designing specific measures is vital to the success of sanctions. We have significant concerns with H.R. 748 because it is not inherently adaptable.

    Because it severely limits our ability to focus sanctions measures so they are aimed at each regime's vulnerabilities, we believe that H.R. 748 will have significant unintended consequences that might divert and detract from our intended focus on combating terrorism.

    The following recitation is a partial list of the problems we believe the bill will cause if enacted as written.
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U.S. nationals could not receive payment for claims from terrorist-list governments, such as Iran, Iraq, and Libya, even if the payments were compensation for terrorist acts;

The intellectual property rights of Americans might be jeopardized, if U.S. nationals are not permitted to engage in transactions necessary to register and maintain these rights in the targeted countries;

U.S. media and American journalists, who work to publicize conditions in these countries, could no longer pay government fees, such as transmission charges, necessary to work within terrorism list countries;

We might not be able to provide aid or assistance in support of democracy in these countries;

The repatriation of MIA remains from North Korea might have to cease, along with our involvement in the current freeze and dismantlement of North Korea's nuclear weapons program;

U.S. participation in UNSCOM inspections in Iraq might have to stop, effectively ending UNSCOM's mission of detecting and destroying Iraq's Weapons of Mass Destruction programs;

U.S. participation in UNIKOM, which monitors the Iraq-Kuwait border, could end;

U.S. participation in activities to resolve POW/MIA issues related to the Gulf War could end;

U.S. participation in the implementation of UNSC Resolution 986 (Iraqi oil for food) might have to cease;
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Our Interests Section in Havana could be forced to close, since it is not clear that it would fall within the scope of ''routine diplomatic relations'' as provided for in H.R. 748.

The orderly, legal, and safe migration of Cubans to the United States, one of the key elements of our Cuba policy, may be hampered if monitoring of returnees is not deemed to be a ''routine diplomatic function.''

It is unclear whether the ''Support for the Cuban People'' provisions, including humanitarian assistance, as authorized by the 1992 Cuban Democracy Act would continue to apply. The 1992 legislation is a key element in U.S. efforts to build a civil society and lay the groundwork for a peaceful democratic transition in Cuba;

Donations of food, medicines and medical supplies, payments for telecommunications services and facilities, and direct mail to Cuba might have to cease;

The ability of the U.S. to host international sporting events such as the Olympics could be jeopardized if teams from terrorist-list countries could not participate;

Ordinary transactions by U.S. citizens living in terrorist-list countries, including religious missionaries and employees of humanitarian organizations, could become criminal acts—for example paying a telephone or electricity bill to a state-owned utility;

The U.S. could no longer be able to serve as an effective intermediary between Israel and Syria in their pursuit of a peaceful resolution of their differences;
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H.R. 748 could bar the USG from funding or directing humanitarian assistance programs in countries like Sudan, Iraq, and North Korea. Since 1988, the USG has been the leading contributor of humanitarian assistance to Sudanese civilians suffering from civil war and natural disasters. Most of this assistance is provided through UN agencies and operations;

The law could bar U.S. commercial airlines from making payments to terrorism-list governments for use of commercial air corridors, thus requiring route alterations or relocation of airline operations, and creating potential risks to air safety;

U.S. citizen travel to terrorism-list countries, if it involved payment of visa fees or other taxes, user fees or charges incidental to normal travel transactions, could become illegal; and

Students from terrorism list countries might not receive government stipends for study in US institutions (potentially leaving them unable either to return to their countries or continue their studies).

    As Secretary Albright has said, there is no ''cookie cutter'' approach to foreign policy—there is no uniform template by which we shape or mold our relations in precisely the same pattern for each country.

    Our interest in combating terrorism is a constant and basic objective shaping our policy. But while our goals and principles remain constant, our tactics must be flexible to be effective. The differing interests we have in each country and the differing circumstances of each country must necessarily shape the practical measures we use to combat terrorism.
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    There are many ways to impose sanctions on a country without causing the foreign-policy consequences I described. To use sanctions in an effective way, we must resort to them only when there is a compelling need and after we have carefully assessed the benefits and costs. Specifically, we weigh the impact we hope the sanction will have on the behavior or policies of the targeted country, against the identifiable costs to U.S. interests—including our trade and investment, international obligations, and overall economic competitiveness.

    The Administration's policy is to enlist other nations to support us in imposing sanctions against a targeted nation whenever possible. A multilateral approach can serve two objectives: to maximize the effectiveness of the sanctions by making them as universal as possible, and to distribute the costs of sanctions among other nations to achieve more equitable burden-sharing.

    Country policies are subject to review in light of the changing conditions and vulnerabilities of the target country—and in fact, our policy toward Sudan, for example, is the subject of a current review. And when changes are necessary in an economic sanctions regime, we already have the legal tools we need to do the job.

    Mr. Chairman, as we examine ways to make our sanctions policy more effective in deterring state support for terrorism, we pledge to consult closely with you and other members of the Committee, in pursuit of a common position that is best for the United States.

    That concludes my remarks and I would be happy to answer or take any questions you may have.
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STATEMENT OF R. RICHARD NEWCOMB, DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL, DEPARTMENT OF THE TREASURY

    Mr. MCCOLLUM. Mr. Newcomb, as the representative of the Treasury Department, you should be the next witness; please proceed.

    Mr. NEWCOMB. Thank you.

    Mr. Chairman, members of the committee, I wish to thank you for inviting me to testify at your hearing today.

    The Office of Foreign Assets Control of the Treasury Department administers economic sanctions and embargo programs against specific foreign countries or groups to further U.S. foreign policy and national security objectives. In administering programs, we generally rely on presidential authority contained in the Trading with the Enemy Act or the International Emergency Economic Powers Act and specific legislation to prohibit or regulate commercial or financial transactions with specific foreign countries or groups.

    As our function is to implement and enforce sanctions and embargo programs, my comments this morning are addressed to sanctions administration and the vital role that licensing plays in the successful implementation of our programs.

    Our sanctions programs on the seven countries designated by the State Department as supporting international terrorism are quite diverse and carry different foreign policy guidance. Without the ability, through general and specific licenses, to tailor sanctions programs to the realities that we see on a day-to-day basis and to wholly unforeseeable situations that arise daily, sanctions' usefulness would be lost as an instrument for the defense of U.S. foreign policy, national security and economic interests.
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    H.R. 748 would amend the current law, section 321 of the Antiterrorism Act, to repeal all executive flexibility in administering the prohibition on financial transactions against terrorist supporting governments, permitting only transactions incident to routine diplomatic relations among countries. This codification would drastically alter preexisting sanctions programs against five of the seven terrorist-supporting governments and seriously infringe the President's ability to conduct foreign policy and use sanctions to respond quickly and flexibly to changing situations in embargoed countries.

    In each of our sanctions programs on terrorist countries, the scope of the prohibitions and of OFAC licensing policy and practice responds to specific national security, foreign policy or economic conditions. In the case of Iran, for example, we have administered a full blocking of government assets with comprehensive trade sanctions beginning in 1979 through 1981, import prohibitions from 1987 until 1995, and comprehensive sanctions on trade in goods and services without the blocking of assets from May 1995 to the present.

    In Cuba from 1963 to the present and North Korea from 1950 to the present, we have administered comprehensive blocking and trade sanctions applicable both to the governments and all nationals of these countries.

    With respect to Libya from 1986 to the present and Iraq from 1990 to the present, comprehensive blocking of government assets and trade sanctions are in place.

    However, unlike Cuba and North Korean nationals, Libya and Iraqi nationals' assets are not blocked. Pursuant to United Nations sanctions, transfers to persons in Iraq are prohibited. There are prohibitions against travel transactions to Libya, Iraq, and Cuba, but travel transactions are permitted by general license under the North Korean sanctions and are exempt by statute with respect to the current program on Iran.
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    These variations are not haphazard but reflect the specific policy context in which each program has been developed.

    In each of those programs, general and specific licensing policies have been adopted to minimize unintended human suffering while accomplishing program goals and to reflect general interests of the United States.

    Examples of the former include licenses permitting expenditures relating to travel for family reunification purposes to visit sick and dying relatives in Cuba; permitting participation in amateur and nonpolitical international athletic competitions and people-to-people exchanges; allowing limited fund to be transferred to close relatives so they can emigrate from Cuba; authorizing humanitarian relief for the people of North Korea and Iran suffering from natural disasters; permitting families to stay with their immediate families in Libya; dispersing U.S. vaccines to combat epidemics; bringing home the remains of Americans who died overseas and administering decedents estates in target countries; allowing payments for boat repairs if a U.S. vessel, for example, may be blown into a target country's waters during a storm. This list could be expanded.

    Among the authorizations serving U.S. interests are licenses permitting travel payments related to journalism; the compensation of successful U.S. claimants in the Iran-United States Claims Tribunal in The Hague from Iranian government funds; reciprocal United States and target country intellectual property protection; payments when it is necessary to overfly target country airspace or for emergency landings; the acquisition and sale of publications and informational materials; and a wide range of humanitarian donations, remittances, family payments, and other type of travel-related payments.
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    In removing licensing authority over financial transactions by United States persons with regard to the governments of Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria, H.R. 748 would not only adversely affect the President's constitutional responsibility to conduct the foreign affairs of the United States, it would also eliminate Treasury's Office of Foreign Assets Control's ability to make decisions about very human and often unforeseen events and potentially could cause great suffering for unintended and untargeted third parties.

    Thank you, Mr. Chairman. I will be glad to answer questions you have on this.

    Mr. MCCOLLUM. Thank you, very much, Mr. Newcomb.

    [The prepared statement of Mr. Newcomb follows:]

PREPARED STATEMENT OF R. RICHARD NEWCOMB, DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL, DEPARTMENT OF THE TREASURY

    Members of the committee, thank you for inviting me to testify at your hearing today.

GENERAL BACKGROUND

    The Office of Foreign Assets Control (OFAC) administers economic sanctions and embargo programs against specific foreign countries or groups to further U.S. foreign policy and national security objectives. In administering these programs, OFAC generally relies upon Presidential authority contained in the Trading With the Enemy Act (TWEA) or the International Emergency Economic Powers Act (IEEPA), or upon specific legislation, to prohibit or regulate commercial or financial transactions with specific foreign countries or groups.
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    Examples of current TWEA programs include comprehensive asset freezes and trade embargoes against North Korea and Cuba. Examples of current IEEPA programs include similarly broad sanctions against Libya, Iraq, the Cali Cartel, and certain foreign terrorist groups, as well as comprehensive trade sanctions against Iran.

    From time to time, sanctions have been imposed by Congress directly through legislation. Between 1986 and 1991, for example, OFAC administered the trade and investment prohibitions against South Africa mandated by the Comprehensive Anti-Apartheid Act. Similarly, OFAC has been delegated administration of Section 321 of the Antiterrorism and Effective Death Penalty Act of 1996 (the Act), which was signed into law by the President on April 24, 1996.

SECTION 321

    Section 321 of the Act prohibits all financial transactions by United States persons with the governments of terrorism-supporting nations designated under section 6(j) of the Export Administration Act, except as provided in regulations issued by the Secretary of Treasury, in consultation with the Secretary of State. The Act prohibited all financial transactions by U.S. persons with: North Korea, Cuba, Iran, Libya, Iraq, Syria, and Sudan.

    All but Syria and Sudan were the subject of existing comprehensive financial and trade embargoes at the time of enactment. In accordance with foreign policy guidance provided to Treasury by State, existing sanctions programs against North Korea, Cuba, Iran, Libya, and Iraq were continued without change. This permitted the specific policies developed over time with respect to each of these countries to remain in effect, including the exceptions to each embargo dictated by unique humanitarian, diplomatic, news gathering, intellectual property, and other concerns.
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    New regulations, known as the Terrorism List Governments Sanctions Regulations, were issued August 23, 1996 to impose the prohibitions on financial transactions with respect to Syria and Sudan. While most transactions are currently authorized, the new regulations, drafted in consultation with the Department of State, do prohibit financial transactions which involve transfers from those governments in the form of donations and transfers with respect to which U.S. persons know or have reasonable cause to believe that there is a risk of furthering terrorist acts in the United States.

    From a sanctions enforcement perspective, we believe the Act and implementing regulations are important because they provide OFAC with comprehensive jurisdiction over all financial transactions between U.S. persons and the Governments of Syria and Sudan. We now have authority to act to stop or impede any particular suspicious transfer to or from these governments by informing U.S. persons handling the transfer that a reasonable cause exists to believe that the transaction may pose a risk of furthering terrorist activity in the United States. We believe the Act's authority provides a significant new tool to prevent funding of terrorist activities in the U.S.

H.R. 748

    H.R. 748 would amend the current law, section 321 of the Antiterrorism Act, to repeal all Executive flexibility in administering the prohibition on financial transactions against terrorism supporting governments, permitting only transactions incident to routine diplomatic relations among countries. This codification would drastically alter pre-existing sanctions programs against five of the seven terrorism-supporting governments, and seriously infringe the President's ability to conduct foreign policy and use sanctions to respond quickly and flexibly to changing situations in embargoed countries.
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    OFAC's function is to implement and enforce sanctions programs. For that reason, my comments are addressed to sanctions administration, and the vital role that licensing plays in the successful implementation of our programs. Our sanctions programs on the seven countries designated by the State Department as supporting international terrorism are quite diverse, and carry different foreign policy guidance. Without the ability—through general and specific licenses—to tailor sanctions programs to the real world and to wholly unforeseeable situations that arise daily, sanctions' usefulness would be lost as an instrument for the defense of U.S. foreign policy, national security, and economic interests.

    In each of our economic sanctions programs on terrorist countries, the scope of the prohibitions and of OFAC licensing policy and practice responds to specific national security, foreign policy or economic conditions. In the case of Iran, we have administered a full blocking of government assets with comprehensive trade sanctions (1979–81), import prohibitions (1987–95), and comprehensive sanctions on trade in goods and services without the blocking of assets (May 1995-date). In sanctions on Cuba (1963-date) and North Korea (1950-date), we have administered comprehensive blocking and trade sanctions applicable both to the governments and all nationals of these countries. With respect to Libya (1986-date) and Iraq (1990-date), comprehensive blocking of government assets and trade sanctions are in place. However, unlike Cuban and North Korean nationals, Libyan and Iraqi nationals' assets are not blocked. Pursuant to United Nations sanctions, transfers to persons in Iraq are prohibited. There are prohibitions against travel transactions to Libya, Iraq, and Cuba, but travel transactions are permitted by general license under the North Korean sanctions, and are exempt by statute for Iran. These variations are not haphazard, but reflect the specific policy contexts in which each program has developed.
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    In each of these programs, general and specific licensing policies have been adopted to minimize unintended human suffering while accomplishing program goals and to reflect general interests of the United States.

    Examples of the former include licenses permitting expenditures related to travel to visit sick and dying relatives in Cuba; permitting participation in amateur and nonpolitical international athletic competitions and people to people exchanges; allowing limited funds to be transferred to close relatives so that they can emigrate from Cuba; authorizing humanitarian relief for the people of North Korea and Iran suffering from natural disasters; permitting husbands, wives, sons and daughters to stay with their immediate families in Tripoli; dispensing U.S. vaccines to combat the outbreak of epidemics; bringing home the remains of Americans who have died overseas and administering decedents estates in target countries; allowing payments for boat repairs when a U.S. vessel has been blown into target country waters during a storm. The list goes on and on.

    Among the authorizations serving U.S. interests are licenses permitting travel payments related to journalism; the compensation of successful U.S. claimants in the Iran-U.S. Claims Tribunal in The Hague from Iranian Government funds; reciprocal U.S. and target country intellectual property protection; payments when it is necessary to overfly target country airspace or for emergency landings; the acquisition and sale of publications, information and information materials; and a wide range of humanitarian donations, remittances, family payments, and travel-related transactions.

    In removing licensing authority over financial transactions by U.S. persons with the governments of Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria, H.R. 748 would not only adversely affect the President in his Constitutional responsibility to conduct the foreign affairs of the United States, it would also eliminate OFAC's ability to make rational decisions about very human and often unforeseen events and cause great suffering for unintended and untargeted third parties.
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    Thank you.

    Mr. MCCOLLUM. Ambassador Wilcox, Mr. Matheson are you here to make statements or in just a supportive capacity? We would welcome any statements you may have.

    Mr. WILCOX. Mr. Chairman, I have not submitted a statement. I would be pleased to answer your questions and to comment on any aspect of this.

    I would be prepared to comment on our view toward Syria and Sudan with respect to their support for international terrorism, the differences between those two countries and any other aspect of this.

    Mr. MCCOLLUM. Well, why don't I yield myself 5 minutes? We will go from there.

    I will ask you that question right off the bat, then, Ambassador Wilcox. I understand that we have a terrorist list of countries. There are seven of them. Iran, Iraq, Libya and so on are included in this list. But Syria and Sudan don't have embargoes against them right now. Why are we treating them differently? I understand they are terrorist countries like everybody else.

    Mr. WILCOX. Mr. Chairman, let me say, first of all, that we very much welcome your support and commitment to doing everything the United States government can to minimize the threat of international terrorism and to bring pressure to bear against state sponsors of terrorism to stop this reprehensible activity.
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    We do seek a workable means of doing this. We have, over the years, I think, achieved a wide variety of measures against these seven states. All of these states are different; and, as Mr. Ramsay said, we believe that our sanctions policy toward each of these states should be tailored to the particular kind of terrorism they support, the degree of their culpability, and other foreign policy factors.

    The threshold level of sanctions that apply to all of the seven state sponsors represent a very substantial package of sanctions. And they should. Those sanctions have been applied vigorously over the years because they represent the kind of pressure we want to bring to bear against states which in any way support international terrorism and meet our definition of state sponsors.

    Beyond that, we believe that the President needs flexibility to choose the particular measures and the right combination of measures. The one-size-fits-all policy does not work and, indeed, could have adverse consequences for the United States.

    Mr. MCCOLLUM. Why Syria and Sudan? Why are they different? What makes them different?

    Mr. WILCOX. Let me address Sudan. The press reports have given a mistaken impression that somehow we have been lenient toward Sudan. That is not true. We have taken the lead among nations, for example, in the United Nations, in promoting new multilateral sanctions against Sudan. We have had some success. But that task is not complete yet, so we are continuing to press it.
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    The thrust of that effort is to impose aviation sanctions against Sudan. We hope we will succeed. Sudan is a different case, in some respects, from countries like Iran and Libya and Iraq, which are more flagrant offenders and more actively involved in state sponsorship of terrorism than Sudan.

    Since former Secretary Christopher designated Sudan as a state sponsor of terrorism in 1993, we had a very intensive dialogue with Sudan. That is a distinctive feature, too. We do have diplomatic relations with Sudan, whereas we do not with five of the state sponsors. And in that dialog, we have made very clear our requirements.

    To some extent, the Sudanese have responded positively. For example, the world's leading terrorist financier, Usama bin Laden, at our request was expelled from Sudan in May, 1996. That was a significant step. He has not been permitted to return. He is now hiding in Afghanistan, and we think that has reduced his capability to finance terrorist activities around the world.

    Sudan has also told us that it has removed members of the Abu Nidal organization from Sudanese territory. We are very skeptical of that claim. Instead, we have evidence that that has not taken place. Sudan, at our request, has closed a terrorist training camp which was used by resident terrorist groups for terrorist training; and our embassy has visited that camp and inspected it.

    Now those are positive steps. But, on balance, Sudan's response has not been satisfactory. Sudan still needs to do more to change its behavior. The steps that it taken are perhaps only tactical; but, nevertheless, Sudan has been responsive to some extent, because we have had a dialogue with them.
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    We think that if further sanctions are to be brought to bear they should be focused and tailored to the need. We do not think that the situation in Sudan is immutable, but we are skeptical that at any time soon their performance is going to change.

    I see the red light is on. I could——

    Mr. MCCOLLUM. No, you can continue to talk. That is really for me. That is my own flag. Please continue.

    I want to hear the answer to this question because it is the very crux of the problem with regard to what we need to decide here today, and our committee members need to hear it. Unfortunately, there are only two or three of us here because it is the first day back, but we are still going to ask you quite a few questions, and I will be liberal with Mr. Coble, Mr. Hutchinson or anybody else that comes in. So please proceed.

    Mr. WILCOX. Thank you.

    We certainly do want to continue our discussions with you, Mr. Chairman, and the members of the committee on what measures could be appropriate for Sudan which would be most likely to achieve our shared policy objective, and to do it in a way that would not create adverse consequences for other U.S. foreign policies. So we hope that we can do that, sir.

    Mr. MCCOLLUM. Before we go into Syria, let me ask you to clarify why you think Sudan is different now.
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    Even though you have told us you think Sudan has taken some positive steps, isn't it true that Sudan still does things in harboring terrorist activities or looking the other way or allowing their properties to be utilized for the basing of terrorist training and so?

    Mr. WILCOX. Absolutely. Sudan's record, as I said, is, on balance, still very negative. Sudan has not redeemed itself and is still a state sponsor of terrorism because it continues to harbor terrorist groups on Sudanese soil.

    We do not have information that those groups in Sudan are using Sudan as a base for planning and plotting terrorist attacks in other countries today, although we do have some evidence that that was true in the past.

    For example, we believe that the Sudanese government knew about the plot to attack President Mubarak in Addis Ababa before that attack took place; and the Sudanese government has defied our wishes and those of the U.N. Security Council in refusing to deliver up those suspected terrorists to justice for that attempted assassination. So Sudan certainly has not redeemed itself and is deserving of continued treatment as a state sponsor.

    The severity of Sudan's offenses, though, as I said, are somewhat different from those of countries like Iran. Sudan does not carry out direct terrorist attacks overseas; Sudan does not assassinate its political enemies abroad. Sudan has not been involved, in a tactical or operational sense, in efforts to use terror to undermine the Middle East peace process, although Sudan has refused to acknowledge the existence of the State of Israel and to support the peace process.
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    Mr. MCCOLLUM. What makes Syria different? I am not going to dominate the whole time—you almost should have been a witness today in your own right by reason of your specialty in regard to terrorism. So from the terrorist perspective, please tell us about Syria and what makes it different from other terrorist-list nations.

    Mr. WILCOX. Although it is not my bailiwick, I want to note that the United States has other very serious problems with Sudanese behavior: its gross violation of its human rights of its citizens, its perpetuation of a cruel civil war that has brought terrible harm and suffering and its subversive activities which contribute to instability in neighboring countries. Those are other reasons why we have serious problems with Sudan and reasons toward which any new policy measure should be directed.

    Turning to Syria, since 1986, and indeed for decades, Syria has harbored Palestinian extremist terrorist organizations in Damascus. It has supported the Hezbollah in Syrian-controlled areas of Lebanon. For these reasons, the United States has designated Syria as a state sponsor of terrorism.

    Another major Syrian offense took place back in the late 1980's when the Syrian Government was involved in a plot to blow up an airliner bound for Israel at London's Heathrow Airport.

    Since 1986, when that happened, there has been no further direct involvement of Syria in acts of terrorism that we know of. Syria, however, has continued to harbor these terrorist groups in Damascus and has retained a relationship with Hezbollah. For that reason, we have kept Syria on our list; and we intend to do so until those policies change.
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    For the last 3 years, Syria has parted company with the other state sponsors by acknowledging and committing itself to a peace process with Israel. That is a major departure for any state sponsor of terrorism. None of the others in the Middle East have done so.

    Syria has been involved, on a periodic basis, in very intensive negotiations with the State of Israel under a process which the United States has sponsored and served as the principal mediator. The success of that process, Syrian-Israeli peace, is a strategic objective for the United States and for our friends in the region, including the Government of Israel and our Arab friends there.

    That is a very important foreign policy objective. We would not wish to impose new sanctions on Syria how if those sanctions could risk the future of Syrian engagement in the peace process.

    There is no active negotiation at the moment between Syria and Israel, but we believe that it will be resumed at some stage.

    Syria has also, from time to time, intervened in a positive way in southern Lebanon to restrain the Hezbollah from terrorist attacks across the Israeli border into civilian settlements in northern Israel.

    Back in the early 1990's Syria was also helpful in facilitating the release of American hostages who were held hostage by Hezbollah terrorists in Lebanon. None of that is enough to mitigate Syria's continued permission for these groups to maintain activities in Damascus and in the Syrian-controlled Bekaa Valley, so we will keep Syria on the list for that reason.
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    Mr. Chairman, there are other factors which I cannot discuss in this open hearing which bear upon the safety and security of Americans. I would be pleased to brief any members of the committee on this in private session. But that is another factor in our approach to Syria and in our calculus on whether or not new sanctions against Syria would be a positive way of changing its behavior towards support for terrorism.

    In short, we do not believe that sanctions would have that effect. Indeed, we think they would have a counterproductive effect. So the administration does not support the extension of sanctions against Syria.

    Mr. MCCOLLUM. Well, let me get a clear understanding from all of you in relation to Syria, then I will go to Mr. Coble for questions.

    My understanding today is that the administration's position on the legislation before us is that you would like to see it modified in terms of some exceptions or with more specificity than it has today with regard to the terrorist-list countries—maybe even tailored with regard to Sudan. It is also my understanding that it is your position that there should be no financial transaction restrictions whatsoever with regard to Syria. Is that correct? That you want a complete exception for Syria?

    Mr. Ramsay.

    Mr. RAMSAY. I would say at this time, Mr. Chairman, that the administration is keeping under review all of the terrorist-list states and can adjust the sanction of each of the terrorist-list states as a function of how our policies and relations with them evolve. Our review of H.R. 748 is that it causes a lot of collateral problems that are probably unintended which could conceivably be fixed by H.R. 748 but needn't be fixed by legislation at all.
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    Mr. MCCOLLUM. Well, Mr. Ramsay, let me interrupt you tell you that it would be highly desirable to give you the flexibility. But when we gave it to you last time—and we really gave it through Mr. Newcomb and the Treasury Department that was an unsatisfactory result.

    I read in my opening statement the liberality you took in your interpretation of the legislation and that was not acceptable to Congress. It was our desire to tighten that noose.

    There is a difference, I suppose, in our opinion about foreign policy, but this legislation deals with more than just foreign policy—it deals with terrorism, with activities of the highest order of concern to this Congress.

    So, consequently, just let me say up front that, unless I am sadly mistaken about the temperament of my colleagues on this committee, we intend to proceed with, at the very least, some specifically defined language with regard to financial transactions.

    Now we may well grant some exceptions to these transactions in order to allow for conditions and circumstances that have to be here. I realize we are not capable and really shouldn't be in the business of micromanagement; but, to some extent or another, we are going to get a bit more involved than normal just because we are not happy with the product you've given us.

    Is my understanding correct that the administration, would want to have a total exemption for Syria and some specifically staggered exemptions and various targeted exemptions or exceptions, if you will, for some of these other terrorist-list countries rather than the blanket language which is in the bill today?
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    Mr. RAMSAY. Well, Mr. Chairman, we understand that it is your intention—the committee's intention to proceed with H.R. 748; and we have thought about the possibility of exemptions for one country or the other under some kind of adjusted H.R. 748. But our view is I think our interests—the U.S. interests are best served by our common view of terrorism and our common view of the desire to stem terrorism and do what needs to be done to challenge terrorism, which we think can best be done with the authorities we already have under the various statutes that have been passed to constrain transactions as appropriate and to challenge those countries individually as a function of our relations with each of them individually, rather than try to do it in a particular amendment that would affect all seven in a homogeneous way.

    Mr. MCCOLLUM. We are going in circles—again, I want to clarify this. On the one hand, you are saying we would like to have an open hand and give us total flexibility. On the other hand, I think you are saying to me that you are prepared to offer some suggestions about how we might proceed in regard to tailoring this legislation in a more direct way. But does that more tailored way include a total exemption for Syria? Is it your assertion that, as I gather from Ambassador Wilcox, this administration does not want Syria to have any sanctions at all?

    Mr. RAMSAY. Sir, I can't say——

    Mr. MCCOLLUM. Or any in this bill?

    Mr. RAMSAY. I can't say that this panel is briefed to be able to answer that question directly. That is a very specific question. I think we would need to engage other people back in the Department.
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    But my view is that the Department's position would be for each of the terrorist-list countries we would like to have a separate dialogue on what is appropriate for each of those countries as a function of our relations and their roles in terrorism and other activities.

    Mr. MCCOLLUM. Mr. Coble, you are recognized for 5 minutes.

    Mr. COBLE. Thank you, Mr. Chairman.

    Good to have you all with us this morning, gentlemen.

    Mr. Ramsay, I sit as a member of the Subcommittee on Courts and Intellectual Property of the full Judiciary Committee, and I find your comment interesting in that you say the intellectual property rights of Americans might be jeopardized if U.S. nationals are not permitted to engage in transactions necessary to register and maintain these rights in the targeted countries. Elaborate in a little more detail about that concern.

    Mr. RAMSAY. Basically, sir, as I understand the constraint, the kinds of transactions—the kinds of registration fees that would need to be paid in whatever country the interested American party would like to register his trademark cannot be paid. It could conceivably be paid if that company requested a license to do so and, under Treasury licensing authority, that license were granted. But in a blanket ban on financial transactions, that company would not be able to register his trademark.

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    Mr. COBLE. Mr. Chairman, I am thinking—just thinking aloud now. I am sure we don't want to do anything to frustrate the intellectual property of our people. If Mr. Ramsay and his staff could present language that might address this concern—Mr. Ramsay—would you be amenable to that, Mr. Chairman?

    Mr. MCCOLLUM. Mr. Coble, if you would yield, I am very amenable to suggestions by both the Treasury and the State Department with regard to some specific language. As I have said earlier, I don't think we ought to be having to micromanage, but we obviously can't have as flexible a bill as they would turn it into what we had before. So, yes, I would be very amenable.

    Mr. COBLE. Why don't you think about considering doing that, Mr. Ramsay? Submit some language that you think might, without trashing the bill, assuage the problems that you have with the legislation.

    Mr. RAMSAY. Yes, sir. We would be happy to do that.

    Mr. COBLE. All right, sir.

    Mr. RAMSAY. Your concern raises sort of a general issue about how one designs sanctions in the first place. Is the design of sanctions best structured with a sweeping imposition and then a multitude of exceptions or is it better designed by identifying the vulnerability——

    Mr. COBLE. Yes.
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    Mr. RAMSAY [continuing]. And targeting the sanction on the vulnerability?

    Mr. COBLE. That may well be subject to interpretation, I guess, depending to whom you are talking.

    Mr. RAMSAY. Yes, sir.

    Mr. COBLE. Mr. Newcomb, let me put a three-prong question to you. How are U.S. sanctions against terrorist-list governments enforced? What rules do the Federal law enforcement agencies perform? And how you do you respond to the complaint that OFAC does not vigorously target terrorist, quote, front companies, close quote?

    Did you get all three of them down, Mr. Newcomb?

    Mr. NEWCOMB. If we can take them one by one.

    Mr. COBLE. OK. Fine.

    Mr. NEWCOMB. How do we enforce them? We have—for each of these programs and when promulgated by the President under the International Emergency Economic Powers Act or going back to Cuba and North Korea for the Trading with the Enemy Act, we develop a comprehensive set of regulations which goes into prohibitions and general authorization, what we call general licenses.
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    So we develop a comprehensive program that goes into specifically what is intended to be targeted and the unique facts, circumstances and situations that exist for each of these countries, specifically dealing with the foreign policy criterion goals that are developed in consultation—very actively in consultation with the State Department.

    We work closely with the Federal law enforcement community. We work with U.S. Customs Service and the FBI and others in terms of developing information and moving forward in our enforcement program. We have an active civil penalty program. In the course of any given year, we collect over 200 penalties and bring revenues of over a million dollars in for violations of our programs. Now, this is across the board, but I think most of these are terrorist supporting countries.

    With regard to not vigorously enforcing, your question was——

    Mr. COBLE. Targeting——

    Mr. NEWCOMB [continuing]. Targeting.

    Mr. COBLE [continuing]. Terrorist front companies. And you might explain to us what front companies are.

    Mr. NEWCOMB. Sure. When we identify a government, we usually define that as a government, its agencies, instrumentalities or controlled entities or individuals or entities acting for or on their behalf or owned or controlled by. So we have developed a program where we can designate individuals, companies and front organizations that act for or on behalf or are under control by these governments.
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    So, for example, in the case of Libya, which is heavily invested in Europe in oil-refining production, downstream distribution activities, we have identified those companies and organizations that they own and control. Same thing with financial institutions.

    We did this for Iraq, where we quite extensively went and named names of individuals and entities that were a part of Saddam Hussein's military procurement network outside of Iraq so that individuals, U.S. persons in Europe, the Middle East and Central and South America, wherever, would know by name the particular individual and entity that they would otherwise not know who not to do business with.

    We maintain this list of specially designated nationals, specially designated terrorists, specially designated narcotics traffickers. We have over 3,000 names which are incorporated in what we call our Specially Designated National List.

    U.S. financial institutions have developed over the years what is called name recognition software where, in an automated basis, they are able to work into their computers the ability to stop transactions with these entities or organizations. We are all now working with major companies to screen all of their sales so that they don't inadvertently do business with any of these named entities.

    So we have a very comprehensive program in place to deal with those front companies, and we do have a very active program. The list continues to be developed, to be refined and to be more meaningful as to precisely who you are doing business with.

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    If it is Iraq, for example, they can't set up a bunch of companies or have a bunch of people going out, doing their buying or selling or procurement. If we know about it, we will name them. They are offlimits to U.S. persons.

    And the third part of your question was?

    Mr. COBLE. I think you responded about vigorously targeting the front companies.

    Mr. NEWCOMB. Yes, sir, I believe we did that.

    Mr. COBLE. Yes, sir.

    Mr. COBLE. Mr. Chairman, the red light notwithstanding, may I have one more question.

    Mr. MCCOLLUM. Certainly.

    Mr. COBLE. Does the FBI and/or the Customs have the authority and do they follow a practice of initiating investigations on their own, Mr. Newcomb, or do they depend upon referrals from your office?

    Mr. NEWCOMB. We work it both ways. I would say, for the most part, they develop investigations, they develop leads on violations on their own; and over the years we have developed a very good, productive enforcement kind of relationship.
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    We also receive leads which we can handle in one of two ways. We have civil enforcement authority and criminal enforcement authority. If there is a criminal violation, we refer it out to Customs or the FBI, depending on the nature of what it is. If it is a Customs-type violation, we give it to Customs. If it is more of a terrorist type—domestic terrorist type activity, it would be with the FBI.

    We have civil penalty authority which, when either of the two defer to us or if it doesn't rise to the sufficient level that it is referred out after consultations, we will deal with it in-house; and we have a very active ongoing program in that regard.

    Mr. COBLE. Thank you, sir.

    Thank you, Mr. Chairman.

    Mr. MCCOLLUM. Thank you very much.

    Mr. Hutchinson, you are recognized for 5 minutes.

    Mr. HUTCHINSON. Thank you, Mr. Chairman.

    I appreciate this hearing, because it gives me an insight as to how a law is passed by Congress and then implemented by a regulatory agency—in this case, the Treasury Department and the State Department.

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    As you know, I was not a member of this body when the antiterrorism bill was debated and enacted; but, from my reading of the statute, it is pretty clear that Congress meant for section 321 to be applied broadly, prohibiting financial transactions with terrorist states.

    I understand that the phrase ''except as provided in regulations issued by the Secretary of the Treasury in consultation with the Secretary of State'' was included during final negotiations to exempt routine diplomatic and consular relations. Unfortunately, the administrations capitalized on its narrow authority to rewrite the intent of the statute. At least that is my view of it.

    Rather than requiring that an individual have knowledge of a country's terrorist status, this new interpretation focuses the burden of proof on whether the individual who conducts a financial transaction with a terrorist country believes the interaction poses a risk of furthering terrorist activity in the United States.

    Now I just would like to have Mr. Newcomb or Mr. Ramsay respond to my concern, as a new Member of Congress, that the intent of this body was not carried out in the regulations that were adopted. If you could briefly respond, and I have got some other questions—Mr. Ramsay.

    Mr. RAMSAY. Mr. Hutchinson, it has become clear in the last weeks that we got significantly away from what the Members of Congress intended when we passed the legislation. We didn't think we were doing that at the time we wrote the regs.

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    We had available to us the legislative history, we had statements on the floor, we had discussions and the correspondence with our relevant contacts on the Capitol Hill, and we thought we were reaching the correct conclusion about what the intention of the Congress was.

    There are authorities available to us for banning transfers out of revenues or currencies that might be used for terrorist purposes. There are other statutes that allow us to intervene on terrorist activities; and we have authorities in the IEEPA, in the Trading With the Enemy Act and elsewhere that allow us to ban transactions as appropriate under the circumstances that obtained at the time with the country.

    At the time we were looking at these regulations we had no foreign policy impulse to change our sanction status with either Sudan or Syria. We had a dialogue on with Sudan that we hoped was going to lead some places. It didn't lead to as many places as we had hoped, as you heard from Ambassador Wilcox.

    We had a multilateral effort going in the United Nations that we expected to lead to action in civil aviation. We are still working on that. But there was no reason at that point in time to ratchet up the sanctions on Sudan other than to catch exactly what we had thought was the intention of the——

    Mr. HUTCHINSON. Let me phrase it a different way. As a result of the enactment of section 321, did the State Department's policy change?

    Mr. RAMSAY. The State Department's policy was directed at implementing section 321. As we understood it, it was intended that was to go at what was called the Farrakhan amendment—that is to say, the transfer inbound of monies that might be used to further terrorist purposes. So we banned transactions that could lead to that kind of activity.
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    Mr. HUTCHINSON. But how many persons have been denied the ability to engage in financial transactions with the governments of Syria and Sudan since the Treasury regulations were issued in August 1996?

    Mr. RAMSAY. Well, we wouldn't necessarily know if a donation had been refused by somebody. We would only know if a donation were desired by somebody and they wanted to seek a license to have it brought in, in which case they would have to apply for a license from the Treasury.

    Mr. HUTCHINSON. Mr. Newcomb, do you want to comment?

    Mr. NEWCOMB. Let me say, in developing and implementing these programs following the receipt of guidance from the State Department, we have an active compliance program where we got ourselves—we are in touch with all the financial institutions with regard to the requirements of Syria and Sudan. We developed a brochure. We did training. We had a very active dialogue. So, in effect, what has happened is the chilling effect.

    These transactions are something financial institutions do not desire to handle because they don't want to be in a situation where they want to be caught having this, as in the case of, as I mentioned before, our other sanctioned countries. By working with the financial institutions, these transfers are not taking place.

    The other point I want to make is that the way these regulations were promulgated is we took jurisdiction across the board for transfers to the target countries and from the target countries back. What we did then was we generally licensed everything except donations coming in and where there was——
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    Mr. HUTCHINSON. What do you mean, donations coming in? Explain that.

    Mr. NEWCOMB. Moneys coming in where they were not for a specific commercial purchase such as a purchase of goods where you can match up a transfer of a money payment with an invoice.

    Mr. HUTCHINSON. So you are allowing all commercial transactions to take place?

    Mr. NEWCOMB. Yes. Donations prohibited.

    Mr. HUTCHINSON. Have you prohibited any commercial transactions between individuals of this country and terrorists states?

    Mr. NEWCOMB. We do with respect to the five designated—Iran, Iraq, Libya, Cuba, and North Korea.

    Mr. HUTCHINSON. You prohibit commercial transaction with those states?

    Mr. NEWCOMB. Yes. Depending—there are all different types of programs and there are different rules that apply to each of them. But, for the most part, they are all prohibited except for very specific kinds of sub——
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    Mr. HUTCHINSON. But Syria and Sudan, you don't prohibit any commercial transactions with those states?

    Mr. NEWCOMB. We permit—we take jurisdiction from financial transactions going to Syria, Sudan, and from the governments to the United States. They are generally licensed then, except for donations coming from these countries into the United States or where there is a reason to believe that it is for a terrorist purpose.

    Mr. HUTCHINSON. Let me just conclude, Mr. Chairman.

    It is my understanding there is not a significant amount of legislative history since section 321 was passed by Congress. So you are limited in what could be obtained from legislative history; and I think you are pretty well bound then at that point with the language of the statute, which, again, I believe is very clear as to congressional intent.

    Again, I will just say I am very disappointed as a new member of this body. I have always wondered how something Congress says can be so misconstrued in its application. I am troubled by that. I appreciate the Chairman holding this hearing; and, hopefully, this new legislation will remedy this problem.

    Mr. MCCOLLUM. Thank you, Mr. Hutchinson.

    Mr. Chabot, you are recognized for 5 minutes.

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    Mr. CHABOT. I thank the chairman.

    I have a number of questions, and any of the gentleman are welcome to take a shot at any of the questions I ask.

    The first one, do you have any idea how many persons continue to engage in the financial dealings with Sudan or Syria or how substantial are the U.S. investments in this country at the present time and what source of interest is there in the future there?

    Anyone that would like to take those?

    Mr. RAMSAY. Well, sir, I don't think any of us is particularly well set up to answer in hard numbers. We can certainly do that for you. The commercial interests in Sudan are very limited, for instance. There is virtually no investment inbound to Sudan. There was some interest expressed by some oil companies about oil deposits in the south of Sudan. For commercial reasons, they have not pursued that. There is some trade with Sudan. It is probably not more than $50 or $60 million in total. And I guess that that is almost all agricultural commodities.

    We buy gum arabic and sesame seeds from Sudan, and Sudan buys wheat and shelled lentils and other foodstuffs and some equipment for the exploratory programs for the companies in the south, the oil companies in the south. I don't know how much of that there is now, because I don't think there is much activity there now.

    Syria, on the other hand, there is a great deal of commerce back and forth and a fair amount of investment across the economy. I think you will hear from some panels later on about some of the extent of that investment. There is also a large oil involvement in Syria, oil and gas, and just general commercial. But I am sorry I don't have the kinds of details that you might want. I can supply that if that would be useful, sir.
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    Mr. CHABOT. OK.

    [The information follows:]

United States Department of State
Washington, DC, October 15, 1997.
Hon. BILL MCCOLLUM, Chairman,
Subcommittee on Crime,
Committee on the Judiciary,
House of Representatives.

    DEAR MR. CHAIRMAN, please find enclosed a copy of the transcript of the June 10, 1997 hearing at which William C. Ramsay testified. The transcript has been edited and an insert provided as requested.

    If you have any further questions, please do not hesitate to contact us.

Sincerely,


Barbara Larkin,
Assistant Secretary,
Legislative Affairs.
    Enclosure:
As stated.

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SYRIA AND SUDAN

    Because Syria and Sudan have been designated by the Secretary of State as state sponsors of terrorism, the U.S. Government provides Syria and Sudan with no economic aid, no military aid, no PL–480 assistance, no Peace Corps program, no Ex-Im assistance, and no OPIC assistance. We do not sell Syria or Sudan military equipment or arms. We are required by statute to vote in international fora against projects providing aid to Syria and Sudan. We have in place a stringent export licensing regime to prevent the export of items to Syria and Sudan that would enhance Syria or Sudan's ability to support terrorism or increase their military potential, particularly with respect to dual use items for nuclear, chemical or biological warfare.

SYRIA

    Commercial trade between the U.S. and Syria is conducted by the private sector but subject to normal government regulatory procedures relating to licenses or customs duties. In addition, foreign exchange is controlled through the official bank of the government of Syria. Although we do not have data on the number of persons who conduct trade, there are over 140 American firms that conduct business with Syrian companies. The volume of trade between the U.S. and Syria in 1996 totaled approximately $242.5 million. This included U.S. exports of $226 million (primarily industrial equipment and agricultural goods) and imports of $16.2 million (primarily oil and textiles). There are several American firms with existing investments in or pending contracts with Syria's oil and gas sector. Syria's major trading partners are in Europe, and European firms would reap the benefits of contracts lost by American firms in the event of a unilateral economic embargo of Syria by the U.S.

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SUDAN

    The USG is not aware of any meaningful investment by U.S. firms in Sudan. The volume of trade between the U.S. and Sudan in 1996 consisted of $50.4 million in exports and $18.7 million in imports. Most of this trade was in agricultural commodities.

    Mr. CHABOT. Were there any other countries, or what countries, perhaps, came close to being on the list that aren't on there? Are there others that are on—either on the horizon or just didn't quite make it?

    Mr. WILCOX. Mr. Chabot, we look at lots of countries, which, for one reason or another, might be eligible. We don't have a list of also-rans. I can assure you that we are very concerned about any hint of state support for terrorism by any country in the world. So we cast our net widely in our annual survey by the Secretary of State.

    Mr. CHABOT. Were there any countries that come to mind that came close to being on there?

    Mr. WILCOX. Sir, there are a number of countries that looked at, but as I say, we don't have a hierarchy of also-ran countries.

    Mr. CHABOT. I understand that. But when I asked the question, did anything come to your mind, well, yes, here is one that probably came close?

    Mr. WILCOX. We are very concerned about Afghanistan, although Afghanistan does not have a government which most of the nations of the world recognize, nor a government which controls the majority of Afghan territory. But it is clear that terrorist training still exists inside Afghanistan. Usama bin Laden, the notorious terrorist financier, has moved to Afghanistan, so Afghanistan is a country of continuing concern to us.
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    Mr. CHABOT. OK. Thank you.

    When we do put these particular countries on the list and our trade is restricted, what countries have been the most egregious in taking up the slack and taking advantage of a situation and trading with terrorist countries?

    Mr. WILCOX. As you know, we have a difference of policy view with our European colleagues on trade and investment in Iran and in Libya. The United States has a complete embargo on trade and investment. The European countries do not, and so those countries continue to actively trade with Iran, and they have interests in oil investment there as well. The same is true with Libya, where European countries buy Libyan oil, and some European countries have investments in oil production in Libya.

    Mr. CHABOT. Would it be fair to say that France would be near the top of the list of those countries that have had a tendency to take advantage of situations where we are trying to promote world peace or antiterrorist measures?

    Mr. WILCOX. France and the United States have made common cause against international terrorism, and we have cooperated in many ways. We have a difference of view with the Government of France on economic stances against state sponsors of terrorism neither France nor any other European Government has laws like ours which designate governments as state sponsors of terrorism.

    France has been an active partner in enforcement of the U.N. Security Council sanctions against Libya, but those sanctions do not include an oil embargo, and so French companies continue to invest and operate in the Libyan oil sector.
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    Mr. CHABOT. My time is running out, but I guess you are being very diplomatic, I think. Some of our allies have—France among them—have taken advantage of the situations all around the world where we are trying to do the right thing and they are looking strictly at their own economic benefits. And perhaps we can say that and you can't, but——

    Mr. WILCOX. Well, I agree. And we regret that. We wish these other countries would join us in similar policies, rather than continuing to do trade and investment on a more or less normal basis with these countries.

    Mr. CHABOT. I thank the chairman.

    Mr. MCCOLLUM. Thank you, Mr. Chabot.

    Mr. Barr you are recognized for 5 minutes.

    Mr. BARR. Thank you, Mr. Chairman.

    Who drafted the regulations issued August 23, 1996?

    Mr. RAMSAY. The regulations drafted would have been physically drafted in the Department of the Treasury but with the foreign policy guidance of the Department of State on how to draft it.

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    Mr. BARR. Who actually drafted them? Did you, Mr. Newcomb?

    Mr. NEWCOMB. They were drafted in our office, yes, but, as Mr. Ramsay said, following guidance from the State Department on questions presented.

    Mr. BARR. I have rarely seen an effort that it is so blatant to subvert the intent of Congress. I think you ought to be ashamed of these regulations. You didn't try—and I give you credit—you didn't try to hide what you were doing. You crafted regulations here that are clearly designed to completely gut the congressional intent and the clear language of the statute. I think it is outrageous, what you all have done here. It is a shame we have to even waste time on this, but we do.

    And I find it hard to believe you all are objecting to this legislation. All we are doing is telling you to do what you should have done in the first place.

    That is all I have, Mr. Chairman. Thank you.

    Mr. MCCOLLUM. Thank you, Mr. Barr.

    Ambassador Wilcox, and Mr. Ramsay, in April of last year, we enacted into law the antiterrorism bill that is the subject of the section that we are trying to amend here today. One other provision in that law which is not the subject directly of this hearing had a requirement that, in consultation with Treasury, State designate a list of foreign terrorist organizations. To date, that has not happened. Why hasn't it happened? Where are we with this? And when do we expect to have a list?
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    Mr. WILCOX. Mr. Chairman, we have not completed that list yet, because after the legislation was adopted, we discovered that the task of assembling the administrative records that were called for by the statute was an immense task. We were determined to carry that out carefully. It has engaged the energy of dozens of lawyers and officials in many different agencies.

    My office has been deeply involved in that process. We have spent many, many thousands of hours in preparing those administrative records. They are exhaustive, detailed documents. They must be done scrupulously, because the consequences of designating these organizations are very serious.

    We have to be fair to our own citizens if we are going to proscribe contributions to these organizations. We have to be judicious when we consider that these designations will bar aliens from the United States and give us extraordinary powers to exclude members and activists in these organizations.

    It has turned out to be a very, very challenging task, and we are well along in the process. I cannot give you a precise date when we will be completed. We are very anxious to complete it. The slowness has not been for lack of effort or investment of time and energy. It is because of the size of the task and our commitment to doing it right.

    Mr. MCCOLLUM. As you know, the trigger for us has been the idea of ending the fundraising activity of these organizations. It is one of the primary purposes of the antiterrorism bill.
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    I might suggest to you: You say you are close, obviously that is a determination of judgment on your part, and I hope that you are, but I would suggest that if you can't get all of this ironed out, perhaps there are some organizations that are so blatant and apparent, you can at least promulgate them seriatim—we don't have to have every one of them. You certainly have the right to add to the list.

    Am I correct, there is nothing in the law that prohibits you from adding or deleting later on?

    Mr. WILCOX. No, there is not, Mr. Chairman. I thank you for that proposal. Our preference would be to do them as a group. But let me discuss your proposal with other agencies who are involved.

    Mr. MCCOLLUM. The main thing I am concerned about is just getting this going. We have got some very blatant organizations out there, and the potential for fundraising continues with every passing day. And this is something for terrorism that none of us want. So I am just trying to be creative and constructive.

    Lastly, I want to clarify something. There has been some concern raised that the routine diplomatic relations exception proposed by this bill, H.R. 748, would not capture the United Nations activities. I think it would, but I would like to know what you think, Mr. Ramsay.

    Mr. RAMSAY. I think that the exceptions that we are concerned about can be captured. It is a question of language. It is a question of identifying each of those and setting them aside as—always permitted. All of those things that I cited could conceivably be dealt with one in one fashion or another, if the approach is to put in a sweeping ban and then draw exceptions, as opposed to going for something more targeted at the kinds of activities in Sudan that might be more responsive to our measures than the broad brush.
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    Mr. MCCOLLUM. Well, I was really interested specifically in the question of whether or not the terminology and your judgment of routine diplomatic relations would include the activities of the United Nations, seeing as several of those things you presented in your testimony as concerns were activities of the United Nations.

    We certainly anticipated activities like the cab fares I mentioned earlier as being routinely diplomatic. But there are many more activities that, to me, would be considered routinely diplomatic. It seems to me this is fairly reasonable language that would allow the diplomats to the U.N. and other countries to engage in whatever U.N. activities were normally considered routinely diplomatic—I think virtually everything they do is. Would you not agree?

    Mr. RAMSAY. It is conceivable we can write language like that, sir, but there are complications, depending on the U.N. program. If you take, for instance, U.N. 986 with Iraq, basically that program entitles private sector companies to be involved in buying of oil and selling of goods, of humanitarian goods and food, into Iraq. So there is a very different set of things that we have to capture there which are not normal.

    Mr. MCCOLLUM. Routine diplomatic relations. I understand.

    And, Mr. Newcomb, I don't know that you were asked this question, but somebody has suggested to us—I think one of the witnesses coming on in the next panel—that the Office of Foreign Assets Control is understaffed and underfunded. Is it? Do we need to support you in gaining some more support to do your job?
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    Mr. NEWCOMB. My colleague just asked me if I planted that, and the answer is, no, I didn't. We can always use more staff. But let me say, because of these new requirements that we have, including the Antiterrorism Act, that process is under way and we are being staffed up to deal with many of these situations.

    As with any organization, you can always use more staff. But as far as getting this job done with regard to these specific programs, let me say for the record that we have comprehensive economic embargoes in place on all of these countries, following the consultations with the State Department as to what it is we are trying to do. So I am confident that we are doing what is required.

    Mr. MCCOLLUM. Well, we could spend all morning with you all because there are many other things that could be asked, but—Mr. Matheson.

    Mr. MATHESON. Thank you, Mr. Chairman.

    I just wanted to emphasize, if I might, the great difficulty of trying to deal with all of the possible situations that would have to be dealt with, with a series of explicit exceptions if you do not have some residual discretion on the part of Treasury to make further exceptions where the circumstance requires.

    You started with the question of routine diplomatic activities, and I think, for example, there are a number of situations with these terrorist countries where we don't have normal diplomatic relations, where we have interest sections or other arrangements, and that is the kind of issue that we would have to try to interpret in some fashion.
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    Mr. Ramsay's list of examples of problems that would have to be dealt with is only partial. I could easily list 20 or 25 examples where I think we would all readily agree that there should be some kind of exception. A large part of the difficulty is that you can't necessarily anticipate all of these in advance, which is why Treasury always has, in these other sanction programs, some residual discretion to deal with the situation. I know you are unhappy with the way the discretion has been exercised to date.

    Mr. MCCOLLUM. Very unhappy. That is why we gave you that discretion in the first place.

    Mr. MATHESON. And obviously, we have to have further discussion about that. What I am saying is, if your bottom line is that you have no discretion reserved, then it is going to be extremely difficult to cover all of the necessary matters that you would want to have exempted from a financial transactions ban, which is a very broad ban.

    Mr. MCCOLLUM. Thank you.

    Does anybody else have another followup question for this panel? Mr. Barr? Mr. Hutchinson?

    Again, we have got a lot of work to do with you before we complete this bill. I don't want it to be a product that is totally unworkable in some way for the State Department or for the Treasury Department.

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    Gentlemen, I think you have got the message from all of us. We want most of these financial transactions—what we call commercial transactions—and money flowing between our countries and these terrorist states, including Syria and Sudan, very constrained compared to what it is today. That was the original intent of the language, and unless my colleagues decide otherwise in the markup, it remains the intent.

    Thank you very much.

    Mr. MCCOLLUM. Our next panel today consists of several witnesses with special expertise and interest in both Syria and Sudan.

    Our first witness is Ms. Hillary Mann. Ms. Mann is an associate fellow at the Washington Institution for Near East Policy, where she focuses on terrorism and U.S. counterterrorism policy. She has written articles on Middle East terrorism for the Los Angeles Times and Washington Times and is currently conducting a study of the gaps in the U.S. sanctions against state sponsors of terrorism. Prior to joining the Washington Institute in 1996, Ms. Mann served for 1 year in the State Department and also worked at the National Security Council.

    Also with us today is Kate Almquist, a policy analyst with World Vision Relief and Development, Inc. Ms. Almquist is currently managing an ongoing advocacy initiative which seeks resolution of the crisis in Sudan. Prior to her position as a policy analyst, Ms. Almquist also served World Vision as an international liaison assistant.

    Our next witness is Mr. James Latham. Mr. Latham is the senior vice president, general counsel, and secretary for ITT Sheraton Corp., a Boston-based hotel network. Since joining ITT Sheraton in 1975, Mr. Latham has served as general counsel for the Europe, Africa, Middle East, and India Division as well as vice president and assistant secretary of Sheraton Management Corp. Prior to his association with ITT Sheraton, he was a partner in a law firm in Massachusetts.
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    Finally, the subcommittee will hear testimony today from Mansoor Ijaz. Mr. Ijaz is the founder and chairman of Crescent Investment Management, a New York-based global investment advisor and bank. He has written several op-ed pieces for the Wall Street Journal and the Los Angeles Times, and he has appeared on CNN's ''Inside Business'' and ''Business Asia.'' Mr. Ijaz conducts extensive business in the Middle East related to his investment management company.

    We look forward to hearing from all of our witnesses today; we are going to go in the order in which I introduced you.

    Ms. Mann, and all the witnesses, your written testimony will be incorporated, without objection, into the record. Hearing no objection, it is so ordered. You may proceed to summarize your testimony or give us any portion of it that you wish.

    Ms. Mann.

STATEMENT OF HILLARY MANN, ASSOCIATE FELLOW, WASHINGTON INSTITUTE FOR NEAR EAST POLICY

    Ms. MANN. Thank you, Mr. Chairman and members of the subcommittee, for the opportunity to appear before you today.

    While America's attention has focused recently on the heartwrenching and horrific testimony about the Oklahoma City bombing, it is important to take notice of the international trend toward more deadly terrorist attacks that nearly doubled the number of terrorist casualties last year.
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    For U.S. policy, the strategic threat Middle East terrorism poses to historic initiatives like the Arab-Israeli peace process, security in the Persian Gulf, and the continued viability of friendly Middle East governments is also very serious. As the U.S. struggles to deal with Middle East terrorism, we need to understand the scope of terrorist activities being undertaken, supported, and facilitated by particular Middle East states. Today, I will limit my comments to the involvement of Sudan and Syria in international terrorism.

    The U.S. has several times been the victim of terrorism linked to Sudan, which Secretary of State Madeleine Albright has described as a ''viper's nest'' of international terrorism. In recent years, a Sudanese national has pleaded guilty, and Sudanese Government officials have been implicated, in the conspiracy to bomb the U.N. in New York. Last year, the State Department expelled a Sudanese diplomat who had ties to the conspirators planning to bomb the U.N. and other targets. Today, Sudan is even considered too dangerous for the United States to operate its Embassy there.

    The State Department described Sudan as a ''refuge, nexus, and training hub'' for terrorists and has documented Sudan's nefarious relationship with the world's chief state sponsor of terrorism, Iran. Many of the most virulently anti-American terrorist organizations train or receive refuge in Sudan.

    Sudan's blatant support for terrorism has alienated many of its neighbors and prompted the U.N. to consider imposing sanctions. Nevertheless, the United States sent Sudan over $50 million in exports last year. While this may not seem like a significant figure, it does undercut our ability to send a clear message that the United States is strongly opposed to Sudan's support of terrorism and that the United States is willing to do something about it.
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    Now I will turn to Syria, a country which over the past 5 years has received over $1 billion in U.S. exports. We are Syria's sixth largest trading partner, accounting for more than one-ninth of their imports. Last year alone, Syria received $226 million in U.S. exports, over a third of which, $81 million, were in controlled commodities. These are commodities that are supposed to be generally denied to terrorist-supporting states.

    Syria also has long been deeply involved in supporting international terrorism, dating back to 1979, when it became a charter member of the U.S. list of countries who sponsor terrorism. The State Department's terrorism report documents some of Syria's terrorist activity. It chronicles Syria's continued provision of safe haven and support for some of the most avowedly anti-American terrorist groups in the world, including the PFLP, PFLP–GC, Hezbollah, the PKK, as well as Hamas and the Palestinian Islamic Jihad, the two groups who claimed responsibility for last year's suicide bombing in Israel and who have been linked to a bombing in a Tel Aviv cafe in March.

    However, unlike its treatment of Sudan, the State Department's most recent report on terrorism sidesteps the role played by Syria in sponsoring international terrorism. For example, the report inexplicably states that there is, ''no evidence of direct Syrian involvement in planning or executing terrorist activities since 1986,'' even while acknowledging that Syria hosts the headquarters and training camps for several terrorist groups and that Syria provides safe haven and support as well as allowing the resupply of arms to terrorist groups.

    This alleged Syrian standdown apparently rejects Jordanian claims that firearms and military equipment have been smuggled into Jordan from Syria. The report also ignores the fact that Syrian radio regularly permits terrorists to claim responsibility for their crimes from Syria. The report also seems to dismiss Turkish accusations that Syria helped PKK terrorists infiltrate into Turkish territory to attack Turkish civilians.
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    There isn't even a reference to the fact that a key suspect in last year's bombing of al-Khobar Towers in Saudi Arabia, killing 19 U.S. servicemen, died mysteriously in a Syrian prison, a fact which earned a strong demarche from the U.S. Ambassador to Damascus.

    Elsewhere, the State Department is mute on what Iran and Syria call their strategic relationship. Most importantly, the report should have noted that Hezbollah survives as a terrorist organization thanks to the weapons Syria permits them to receive from Tehran via Damascus.

    H.R. 748, the Prohibition on Financial Transactions with Countries Supporting Terrorism Act of 1997, is an important step toward making Sudan and Syria pay a real economic price for their support of international terrorism. However, Mr. Chairman, Congressmen, this bill will not close the half-dozen or more remaining major loopholes in our antiterrorism legislation that allow terrorists to use U.S. capital and visa rules against our interests. I commend your work and urge you to continue to address the sanctions loopholes that cripple our fight against terrorism.

    Thank you for your attention.

    [The prepared statement of Ms. Mann follows:]

PREPARED STATEMENT OF HILLARY MANN, ASSOCIATE FELLOW, WASHINGTON INSTITUTE FOR NEAR EAST POLICY

    Thank you, Mr. Chairman and Members of the Subcommittee, for the opportunity to appear before you today.
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    While America's attention has focused recently on the heart-wrenching and horrific testimony about the Oklahoma City bombing, it is important to take notice of the international trend toward more deadly terrorist attacks on mass civilian targets and the use of more powerful bombs that nearly doubled the number of terrorist casualties last year in a region vital to U.S. interests: the Middle East.1 For U.S. policy, the strategic threat Middle East terrorism poses to historic initiatives like the Arab-Israeli peace process, security in the Persian Gulf and the continued viability of friendly Middle East governments is also very serious. As the U.S. struggles to deal with this scourge of Middle Eastern terrorism, we need to understand the scope of terrorist activity being undertaken, supported and facilitated by particular Middle East states. Because this hearing concerns two of these states-Sudan and Syria—I will limit my comments to the involvement of these two states in international terrorism.

    Sundan: First, I will discuss Sudan.2 The U. S. has several times been the victim of terrorism linked to Sudan, which Secretary of State Madeline Albright (when she was U.S. Permanent Representative to the U.N.) has described as a ''viper's nest'' for international terrorism. In 1973, the US ambassador and his deputy were assassinated by terrorists in Sudan. In the past few years, a Sudanese national pleaded guilty to and Sudanese government officials were implicated in the conspiracy to bomb the U.N. in New York. Last year, the State Department expelled a Sudanese diplomat at the Sudanese U.N. Mission in New York who had ties to the conspirators planning to bomb the U.N. and other targets in 1993. Today, Sudan is considered too dangerous for the U.S. to operate our embassy there. Indeed, the most recent State Department report on terrorism described Sudan as ''a refuge, nexus and training hub'' for terrorist organizations and documented Sudan's nefarious relationship with the world's chief state sponsor of terrorism, Iran.
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    Many of the most virulently anti-American terrorist organizations train or receive refuge in Sudan. These organizations, which continue to threaten the U. S. and our allies in the Middle East, include: Hamas, the Palestine Islamic Jihad, the Abu Nidal Organization, Hezbollah, the Islamic Salvation Front (FIS) of Algeria, and militant groups from Uganda, Ethiopia and Eritrea. Sudan's blatant support for terrorism has alienated many of its neighbors who have, in turn, sharply criticized, severed diplomatic ties or imposed sanctions on Sudan.3 The U.N. also has considered imposing sanctions and demanded, to no avail, that Sudan cease its support for terrorism and turn over three Egyptian terrorists linked to the 1995 assassination attempt of Egypt's President Mubarak.4

    When it comes to assessing Sudan's involvement in terrorism, the State Department in its annual review of global terrorism, has been forthright in articulating Sudan's continued threat to U.S. interests, and I would commend that report to you.

    Syria: Now, I would like to turn my attention to Syria, a country which, in the past five years, received over $1 billion in U.S. exports. Last year alone, Syria received $226 million in U.S. exports over a third of which ($81 million) were in controlled commodities—these are commodities that are supposed to be generally denied to terrorist supporting states.5

    As with Sudan, Syria has long been deeply involved in supporting international terrorism, dating back to 1979 when it became a charter member of the U.S. list of countries who sponsor terrorism. The State Department's terrorism report documents some of Syria's terrorist activity. As with Sudan, the report chronicles Syria's continued provision of ''safehaven and support'' for some of the most avowedly anti-American terrorist groups in the world by allowing them to ''maintain training camps and other facilities'' in Syria and Syrian-controlled Lebanon and by ''permitting] the resupply of arms'' to terrorist groups operating in Lebanon. The report lists the terrorist groups based or headquartered in Syria or Syrian controlled Lebanon as including: Ahmed Jibril's Popular Front for the Liberation of Palestine (P.F.L.P.–G.C.), Hezbollah, the Workers Party of Kurdistan (P.K.K.) as well as Hamas and the Palestinian Islamic Jihad—the two groups who claimed responsibility for last year's suicide bombings in Israel that killed dozens of civilians and who been linked to the bombing of a Tel Aviv cafe in March which killed three civilians.6
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    However, unlike its treatment of Sudan, the State Department's most recent report on terrorism largely sidesteps the role played by Syria in sponsoring international terrorism. For example, the report inexplicably states that there is ''no evidence'' of direct Syrian involvement in ''planning or executing'' terrorist activities since 1986 even while acknowledging that Syria hosts the ''headquarters'' and ''training camps'' for several terrorist groups, and that Syria provides ''safehaven and support'' as well as allowing ''the resupply of arms'' to terrorist groups. This alleged Syrian standdown apparently rejects claims made by Jordanian media last autumn that ''firearms and military equipment'' were being smuggled into Jordan from Syria. For the first time in years, the report ignores the fact that Syrian radio regularly permits terrorists to claim responsibility for their crimes, such as the terrorist attack by the Abu Mousa ''Fatah Uprising'' clique that claimed the lives of three Israelis in July 1996. The report also seems to dismiss Turkish accusations that Syria helps P.K.K. terrorists infiltrate into Turkish territory to attack Turkish civilians.7 There isn't even a reference to the fact that a key suspect in last year's bombing of al-Khobar Towers, killing 19 U.S. servicemen, died mysteriously in a Syrian prison—a fact which earned a strong demarche from the U.S. ambassador to Damascus.

    Elsewhere, the State Department is mute on what Iran and Syria call their ''strategic relationship. '' Most importantly, the report should have noted that Hezbollah survives as a terrorist organization thanks to the weapons Syria permits them to receive from Tehran via Damascus.8 As Hezbollah's spiritual leader himself said in December 1996: ''Syrian President Hafez al-Assad assumed a firm and responsible stand on the side of the resistance; if it were not for [Assad's support], Israel's agents would have ... destroy[ed] the resistance.''9 The report also does not mention in the Syria section that Syria played host to key meetings between Iran's Vice President Hassan Habibi and leaders of several terrorist organizations, including Hamas and Islamic Jihad, responsible for the heinous series of car bombs in Israel in February and March 1996.
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POLICY RECOMMENDATIONS

    H.R 748, the ''Prohibition on Financial Transactions With Countries Supporting Terrorism Act of 1997,'' is an important step toward closing a major loop-hole in our counter-terrorism legislation. One of the most significant tools the U.S. has in its fight against international terrorism is the ability to make state sponsors of terrorism pay a real economic price for their nefarious behavior. The U.S. has done a great deal in this regard by enacting legislation that sanctions state sponsors of terrorism. However, the Syria-Sudan loop-hole that we are addressing here today is just one of many loop-holes in our sanctions policy that have crippled U.S. efforts to deter international terrorism.

    Therefore, my first recommendation is to close the other remaining loopholes in the sanctions legislation. These loopholes include:

Caspian Sea Oil Swaps with Iran: Current law allows for U.S. companies to participate in market-based swaps of crude oil from the Caspian Sea are with Iranian crude oil in support of energy projects in Azerbaijan, Kazakhstan, and Turkmenistan. Through this exemption, Kazakhstan was able to negotiate a deal with the National Iranian Oil Company to export Kazakh oil from a U.S.-Kazakh joint venture via Iran. According to the Middle East Economic Digest (MEED), this deal allows Iran to charge transit and other fees which may amount to $100 million in earnings a year, in addition to Iran's savings in not having to transport its own oil northward from its southern fields.

    Iranian Assets: Even when business is conducted illegally with terrorist states, an anomaly in the anti-terrorism sanctions exists in that not every designated terrorist state is subject to having their assets seized or frozen. While Iraq, Libya and ''Specially Designated Terrorists'' (individuals and organizations not under the jurisdiction of a designated terrorist state) can have their assets seized or frozen, there is no similar authority to freeze the assets of the three other designated terrorist states in the Middle East: Iran, Syria or Sudan.
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    Front Companies: In those cases where there are tight prohibitions against doing business with terrorist states, those restrictions normally apply only to transactions with companies or entities ''owned or controlled by or action on or on behalf of' a terrorist government, not with the much larger number of companies or entities in which a terrorist state has an interest. In modern, sophisticated transactions, however, a terrorist state may only have a small interest in a given company or entity to use that company for its own purposes. But unless 50 percent ownership of the company in question is held by a terrorist government, it is not automatically subject to anti-terrorism sanctions. For example, the Office of Foreign Assets Control has identified 103 banks and other financial institutions connected with Libya. However, only 28 of those banks and institutions have been designated as Libyan front companies with which Americans cannot have transactions. That leaves the vast majority of identified Libyan front companies (75 of the 103) open for U.S. business deals.10

    Export Controls: As noted above, last year alone Syria was able to procure $81 million worth of commodities that are supposed to be generally denied to terrorist supporting states. In addition, terrorist states are able to procure American goods via third countries. For example, Dubai is reported to have received over $1 billion in U.S. exports last year, approximately $300 million of which were re-exported to Iran.11

    Indirect Aid: Legislative prohibitions against indirect aid to terrorist states have been waived by the President every year since 1987. This waiver allows U.S. funds to be used in a variety of international aid projects in designated Middle Eastern terrorist states, such as underwriting the United Nations Relief and Works Agency operations in Syria.

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    Iran Libya Sanctions Act financing loophole: While foreign companies are subject to sanctions if they invest more than $40 million annually in the Iranian or Libyan energy sectors, if a foreign bank loans more than $40 million to an Iranian or other company to facilitate the development of Iran or Libya's energy sector, such a transaction is allowed under the current law.

    Second, I suggest that Congress look carefully at the means the U.S. has to enforce the sanctions. One of the chief enforcers of the sanctions, the Office of Foreign Assets Control at the Department of Treasury, is seriously understaffed and underfunded. Similarly, the enforcement of export and re-export controls need to be tightened and the many front companies used by terrorist supporting states need to be more vigorously targeted.

    Third, I recommend centralizing the counter-terrorism effort under one person or committee with enough power to break through bureaucratic conflicts and to ensure that policy directives do not fall victim to loop-holes and a lack of enforcement.

    Finally, I recommend focussing a public spotlight on terrorist activities and those who support them, including those who invest in terrorist supporting states. Minimizing the role of participants in the U.S.-brokered peace process, such as Syria, is a mistake. Dealing with international terrorism requires facing the unwelcome truths about its sources, even if it adds messy complications to other U.S. interests.

    1 From 445 casualties in the Middle East in 1995 to 837 casualties in the Middle East in 1996.
    2 In August 1993, Sudan was placed on the U.S. list of state sponsors of terrorism. In 1996, Sudan received $50.4 million in U.S. exports (Bureau of the Census, Foreign Trade Division, U.S. Department of Commerce, 1996).
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    3 Uganda severed ties with Sudan in April 1995 and Eritrea did so in December 1994. After the attempted assassination of Egypt's President Mubarak in Addis Ababa in June 1995, Ethiopia terminated flights to Sudan and shut down Sudanese non-governmental organizations in Ethiopia. In an unprecedented actions criticizing a member, the Organization of African Unity passed a resolution in September 1995 calling on Sudan to extradite to Ethiopia the three suspects charged in attempting to assassinate Egypt's President Mubarak.
    4 U.N.S.C. resolution 1054, of April 26,1996, called on member states to adopt travel restrictions on Sudanese government officials, and U.N.S.C. resolution 1070, of August 16,1996, sought to ban flights by Sudanese government controlled aircraft.
    5 The amount of U.S. exports to Syria of controlled commodities has risen dramatically over the past five years: in 1991 there were $1,041,504 in U.S. controlled-commodities exports to Syria; in 1992 the figure was $46,366,527; in 1993 the figure was $42,896,103; in 1994 the figure was $76,379,096; in 1995 the figure was $68,298,135; and in 1996 the figure was $81,006,877. These controlled commodities included those controlled for foreign policy reasons and subject to national security controls, chemical and biological weapons proliferation controls as well as dual-use items subject to missile-proliferation controls and military-related items. Export Administration Annual Report for 1996, the U.S. Department of Commerce, p. III–27.
    6 A more complete list of the terrorist groups, past and present, operating from Syria or Syrian controlled territory would include:

    Palestinian: eight leftist Palestinian groups opposed to the peace process, the D.F.L.P. led by Naif Hawatma; Fatah al Intifada led by Abu Musa; P.L.F. with factions led by Mohammed Abbas and Tal'at Ya'qub; Palestinian Peoples' Party; Palestinian Popular Struggle Front; P.F.L.P. led by George Habash; P.F.L.P.–G.C. led by Ahmed Jibril; al Sai'qa, an arm of the Syrian government; and two Palestinian organizations of a fundamentalist Islamic orientation who oppose the peace process, Hamas and Islamic Jihad; as well as some related organizations;
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    Lebanese: Hezbollah and its affiliates, the Syrian Social Nationalist Party, the Batth Party of Lebanon, the Lebanese Revolutionary Brigades and the Lebanese Armed Revolutionary Faction;

    Turkish: the Revolutionary Left, the Gray Wolves, the P.K.K., and the Armenian Secret Army for the Liberation of Armenia;

    Other Middle Eastern and Muslim: Arab Egypt, the Committee for the Defense of Democratic Liberties in Jordan, Polisario, the Democratic Front for the Liberation of Somalia, the Eritrean Liberation Front, Zulfikar (Pakistan), the Pattani United Liberation Organization (Thai), and Abu Sayyaf (Philippines);

    Non-Middle Eastern and non-Muslim: the Red Army Faction of West Germany, Action Direct of France, the Red Brigades of Italy, the Basque ETA, the Fighting Communist Cells of Belgium, the Liberation Tigers of Tamil Eelam of Sri Lanka, and the Japanese Red Army.

    This list is taken from, Daniel Pipes, Syria Beyond the Peace Process, The Washington Institute for Near East Policy, 1996, p.36.

    7 The P.K.K., which many describe as the greatest threat to Turkish domestic security, this month threatened worldwide attacks against U.S. and Israeli civilians. The leader of the P.K.K., Abdullah Ocalan, is headquartered in Damascus.

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    8 Iran delivered 37 jumbo flights of weapons to Syria for transport to Hezbollah in just the first four months of this year, according to Uri Lubrani, Israel's coordinator for Lebanon.

    9 Ba'labakk Voice of the Oppressed, radio broadcast, December 13, 1996.

    10 Libya's International Banking Connections, U.S. Department of the Treasury, Office of Foreign Assets Control, August 10, 1994.

    11 This is a particular problem in regard to Iran and Dubai, as at least twenty two Iranian companies are reported to be operating in Dubai's free trade zone with the main purpose of handling re-exports, frequently to Iran. U. S. companies are generally barred from exporting to these Iranian companies if they know that these companies are Iranian. However, the Department of Commerce has never published a list of Iranian companies operating in Dubai. In fact, after the Commerce Department's recent decontrol of high-speed computers, U.S. companies can now ship powerful supercomputers to buyers in Dubai without an export license and because Dubai does not have an effective export control system, there is little to prevent these supercomputers from going on to Iran or any other terrorist supporting state.

    Mr. MCCOLLUM. Thank you very much, Ms. Mann.

    Ms. Almquist, I believe you are next on this list.

    Please.
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STATEMENT OF KATE ALMQUIST, POLICY ANALYST, WORLD VISION RELIEF AND DEVELOPMENT, INC.

    Ms. ALMQUIST. Thank you, Mr. Chairman and members of the subcommittee, for the opportunity to testify before you today.

    I am Kate Almquist, policy analyst for World Vision Relief and Development. WVRD is the technical arm of world Vision U.S., which is the largest privately-funded, faith-based relief and development organization in the United States. World Vision U.S. is a member of an international Christian partnership providing assistance in 103 countries to more than 50 million beneficiaries worldwide.

    World Vision has been working in Sudan since 1972, and we have had an operational presence there since the early eighties. In 1988, the Government of Sudan declared World Vision persona non grata, and since then we have concentrated our operations in the non-government-held south. In 1997, World Vision has targeted an estimated beneficiary population of over 250,000 southern Sudanese. Our $8 million program focuses on food security, basic health care, income generation, clean water, and emergency relief needs of these populations. I personally have had the opportunity to travel to southern Sudan and witnessed firsthand the devastation reaped by years of civil war on this country.

    I would like to focus your attention now on the terrorism which the Sudanese Government propagates against its own citizens and suggest that this domestic crisis is directly accountable for Sudan's support of terrorist activities abroad. Until and unless the root causes of Sudan's domestic crisis are addressed, we should not expect Sudan's role in sponsoring terrorist activities abroad to cease.
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    Since 1983, when the current civil war broke out, an estimated 1.5 million people have died from the effects of the war, 7 million have been displaced internally, and at least a half a million have sought refuge outside of Sudan.

    In addition, there are egregious human rights violations that have been documented internally, and the Government of Sudan continues to manipulate the humanitarian aid operation which is ongoing and really the only lifeline for millions of southern Sudanese.

    Ending the war in the south and restoring multiparty democracy and respect for human rights would stop Sudan from being a regional and international menace. More importantly, resolution of the civil war would offer millions of Sudanese their first opportunity to live in peace and dignity.

    Therefore, the ultimate objective must be a just, comprehensive, and lasting peace for the whole country, not a partial settlement between the regime and the SPLA or other southern rebel movements. Rule of law, respect for human rights, and a just peace in southern Sudan are prerequisites for ending Sudanese support for international terrorism.

    Mr. Chairman, World Vision firmly believes that Sudan is the one state on the terrorism list that holds realistic potential for fundamental change in the near term. The change will be produced by the Sudanese themselves but it is directly in the interests of the United States to see such change occur and to encourage it.

    We need a clear policy on Sudan that reflects U.S. interests and sides with the people of Sudan against a rogue government. Such a policy would not allow ''business as usual'' to continue between American individuals or companies and the Government of Sudan while at the same time withholding from the people of Sudan, particularly those living outside of the control of the Government, appropriate forms of development assistance.
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    To the extent that it is in the interest of the United States to see a democratic and pluralistic government established in Sudan, it is in our interest to help prepare southern Sudan for the event of self-government.

    Presently, the fledgling civil administration in non-government-held areas is severely handicapped by a dearth of resources, ranging from such basic commodities as paper to write on, chairs to sit in, and bicycles to enable to administrators and judges to move around their districts. Modest investments now in building the local capacity of the civil administration in its formative stages are investments in the governance of southern Sudan, investments that will pay off for years to come.

    It is also in our interests not to allow U.S. persons to enrich the present Sudanese Government. Khartoum desperately needs the hard currency from oil revenues to continue to pursue its radical Islamic agenda at home and abroad. U.S. policy should ensure that Americans do not contribute to the ability of the NIF regime to continue to wage war against its own citizens or to support destabilizing terrorist activities regionally and internationally.

    World Vision firmly believes that American investment should not contribute to the exploitation of Sudanese oil fields until a comprehensive settlement is reached, which includes an agreement on the sharing of natural resources and provides for oil revenues to contribute to the critical development needs of southern Sudan.

    World Vision believes that the administration and Congress should work together to arrive at a coherent policy on Sudan. Such a coherent policy would reflect our U.S. interests and also clearly side with the people of southern Sudan against this Government.
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    Specifically, this policy should restrict financial transactions with the Sudanese Government, with the exception of diplomatic transactions and transactions incident to the provision of humanitarian assistance. It would implement the development assistance language in last year's foreign aid appropriations committee report. It would not tolerate the Sudanese Government's manipulation of the humanitarian operation through Operation Lifeline Sudan. And finally, it would seek a comprehensive peace through a negotiated settlement which includes all parties to the conflict and takes as its starting point the IGAD Declaration of Principles, which has been agreed to by the parties thus far and from which the Sudanese Government has walked away.

    Mr. Chairman, the bill you have introduced in the form of H.R. 748 would ensure that section 321 of the antiterrorism act is strictly implemented, with no exceptions. While we are supportive of prohibiting financial transactions between the Government of Sudan and United States persons, World Vision shares the concern of other humanitarian organizations that some exemptions to the rule are necessary.

    Completely denying the administration the ability to write regulations implementing section 321, as this bill would do, may result in harmful, albeit unintended, consequences for humanitarian assistance to terrorism list countries.

    Specifically, World Vision is concerned that financial transactions incident to the provision of humanitarian assistance to meet basic human needs be exempted from section 321 in H.R. 748. H.R. 748 makes similar provision for financial transactions related to routine diplomatic relations. We request that humanitarian assistance also be explicitly exempted from this sanction.
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    Without such an exemption, humanitarian assistance would only be possible in the case of non-government-held areas of southern Sudan, where the Sudanese Government is powerless to collect any taxes or fees on the delivery of humanitarian assistance or on the travel of humanitarian aid workers.

    In all other cases, including, for instance, northern Sudan, North Korea, and Cuba, it would be virtually impossible to avoid payment of any sort to the Government in the course of providing humanitarian aid to a terrorism list country.

    Even if it were possible to deliver humanitarian assistance without engaging in a financial transaction with the government, traveling to the country to monitor the distribution of aid would be virtually impossible without paying, at a minimum, a visa fee, an airline ticket tax, or an airport tax, or paying for Government-run room and board. World Vision would face these challenges in North Korea, which is in dire need of food and agricultural aid to stop the famine that threatens the lives of 23 million North Koreans, including 2.4 million children.

    Mr. Chairman, World Vision urges the committee to ensure that the millions of needy people in Sudan, North Korea, Cuba, Iraq, or any other country on the terrorism list not be deprived of vital humanitarian assistance as a result of H.R. 748. We welcome the opportunity to work with you on drafting language to ensure that this is not the case.

    Thank you.

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    [The prepared statement of Ms. Almquist follows:]

PREPARED STATEMENT OF KATE ALMQUIST, POLICY ANALYST, WORLD VISION RELIEF & DEVELOPMENT, INC.

INTRODUCTION

    Mr. Chairman, thank you for the opportunity to testify before you today.

     I am Kate Almquist, policy analyst for World Vision Relief and Development. WVRD is the technical arm of World Vision US, which is the largest privately funded, faith-based relief and development organization in the United States. World Vision US is a member of an international Christian partnership providing assistance in 103 countries to more than 50 million beneficiaries worldwide. Approximately 85% of World Vision US' annual budget of $303 million in 1996 was raised through private sources, the remaining 15% came from public sources. Over the past five years, 1.3 million American families have contributed financially to World Vision.

    World Vision has been working in Sudan since 1972, with an operational presence since the early 1980s, with programs for internally displaced persons around Khartoum. However, World Vision was declared persona non-grata by the Government of Sudan in 1988, and since then we have concentrated our operations in the non-government-held south. World Vision has worked in all of the major regions of the south, and presently maintains programs in three areas: Yambio county in Western Equatoria province, and Tonj and Gogrial countries in Bahr el Ghazal province. In 1997, World Vision has targeted an estimated beneficiary population of over 250,000 southern Sudanese. Our $8 million program focuses on food security, basic health care, clean water, income generation, and emergency relief needs of these populations.
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    World Vision is a founding member of Operation Lifeline Sudan, an international consortium of UN agencies, non-governmental organizations and aid donors providing humanitarian assistance to Sudan. World Vision is also a member of the Nairobi-based NGO Forum of OLS NGOs and the Washington, DC-based Sudan Working Group. I personally have had the opportunity to travel to southern Sudan and witness first-hand the devastation wreaked by years of civil war.

SUDAN'S DOMESTIC TERRORISM

    Today we have heard detailed descriptions of the role which Sudan plays in promoting and fostering international terrorist activities. Indeed, the evidence against Sudan is compelling. It is sufficient in and of itself to justify prohibiting financial transactions between the Government of Sudan and U.S. persons (understood to mean individuals or companies). Yet I would like to focus your attention now on the terrorism which the Sudanese government propagates against its own citizens, and suggest that this domestic crisis is directly accountable for Sudan's support of terrorist activities abroad. Until and unless the root causes of Sudan's domestic crisis are addressed, we should not expect Sudan's role in sponsoring terrorist activities abroad to cease.

    For it is the Sudanese people themselves who bear the brunt of the NIF regime's brutal policies manifested in a devastating civil war, ruthless oppression and gross violations of human rights. Sudan has been an independent country since 1956, yet it has only known relative peace for the period of 1972–1983. Since 1983, when the current civil war broke out, an estimated 1.5 million people have died from the effects of the war, several million have been displaced internally, and at least a half million have sought refuge outside of Sudan. To put these numbers into perspective, the death toll in Sudan alone is greater than the casualties in Somalia, Zaire and Bosnia combined.
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    Human rights groups, the State Department, and the UN Special Rapporteur on Human Rights to Sudan have repeatedly documented the egregious human rights violations by all parties to the conflict, and in particular by the NIF regime. These abuses frequently target women and children and include enslavement, forced Islamization and Arabization, persecution of Christians, animists and moderate Muslims alike, attempted genocide against entire population groups in the Nuba Mountains, and random bombing of civilian and humanitarian targets in the south. Indeed, World Vision itself has been the target of such bombing raids several times, which typically are devoid of any military pretext. Since May 17, bombs have been dropped on Thiet in Tonj county four times, with at least one of the bombs landing near the World Vision compound.

    I would be remiss if I did not also mention the interference of the Sudanese government with the operation of the humanitarian relief program coordinated by Operation Lifeline Sudan in both the north and south. In southern Sudan, OLS agencies such as World Vision are able to operate programs due to an unusual tripartite agreement between the Sudanese government, the United Nations, and the SPLM/A. Under this agreement, the three parties negotiate monthly flight clearances for humanitarian flights to specific sites in southern Sudan. Unfortunately, the NIF regime has manipulated its role in this agreement to capriciously deny flight clearances for aid flights into southern Sudan, thereby handicapping the aid operation and effectively threatening the only lifeline to which millions of southern Sudanese have recourse. When the GOS cuts off most or all flights into rebel-held areas of southern Sudan, as it has done repeatedly in recent weeks, not only does it threaten the very existence of thousands of Sudanese, it also leaves hundreds of international aid workers stranded without sufficient supplies in frequently insecure locations. Presently, flight clearances for the month of June are being denied in blatant disregard of numerous reports of malnutrition and other emergency needs in southern Sudan. The manipulation of OLS by the Sudanese government is so great that the very integrity of the operation has been called into question.
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SUDAN'S REGIONAL TERRORISM


    In addition to the war the NIF regime is waging against its own citizens, it is also pursuing an aggressive strategy to destabilize its neighbors to the north and in the Horn of Africa. The secular, pro-American governments of Egypt, Eritrea, Ethiopia, and Uganda have been the primary targets of the Sudanese government's destabilization campaign. In each of these countries, the Sudanese government has provided financial and material assistance to extremist Islamic groups seeking to overthrow the democratically-elected governments. As a result, Eritrea, Ethiopia and Uganda have severed diplomatic relations with Khartoum and are now actively working to contain the threat coming from Sudan.

ROOT CAUSES

    Understanding the crisis in Sudan is a complicated matter. It is not simply the north against the south, the governing National Islamic Front regime against the rebel Sudan People's Liberation Movement/Army, the Arabs against the Africans, nor the Muslims against the non-Muslims (Christians and traditional animists). In certain respects it is each of these things, yet still more. Fundamentally the religious, cultural, and ethnic discrimination underlying the domestic crisis in Sudan is a function of the identity crisis the country has struggled with since independence. This identity crisis is manifested in the present conflict of visions between the NIF regime's radical political Islamic vision and the SPLM/A's secular, democratic and pluralistic vision. Just as Sudan's domestic terrorism is a direct manifestation of the NIF regime's radical political Islamic agenda and its authoritarian style of governance, so too is its support for international terrorism.
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    Ending the war in the south and restoring multiparty democracy and respect for human rights would stop Sudan from being a regional and international menace. More importantly, resolution of the civil war would offer millions of Sudanese their first opportunity to live in peace and dignity. Therefore, the ultimate objective must be a just, comprehensive and lasting peace for the whole country, not a partial settlement between the regime and the SPLM/A or other southern rebel movements. Rule of law, respect for human rights, and a just peace in southern Sudan are prerequisites for ending Sudan's support for international terrorism.

PROSPECTS FOR PEACE

    Present political and military dynamics do not bode well for reaching a comprehensive and just peace among the warring parties. The conflict has now stratified along vertical lines, with north-south alliances fighting against each other. Northern opposition parties and the SPLM/A have joined forces in an umbrella association called the National Democratic Alliance (NDA), whose objectives are the overthrow of the regime, the restoration of multi-party democracy and a peaceful resolution of the conflict in the south. The emergence of the NDA is a critical development because it defuses the NIF regime's major rallying cry: that Islam in Sudan is under attack by secularists and the West. The northern opposition forces are all Muslim and include the traditional and very conservative Islamic leadership, which claims the loyalties of much of Sudan's Muslim population. Recently, Sadiq al-Mahdi, Prime Minister of Sudan at the time of the NIF coup in 1989, president of Sudan's largest political party, the Umma Party, and a leading figure in the NDA, visited Washington, DC to reinforce his constituency's support for a pluralistic and democratic Sudan.
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    For its part, the NIF regime has joined forces with splinter rebel movements in the south, including the South Sudan Independence Movement/Army (SSIM/A) led by Riek Machar and the SPLM/A–Bahr el-Ghazal group led by Kerubino Kwanyin Bol. The alliance between NIF and several rebel factions was formalized in the signing of a peace agreement on April 21, 1997 which calls for a referendum in the south on the question of unity or separation following an interim period of four years. The SPLM/A has refused to join the peace agreement, dismissing it as a ''sham.'' Indeed, observers question the usefulness of negotiating a peace agreement without the participation of all of the parties, particularly the largest southern rebel movement or any of the northern opposition parties. The true test of Khartoum's sincerity in seeking a peace agreement will be whether or not it is willing to negotiate with all parties to the conflict—northern and southern—and whether or not it is prepared to negotiate from the starting point of the previously-negotiated IGAD (Inter-Governmental Authority on Development in the Horn of Africa) Declaration of Principles.

    Barring this, we fully anticipate the intensity and scale of fighting in southern Sudan and other parts of the country to increase drastically. In January 1997, the NDA launched a military offensive in territory far more strategic to Khartoum than the south. This initiative—the ''Eastern Front''—has the potential for shutting down Khartoum's vital pipeline and corridor to the sea. Combined with the NDA military fronts in Sudan's Upper Nile and Blue Nile provinces (threatening a dam that supplies 80 percent of Sudan's electrical power), SPLM/A rebel activity in central Sudan's Nuba Mountains region, and a strong SPLM/A offensive in the south generally, the NIF government finds itself confronted by a major strategic dilemma. For the first time, the government faces military challenges on four fronts. Never in its existence has it confronted such a direct threat to its own survival.
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THE ROLE OF US POLICY

    World Vision concurs with the assessment recently made by Roger Winter, director of the US Committee for Refugees, before the Senate Africa Subcommittee, that Sudan is the one state on the Terrorism List which holds realistic potential for fundamental change in the near-term. The change will be produced by the Sudanese themselves, but it is directly in the interests of the United States to see such political change occur and to encourage it. We need a clear policy on Sudan that reflects US interests and sides with the people against a rogue government. Such a policy would not allow ''business as usual'' to continue between American individuals or companies and the government of Sudan, while at the same time withholding from the people of Sudan, particularly those living outside of the control of the government, appropriate forms of development assistance.

    To the extent that it is in the interests of the US to see a democratic and pluralistic government established in Sudan, it is in our interests to help prepare southern Sudan for the eventuality of self-government, regardless of the ultimate national framework within which self-government is realized. Presently, the fledgling civil administration in non-government-held areas is severely handicapped by a dearth of resources, ranging from such basic commodities as paper to write on, chairs to sit in, or bicycles to enable administrators to move around their districts. Modest investments now in building the local capacity of the civil administration in its formative stages are investments in the governance of southern Sudan, investments that will pay off for years to come and will help ensure the sustainability of a just peace agreement when it comes.

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    It is also in our interests not to allow US persons to enrich the present Sudanese government. The NIF regime is starved for cash as a result of a failing economy and an estimated drain on its resources of $1 million per day to wage war against the south. Khartoum desperately needs the hard currency from oil revenues to continue to pursue its radical Islamic agenda at home and abroad. US policy should ensure that Americans do not contribute to the ability of the NIF regime to continue to wage war against its own citizens or to support destabilizing and terrorist activities regionally and internationally.

    Furthermore, it is important to note that the oil fields in question lie in regions of southern Sudan which are hotly contested. The SPLM/A, the NDA, and other rebel factions have indicated to all foreign companies in Sudan that their installations and personnel would be considered legitimate military targets if operations do not cease, a threat which history has shown the SPLM/A is more than willing to act on. Plans to build a 950-mile pipeline to the Red Sea from the oil fields have already been jeopardized by NDA attacks in eastern Sudan, through which the pipeline to Port Sudan is due to be laid.

    World Vision firmly believes that American investment should not contribute to the exploitation of Sudanese oil fields until a comprehensive settlement is reached which includes an agreement on the sharing of natural resources and provides for oil revenues to contribute to the critical development needs of southern Sudan. The possibility of American investment and assistance in the development of Sudanese oil fields should be used as an incentive to encourage all parties to negotiate a just settlement.

    Weaknesses in American policy such as the ones I have just mentioned suggest that a comprehensive review of US policy on Sudan is needed. World Vision calls on the Administration and Congress to engage in such a review to identify a coherent policy on Sudan. Both World Vision and the Sudan Working Group have produced policy papers with specific recommendations for such a comprehensive policy review.
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SECTION 321 OF THE ANTI-TERRORISM ACT AND 31 CFR PART 596

    Section 321 of the Anti-Terrorism and Effective Death Penalty Act of 1996, if taken at face value, would prevent US persons from engaging in financial transactions with Terrorism List governments. In the case of Sudan, this should have precluded the possibility of American companies seeking rights to oil concessions from the government of Sudan. Unfortunately, the regulations issued last August by the Office of Foreign Assets Control of the Treasury Department (31 CFR Part 596) to implement Section 321 permit all financial transactions with Sudan and Syria except those which pose a direct risk of furthering domestic terrorism.

    Since November of last year, World Vision and the Sudan Working Group have urged the Administration to rescind these regulations and rewrite them in a manner more consistent with the letter of the law. In the absence of the administration's willingness to do this, we have supported congressional initiatives to ensure that ''business as usual'' does not continue between the US and the government of Sudan.

    World Vision would prefer that this objective be achieved as part of a coherent policy toward Sudan which recognizes the domestic and international implications of any financial transactions with the Sudanese government. Section 321 of the Anti-Terrorism and Effective Death Penalty Act of 1996, no matter how strictly interpreted, will ultimately fail to stop the government of Sudan from supporting international terrorism because it fails to address the root causes of this support. Section 321 takes an appropriately moral stance on the role of US persons in contributing to the funding of the NIF regime's abhorrent practices, but there will always be other countries, companies, and individuals with fewer scruples willing to support a rogue regime if there is economic profit to be gained. Reports indicate that Canadian, Chinese, Malaysian, and now Austrian firms have rushed in where we would have American companies excluded. Nevertheless, the position articulated in Section 321 is the right position to take. Although it is beyond the scope of this committee, World Vision urges Congress and the Administration to incorporate the sanction provided for in Section 321 into a comprehensive policy on Sudan that does address the root causes of Sudan's domestic crisis and support for international terrorism.
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THE IMPACT OF H.R. 748 ON HUMANITARIAN ASSISTANCE

    Mr. Chairman, the bill you have introduced in the form of H.R. 748 would ensure that Section 321 is strictly implemented with no exceptions. While we are supportive of prohibiting financial transactions between the government of Sudan and US persons, World Vision shares the concern of other humanitarian organizations that some exemptions to the rule are necessary. Completely denying the Administration the ability to write regulations implementing Section 321, as this bill would do, may result in harmful, albeit unintended, consequences for humanitarian assistance to Terrorism List countries.

    Specifically, World Vision is concerned that financial transactions incident to the provision of humanitarian assistance to meet basic human needs be exempted from Section 321 in H.R. 748. H.R. 748 makes similar provision for financial transactions related to routine diplomatic relations; we request that humanitarian assistance also be explicitly exempted from this sanction.

    Presently, the Office of Foreign Assets Control has either issued written regulations or has adopted a policy of issuing specific licenses making the provision of humanitarian assistance to the five Terrorism List countries under sanctions regimes possible. The Commerce Department's Bureau of Export Administration also provides by regulation that exports of humanitarian goods to such countries is permissible, under certain conditions. The regulations issued by OFAC in 31 CFR Part 596 enable these provisions to remain in effect. In the cases of Sudan and Syria, which do not fall under comprehensive sanctions regimes, humanitarian assistance is possible because of the very broad general licenses OFAC has issued for these two countries in 31 CFR Part 596. Without these regulations, humanitarian organizations would not be able to provide life-saving aid to Terrorism List countries. H.R. 748, as presently written, would effectively nullify these provisions and prevent private humanitarian assistance to any Terrorism List country.
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    Only in the case of non-government held areas of southern Sudan, where the Sudanese government is powerless to collect any taxes or fees on the delivery of humanitarian assistance or the travel of humanitarian aid workers, would humanitarian assistance still be possible. In all other cases, including for instance northern Sudan, North Korea, and Cuba, it would be virtually impossible to avoid payment of any sort to the government in the course of providing humanitarian aid to a Terrorism List country. Even if it were possible to deliver humanitarian assistance without engaging in a financial transaction with the government, traveling to the country to monitor the distribution of the aid would be impossible without at least paying a visa fee, an airline ticket or airport tax, or paying for government-run room and board. World Vision would face these challenges in North Korea, which is in dire need of food and agricultural aid to stop a famine that threatens the lives of 23 million North Koreans, including 2.4 million children.

    Mr. Chairman, World Vision urges the Committee to ensure that millions of needy people in Sudan, North Korea, Cuba, Iraq, or any other country on the Terrorism List not be deprived of vital humanitarian assistance as a result of H.R. 748. We would welcome the opportunity to work with you on drafting language to ensure that this is not the case.

    Mr. MCCOLLUM. Thank you, Ms. Almquist.

    Mr. Latham, you are recognized.

STATEMENT OF JAMES D. LATHAM, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ITT SHERATON CORP.
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    Mr. LATHAM. Thank you, Mr. Chairman.

    I am Jim Latham, senior vice president and general counsel at ITT Sheraton Corp. Sheraton is a leading worldwide hospitality company. We own, lease, manage, and franchise hotels around the world. We have over 420 hotels and resorts in more than 60 countries, including 229 properties with 54,000 employees in the United States. I appreciate this opportunity to express Sheraton's views on H.R. 748.

    Sheraton's concern about the legislation in its current form arises from the fact that the bill can be construed to require us to terminate our longstanding contractual arrangement with the Syrian Ministry of Tourism to manage the Sheraton Damascus Hotel and Towers, a 325-room property in Syria's capital. This would occur without harming Syria but could expose Sheraton to claims for an alleged breach of contract and consequent money damages. In that event, management of the hotel would be immediately turned over to a foreign competitor, and, in our view, the only parties adversely impacted would be ITT Sheraton, a U.S. company, and ultimately its shareholders.

    The Sheraton Damascus is 1 of 20 existing ITT Sheraton properties in 10 Middle Eastern countries. Furthermore, we recently announced plans for major expansion of our already considerable presence in Israel and Egypt.

    ITT Sheraton strongly supports your objective of attacking international terrorism. We are painfully aware of the human toll inflicted by terrorist acts, as a senior executive of Sheraton and a personal friend was killed in the Pan Am 103 bombing. There is no room in a civilized society for such cowardly acts.
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    Sheraton has also been harmed commercially by terrorism. For example, the Sheraton Kuwait fell victim to Saddam Hussein's invasion, and, as a result of the ensuing Persian Gulf War, we were forced to abandon hotels in Baghdad and Basrah, Iraq.

    As to the hotel in Damascus, Sheraton is a party to a management contract with Syria's Ministry of Tourism dating back to 1973. The present contract, including two options exercisable by Sheraton, extends well beyond the turn of the century. Under this longstanding arrangement, Sheraton provides substantially all of the management services for the hotel, including hiring of personnel, supervision of hotel operations, and the collection and distribution of funds. Sheraton receives a significant management fee for these services based on a percentage of the hotel's total revenue and its gross operating profit.

    We have no equity in this hotel, so our situation cannot be equated with those where a company actually makes an investment in a terrorist country. Enactment of H.R. 748, as introduced, would effectively preclude Sheraton from managing the property, as our activities will be construed as a financial transaction. This will likely subject Sheraton to a claim for significant damages by the Syrian Ministry of Tourism for, in its view, the unlawful and unilateral termination of the management contract.

    Enactment of U.S. economic sanctions on Syria would not necessarily be a defense to such a contract claim. Under the terms of our agreement, arbitration for any such action would occur in Lebanon, a country to which U.S. citizens are not permitted to travel without prior U.S. State Department approval.

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    Despite our strong support for the bill's objective, we do not believe that this legislation would in any way reduce terrorism as applied to our hotel situation. In fact, the opposite may be the case, because the successful breach-of-contract action by Syria against Sheraton could result in serious financial exposure to the company, which would expose Sheraton to pay substantial money damages to Syria. By contrast, allowing Sheraton to continue to operate the hotel will result in significant sums being paid from Syria to a U.S. corporation under a legitimate commercial arrangement with no relationship to terrorist activity.

    Please recognize also that Sheraton pays income taxes to the Federal Government on the fees that it earns from this activity. Forcing Sheraton to pull out of Syria would not adversely impact that country.

    The Sheraton Damascus is not a project where a U.S. company is making a significant new financial investment in the local economy or building a physical plant or transferring sensitive technology. Instead, our relationship is one in which a U.S. company performs ongoing basic management services which are readily available from non-U.S. companies.

    Furthermore, as the only U.S.-run hotel in Damascus, U.S. diplomats and other U.S. citizens traveling to that city would no longer have a U.S.-managed hotel in which to stay if, in fact, Sheraton is forced to leave. The diplomatic importance of Sheraton's presence in Syria is illustrated by the fact that the former Secretary of State, Warren Christopher, and his delegation stayed in that hotel no less than nine times.

    We strongly urge the subcommittee, if it determines to go forward with this legislation, to amend H.R. 748 so that it will not have the effect of disrupting nonsensitive ongoing business arrangements in Syria, including the operation of the Sheraton Damascus. This result could be accomplished in several ways.
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    For example, the bill could be targeted to address only those specific economic activities that the subcommittee determines might facilitate the support of terrorism. Alternatively, the legislation could expressly exclude from sanctions nonsensitive business activities such as humanitarian activities and the provision of consumer goods and services. At the very least, ongoing, already established business arrangements such as our management of a hotel should be protected from any new economic sanctions. I don't believe that it is the intention of this subcommittee to punish U.S. companies involved in legitimate non-terrorist-related commercial activities.

    Mr. Chairman, members of the subcommittee, ITT Sheraton appreciates this opportunity to express its views on this important subject. I look forward to responding to your questions and providing such additional information as the subcommittee may request.

    Thank you.

    [The prepared statement of Mr. Latham follows:]

PREPARED STATEMENT OF JAMES D. LATHAM, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ITT SHERATON CORP.

    Mr. Chairman and members of the Subcommittee, I am James D. Latham, Senior Vice President and General Counsel of ITT Sheraton Corporation, which is based in Boston. As you may know, Sheraton is a leading worldwide hospitality company which owns, leases, manages, and franchises over 420 luxury, upscale and midscale hotels and resorts in over 60 countries, including 229 properties with 54,000 employees in the United States.
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    I appreciate this opportunity to express Sheraton's views on H.R. 748, the ''Prohibition On Financial Transactions With Countries Supporting Terrorism Act of 1997''. Sheraton's concerns about the legislation in its original form stem from the fact that it could be construed to require us to terminate our long-standing contractual arrangement with the Syrian Ministry of Tourism to manage the Sheraton Damascus Hotel & Towers, a 325-room property and one of only two international hotels in Syria's capital. This would occur without harming Syria, but by exposing Sheraton to claims for an alleged breach of contract and money damages. Management of the hotel would be turned over to a foreign competitor.

    The Sheraton Damascus is one of twenty ITT Sheraton properties in ten Middle Eastern countries: Bahrain, Egypt, Israel, Kuwait, Qatar, Oman, Saudi Arabia, Syria, United Arab Emirates and Yemen. Furthermore, we recently announced plans for a major expansion of our already considerable presence in Israel and Egypt, where we are a major part of each country's tourism industry.

    ITT Sheraton strongly supports your objective of attacking international terrorism. We are painfully aware of the human toll inflicted by terrorist acts as a senior Sheraton executive was killed in the Pan Am 103 bombing. As a worldwide company, Sheraton has been harmed commercially by terrorism. For example, the Sheraton Kuwait fell victim to Saddam Hussein's invasion and, as a result of the ensuing Persian Gulf War, we were also forced to abandon hotels in Baghdad and Basrah, Iraq.

    As to the hotel in Damascus, a Sheraton subsidiary is a party to a management contract with Syria's Ministry of Tourism, dating all the way back to 1973, under which the hotel was first constructed and is now operating. The present contract extends through 1998 and is subject to renewal by Sheraton for up to twenty years. The contract has no force majeure provision, right of cancellation or other ''escape'' clause should H.R. 748 be enacted into law as introduced.
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    Under this long-standing arrangement, Sheraton provides substantially all of the management services for the hotel, including hiring of personnel, supervision of hotel operations, sales and marketing (including access to Sheraton's worldwide reservation network and sales offices), and the collection and distribution of funds. Sheraton receives a significant management fee for these services based upon a percentage of the hotel's total revenue and its gross operating profit.

    Enactment of H.R. 748 as introduced, by precluding all financial transactions with Syria other than those ''incident to routine diplomatic relations'', would effectively preclude Sheraton from managing the property and thus likely subject Sheraton to a claim for significant damages by the Syrian Ministry of Tourism for, in its view, the unlawful termination of the management contract. Enactment of U.S. economic sanctions on Syria would not necessarily be a defense to such a contract claim. Under the terms of the contract, arbitration of any claims would occur in Lebanon, a country to which U.S. citizens are not permitted to travel without prior State Department approval.

    Despite our strong support for the bill's objective, we do not believe that this legislation, which could force Sheraton to cease operation of the hotel in Damascus, would in any way reduce terrorism. In fact, the opposite may be the case because a successful breach of contract action by Syria against Sheraton would result in serious financial exposure to Sheraton which-could require Sheraton to pay substantial money damages to Syria. By contrast, allowing Sheraton to continue to operate the hotel will result in significant sums being paid from Syria to a U.S. corporation under a legitimate commercial arrangement with no relationship to any terrorist activity.
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    Forcing Sheraton to pull out of Syria would not adversely impact that country. The Sheraton Damascus is not a project where a U.S. company is making a significant new financial investment in the local economy, building a physical plant, or transferring sensitive technology. Instead, our relationship is one in which a U.S. company performs on-going basic management services which are readily available from non-U.S. companies, in this instance from other international hotel systems, most likely one of our European competitors.

    If Sheraton is forced to leave Syria, another hotel company will quickly take over and immediately begin to receive revenues that otherwise would have gone to a U.S. firm and thus subject to U.S. taxation. In addition, as the only U.S.-run hotel in Damascus, U.S. diplomats and other U.S. citizens traveling to that city would no longer have a U.S.-managed hotel in which to stay if Sheraton is forced to leave. The diplomatic importance of Sheraton's presence in Syria is illustrated by the fact that former Secretary of State Warren Christopher and his delegations stayed in the hotel no less than nine times and the hotel hosts an average of four to five congressional delegations each year, in addition to more routine diplomatic guests.

    We strongly urge the Subcommittee, if it determines to go forward with this legislation, to amend H.R. 748 so that it will not have the effect of disrupting non-sensitive on-going business arrangements in Syria, including our operation of the Sheraton Damascus.

    This result could be accomplished in several ways. For example, the bill could be targeted to address only those specific economic activities that the Subcommittee determines might facilitate support for terrorism. Alternatively, the legislation could expressly exclude from sanctions non-sensitive business activities, such as the provision of consumer goods and services. At the very least, on-going business arrangements, such as our management of a hotel, should be protected from any new economic sanctions.
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    Mr. Chairman and members of the Subcommittee: ITT Sheraton appreciates this opportunity to express its views on this important subject. I look forward to responding to your questions and providing such additional information as the Subcommittee might require. We stand ready to work with you and your colleagues as deliberations on this measure proceed.

    Thank you, Mr. Chairman.

    Mr. MCCOLLUM. Thank you very much, Mr. Latham.

    Is it Mr. Ijaz or Ijaz?

    Mr. IJAZ. Ijaz. Pronounce the J.

    Mr. MCCOLLUM. All right. Mr. Ijaz, please proceed, sir.

STATEMENT OF MANSOOR IJAZ, CHAIRMAN, CRESCENT INVESTMENT MANAGEMENT, L.P.

    Mr. IJAZ. Thank you.

    Mr. Chairman, I would ask you to forgive me for my cranky throat. I have had a bit of a cold for the last few days and travel a lot. But I want to thank you very much for giving me the opportunity to come and present what I hope will be a sort of thought-provoking view of what may be going on in at least one of the two countries that you have in mind for this particular bill.
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    In my judgment, the time has come for the American legislative and foreign policy establishments to develop a new set of policy tools altogether for dealing with the growing problem of terrorism, which, I concur with this committee's assessment in that sense.

    Unilateral economic and political sanctions have slowly eroded America's leadership role and relevancy in either containing or controlling the proliferation of terrorist activities.

    There is no point in imposing sanctions in cases where our unilateral actions either will have no impact, which I believe may be the case in this particular circumstance, or, worse, are flouted by our allies in a manner that sends a message of inconsistency and lack of common resolve. Holding the moral high ground is useless when our allies are repeatedly prepared to fill the very gaps we seek to create and the operational framework of terrorist advocate governments.

    Terrorism is used by advocates because it is cheap and effective in expressing a challenge to what is perceived as Western hegemony and imperialism by the outside world. Yet the governments that support terrorist activities need only enough resources to survive, and survive they have, in Iran, Iraq, Libya, and other countries despite our often unilateral actions aimed at containing them.

    Now, I would like to ask just some thought-provoking questions if I might. What would happen if instead of containing, we engaged states that demonstrated a willingness of their own accord to rejoin the family of nations, and possibly by doing so, even use their own moral suasion over other rogue states to try and bring them around; in other words, effectively creating an internal mechanism within these family of rogue nations to try and control what they do? What would happen if we flooded these markets with our Western technologies and forced their systems to become more dependent on our form of capitalism, our ideology, and our mechanisms for economic livelihood?
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    Would potential young—and I ask this question just as a hypothetical—would potential young Iranian mullahs not become more willing Conoco oil and gas capitalists. Would Sudanese farmers now accused of harboring and training Hezbollah and Hamas terrorists not potentially become the consummate employees of American food giant Archer Daniels Midland?

    I would like to narrow the balance of my remaining comments to the Sudan. I have visited the Sudan on a half dozen occasions offer the past year, and I have gone there to try and better understand whether or not this country as a unique case can possibly help us to better understand how we could redefine our antiterrorism policies in this country.

    I have been driven by two overarching concerns, one born of my business interests as well as my investment management responsibilities to the portfolios that I am responsible for, and the second driven by my own political concerns here in the United States of whether or not America is not coming perilously close to demonizing Islam as a religion rather than going after specific individual cases.

    Now, if I may come to the business discussion just for a moment, because that is—since I am a businessman, I am probably here for that reason as well. There are about one trillion barrels of proven oil reserves, recoverable oil reserves in the world today. Of the countries that produce oil and export oil, there are 22, 12 of them are Islamic in some form or the other. They either have an Islamic government, they have an Islamic ideology or Islamic philosophy of some sort. Now, those 12 countries control 72 percent of all the world's known and recoverable crude oil reserves, of which Iran, Iraq, and Saudi Arabia represent two-thirds of that 72 percent. Now, of those three countries, two of them are already on our list of terrorism states, and the third, in my judgment, is moving dramatically to the right just to preserve the political apparatus that they have in place right now; that is, that the House of Saud to remain in power may have no choice but to move to the right of the Islamic spectrum.
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    Now, the critical aspect of this argument, is that the 72 percent that is controlled by the Islamic producing countries has a pumping lifetime at current rates of consumption and rising—sorry, current rates of production and rising rates of consumption, of about 100 years. The non-Islamic producing countries, which include the United States, Russia, China, Venezuela, countries of that type, have a pumping lifetime of at most 30 years, and that is on a good day when we take everything and combine it together. So if you are now an Islamic radicalist, and the United States wants to impose unilateral sanctions, as a mullah sitting in Iran, your ideology is we will just wait them out, and then they will have to come ask us for energy resources in a much different way than they are asking us to deal with the problem today.

    So I just ask us to think about this as a, you know, part of our overall thinking process longer term, what are the effects of what we are doing shorter term. Can we, in fact, modify the behavior by doing what we are doing with our legislation today sufficiently to bring them back in in time to protect our long-term interest? That is I would ask this committee to think about.

    Now, I would like to make a few quick points about what is going on in the Sudan as an example, because, in my judgment, the Sudan, as has been stated by Ambassador Wilcox and has been stated by some of our other prominent panelists, is, in fact, a nexus for an Islamic what I call fundamentalism. I want to distinguish between fundamentalism and radicalism, radicalism being the art of figuring out how to propagate terrorism, and fundamentalism being the art of trying to effectively practice Islam in a much more pure and real way.

    Now, in the Sudan, the reason that this is a unique example is because this is the—I think it is the only country on the list that is a government—an Islamic Government in which there are Animist and Christian minorities as well. You don't just have a purely Muslim population or purely Catholic population, or purely Communist population as in the case of North Korea.
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    Now, in the case of a country that has this type of a mix, if you will, what I have seen during the past year, and it really is only about a year and a half old in terms of what is going on there, you have a process of institutional governance; that is, that now the dictator that is today the President could not make a decision today without going through an institutional framework much the way that things work here in the United States. He cannot make unilateral decisions to just implement policy in a particular way without going through a process. Now, the question is whether or not he can do that without bringing the Christian and Animist minorities into the process, and that is where our focus should be in terms of trying to encourage them in moving in the right direction.

    The second very important thing that I think is going on in Sudan is a process of trying to modernize Islam as a system of governance. Now, as we know, in Saudi Arabia, Sharia is the governing force of law. That means that if you steal something, you get your hand cut off. And I've seen this with my own eyes having lived in Saudi Arabia how that process works.

    In the Sudan their Islamic experiment is, in fact, trying to take a different tact. My colleague to the left here talked about the Sudanese peace agreement. While the agreement hasn't brought everybody into the mix yet, it is the first time in the history of the world that an Islamic government, under Sharia has provided for the right to self-determination, the freedom of religion, the freedom of practice and worship, you know, in the southern Sudanese states, and it is a start. It may not be there yet. It is not perfected, but it is a start, I think, in the right direction.

    Thirdly, I would like to tell you a little bit what I know on the resource development side of Sudan, the oil fields, because I think that is a big issue that needs to be looked at in this process.
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    Clearly, the Sudanese are capable of understanding what the United States can do to them, and what they have done in response is they have gone out and they have gotten the Chinese and the Malaysians to invest in their oil fields. That means, and I know this for a fact from the Chinese, that they are prepared to use their U.N. Security Council veto against any legislation that we, the U.S. government, would bring to the United Nations on terrorist sanctions primarily because they need that oil.

    The Chinese 5-year plan calls for 20 million tons of oil to be imported by the year 2000. That means literally every barrel of oil that comes out of the Sudanese field is going to go directly to China on the boat. So short of closing the Red Sea, one way or the other, we are going to have a hard time stopping these fields being developed in any way, shape or form.

    Secondly, when you bring the Malaysians into the mix, you are talking about bringing a country that is probably the only example of a fundamentalist Islamic state that actually has succeeded. You know, I was reading in the Economist on the way down this morning these guys are now bringing the Internet into—with all of its problems, I might add—into Malaysia. That is a big deal for an Islamic country to do on an institutional governmental-level basis.

    So let me conclude, if I might—one other quick point I would like to make, and that is on the issue of Christian persecution in the Sudan, I have been an advocate, and I have been very, very harsh with my—in my conversations with the Sudanese Government about the fact Islam does not permit the persecution of any religion. And I have asked them—and there are other friends of mine in the think tank community. Tony Sullivan, Graham Fuller were with me on a recent trip in which we have asked them purposefully to review their regulation on whether or not, for example, land ought to be salable for the purpose of building churches and, you know, places of Christian worship.
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    Now, as a Muslim, and I am an American, born American, but as an American of the Islamic faith, I am prepared to fight for Christians' rights to be able to worship in any way, shape or form that they choose because that is the principle on which we base our living here in the United States of America. And that is the principle that we want to try and encourage them to go forward with. But to do that under a set of circumstances where sanctions, every time they try to stand up, we slap them and slap them back down, I am just wondering what the effectiveness of that may really be in the long run. I think the Sudanese Government is prepared to make some serious changes in the way that it does things, and I want to thank you very much. And I ask that the balance of my statement be entered into the record.

    Mr. MCCOLLUM. It certainly will be done.

    [The prepared statement of Mr. Ijaz follows:]

PREPARED STATEMENT OF MANSOOR IJAZ, CHAIRMAN, CRESCENT INVESTMENT MANAGEMENT, LP

    Thank you Mr. Chairman and the distinguished members of the Subcommittee on Crime present here today for inviting me to submit views on how this legislative body might consider avenues that constructively engage Islamic states which have demonstrated histories of supporting inappropriate activities, some of which must clearly be categorized as terrorism. In the process I advocate, we might find mechanisms that modify their behavior patterns in ways that contribute to protecting American national interests rather than pursuing outdated and ineffective policies of containment which have produced precious few results thus far. For the purposes of this discussion, I will limit my remarks to our bilateral relations with the Sudan, a country we have labeled as a chief sponsor of Islamic terrorism since the early 1990's.
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    I come before the subcommittee first and foremost as a born American equally concerned about the proliferation of terrorism and extremism, regardless of its ideological form, throughout the world today. As an adherent of the Islamic faith, I am even more concerned about the potentially debilitating consequences for American-Muslims from America's increasingly hostile and standardized policy response of economic sanctions and containment towards problem areas in the Islamic world. We must take great care to avoid demonizing adherents of a religion which is the fastest growing geopolitical force in the world today, a religion that is also the faith of over 7 million Americans who are contributing greatly to the social, economic and political fabric of the United States. We must take great care not to stigmatize the children of American-Muslims whose heritage is Pakistani, Afghani, Syrian, Sudanese, Algerian, Palestinian, Iranian or Iraqi because of the actions of a few whose motives are born of hatred that has less to do with ideological differences than with their own internal failures and shortcomings.

    Again and again, we have witnessed America's failure to cope with the many faces of Islam in the aftermath of the Cold War. Whether in Afghanistan, Algeria, Azerbaijan, Bosnia, Chechnya, Indonesia, Iran, Pakistan, Somalia, the Sudan and perhaps in the future even oil powers such as Saudi Arabia, America's inability to effectively deal with Islam's many dimensions represents one of the most serious vacuums in our ability to provide for our own national security. In fact, my appearance here today is demonstrable evidence that Americans of the Islamic faith can play an integral role in defining solutions which might reduce rather than increase tensions with those in the Islamic world we see as a threat to our national interests.

    In re-shaping America's terrorism policy, particularly countries of the Islamic world are concerned, we should use our considerable economic powers to raise up disaffected Muslims so they are not as desperate to tear us down. We, a nation born of religiously persecuted immigrants, often forget that terrorism is born of trampled egos. The failure of America to cope with Islamic rage stems from our inability to understand that the rage is as much directed at Islam's internal failures (tyranny and corruption, to name two) as it is against foreign oppression and western contempt for Islam's traditions and ways of life. Furthermore, we fail to see that Islam's extremists are no different than America's extremists. Both seek to correct what they rightly or wrongly see as society's deviation from their often misguided vision of the pure message. Islam's fundamentalist movements, in fact, are capable of producing widely differing results, from the medieval experiment in Afghanistan to the modern, competitive state in Malaysia.
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    Islamists have even tried their hand at democracy. Take Algeria, for example. In 1992, Islamists legitimately attained power in fairly held elections only to see their victory overturned by the secular military regime after it received a wink from Washington. Had the Islamists been allowed to assume power, one of two outcomes would have occurred: their skepticism of democracy as a legitimate mechanism to express ideas would have been silenced and America's argument that only democracy can provide the necessary framework for economic and social prosperity would have bean strengthened; or they might have failed, much as the Iranian revolution has, to deliver anything but empty rhetoric. Failure would have demonstrated that democracy as an organizing principle was not at fault. The fault lay in the quality of their ideas.

    In a secular western world where separation of church and state are the norm, it is logical to understand our mistrust of a religion that wants to deeply influence matters of state. More logical, however, would be for us to maintain a principled neutrality in all cases where Islamists are trying to use democracy, no matter how poorly, as a mechanism to express their ideas, not just those in which our mortgage interest rates are at stake and where democracy doesn't exist anyway. Failure to implement this policy change is to not see that the aberrant behavior of an Islamist spurned is as dangerous to our national security as the threat of $50/bbl oil.

    With America's post Cold War propensity to define the work in terms of benefit to our economic interests, permit me to offer a definition of Islamic radicalism in these terms. The world has some one trillion barrels of proven and recoverable oil reserves. 72% of these reserves are controlled by 12 countries whose predominant religious beliefs, system of government or philosophical tendencies are Islamic, while the remaining 28% are controlled by non-Islamic countries, such as the United States, Russia, Venezuela and China. But the criticality of this statistic lies in the fact that the 72% controlled by Islamic producers, of which Iran, Iraq and Saudi Arabia represent over two-thirds, will last for some 100 years at current rates of production and rising rates of consumption. The 28% controlled by non-Islamic countries has a pumping lifetime of at most 30 years.
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    For Islamic extremists, this is their trump card. Our failure to engage and modify their behavior results in a potential waiting game that could dramatically affect our entire economic system—one highly dependent on the cost of money—in little more then a generation. The mullahs and Islamic extremists whom we treat with disdain and contempt today are mocking our policies because they are prepared to live in economic straight-jackets, if need be, until such time as we are forced to come, oil cup in hand, to ask them for more reasonably priced energy resources in order to avoid the unfavorable consequences of inflation and rising interest rates to our economy. Even our most trusted oil allies, Saudi Arabia and other members of the Gulf Cooperation Council, cannot be counted on to resist the internal pressures of Islamists. One need only keep in mind Saudi Arabia's recent rapprochement with Iran—a reconciliation that in no small part had the silent hand of Sudan's enigmatic Islamic force, Dr. Hassan Al Turabi. I trust it is not necessary to elaborate on the ramifications for American economic interests of Saudi Arabia's sharp turn to the right of the Islamic spectrum—an eventuality that is now all but assured once Crown Prince Abdullah formally assumes the reigns of power.

    With my overarching, concern about the ramifications of America's failure to deal effectively with the problem areas of Islam as background, permit me to narrow my remarks to the subcommittee's focus on the issue of Sudan's support for radical and extremist Islamic groups that has, until recently, characterized the Islamic movement there. My interest in the Sudan as a comprehensive case study for re-defining our anti-terrorism policies is consistent with my political activism on the issues of how America deals with situations where Islamic countries and their non-Islamic neighbors don't get along. Hence interest in Kashmir, where Muslim Pakistan is pitted against Hindu India; Nagorno-Karabakh, which pits Muslim Azerbaijan against Christian Armenia; and the Sudan, where the fundamentalist Islamic regime is struggling with internal Christian and Animist minorities and surrounding Christian and Muslim neighbor relations are poor. It should be noted here for the record that while I strongly support American efforts to isolate and contain the regimes of Saddam Hussein in Iraq and Muhammar Gadafi in Libya, two cases that amply demonstrate why America's apprehension of Muslim leaders with the ''God complex'' (i.e., those who use Islam's monotheism for inappropriate political motives) is justified, we must find more creative ways that do not also punish the people of Iraq and Libya for their frailty and inability to rise up against these dictatorial forces.
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    The Sudan, however, represents a case where in our zealousness to contain Islamic fanaticism, and its by-product of terrorism, we may have overplayed our hand. We have failed to see the potential benefits from engaging Sudan's Islamists on three different levels: first, the value of their efforts to modernize Islam; second, enlisting Sudan's Islamic movement to help us in our fight against global extremism, in particular where it relates to Islamic extremism and terrorism in countries vital to our geo-political interests; and third, the value of Sudan's relationships going forward with Iran, Saudi Arabia, Algeria, Afghanistan and other countries that are now and will be in the not-so-distant future vital to our economic interests.

    Most disturbingly, we have failed to realize that, short of declaring outright war on the Sudan for its various transgressions (or any other state trying to revive Islamic fervor), there is little we can do to stop the Islamic revival underway there now for the past decade. China and Malaysia are helping, at an official level, to develop their oil reserves (estimated at 40–50% of the oil found in Alaska's Prudhoe Bay) that will ensure the economic resources to maintain the revivalist movement. Anyone who believes China will not use its UN Security Council veto to block American efforts to sanction Sudanese oil sales is not fully cognizant of the massive energy China has for the 21st century, and how dearly 200,000 barrels a day from Sudan's oil fields will serve those needs. Anyone who does not fully appreciate the nature of the relationship between Dr. Turabi and Saudi Prince Abdulla, or President Bashir and Sheikh Zayed of the UAE, or the growing ties between Sudan and our most stable Mid-East peace ally, Jordan, fails to see how far the purist influence of the Sudanese Islamic movement already reaches.

    All this, of course, begs the question whether the present Sudanese regime is an innocent bunch of school boys constantly being accused of crimes they feign ignorance on. In my judgment, after many long meetings with Sudanese government and opposition leaders, independent assessments of controversial events and verification of the most disturbing aspects of the Bashir regime's record, I have come to the conclusion they clearly arc not innocent school boys. I have read in great detail the terrorism reports produced by the House Republican Task Force on Terrorism and admire the tenacity with which Sudan's alleged terrorism activities are described. Much of what is described is accurate, some is overstated, some is over-dramatized beyond recognition of what is fact and what is fiction.
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    One of the key areas of past controversy has been the activities of Sudan's External Intelligence Department. The unbridled flow of Afghan Arabs and other undesirable characters into and out of the Sudan took place in large measure under the guidance of the External Intelligence Department—until its director was replaced in the wholesale house-cleaning of senior government ministers and technocrats that took place last year. In fact, there is now high-level cooperation between the Sudan and many Islamic countries to stop, or at least properly track, the movements of a significant number of radical and revivalist Muslims.

    Yet, the real danger for the West lies in revivalist Islamic movements disintegrating into unguided, genuinely radical states, pushing terrorist networks underground where they can only be seen at a sidewalk café with a bomb strapped to the body of a fanatic. This is why the success of any Islamic experiment that proposes to modernize the framework within which Sharia (Islamic law) exists as the guiding principle of governance is so critical to long-term American security interests. Furthermore, our East African allies' fears that Sudan's Islamic model is being exported in an unwanted manner should design a better model to meet the needs of their people if they are so fearful of models like ''Turabism''.

    Where, for example, does representation exist for the Muslim majority in Eritrea and Ethiopia? Where is there legitimate opposition in Saudi Arabia or Egypt? Where is there democracy in Uganda? Why is America so willing to apply double standards when it comes to the most fundamental of our organizing principles, and why is it that the application of the double standard appears to have an anti-Islamist tendency?

    
Would it not be better for Islam as a governing principle to succeed or fail on the merit of its ideas than for America to demonize Islam and give her detractors ammunition to bring their unholy war to our shores?
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    The Sudan case study smacks of America's worst qualities: arrogance, bullying, cynical misinterpretation and believing what we want to hear rather than looking at the hard facts. America has a choice; this legislative body has a choice; we can continue to sanction and ratchet up pressure on countries where we have little leverage and run the risk of demonizing Islam as a religion. In that case, we may have more to worry about with American-Muslims rising up to have their voices heard en-masse and creating an environment in which the funding for radical Islamic movements will occur night in our own backyard. Or we can try a more engaging approach that does not compromise our principles but seeks to draw out elements that genuinely want to contain radical Islam from within the revivalist Islamic movements of the world. Whether the Sudan represents such potential, or whether they are the engine of radical Islam, I am not qualified to judge. But I am convinced after a year-long study of the situation that America can design a more creative policy approach if we have the political courage to break with the mentality of unilateral economic sanctions as the only deployable ''stick''.

    We should engage Dr. Turabi to be our bridge to the radical fringe of Islam, to explain to them that we are not the demons they seek to portray us as—this would show American vision. We should send our FBI teams to Khartoum at their invitation to sift through and analyze the data on terrorism and then make objective recommendations to the Sudanese on how best to atone for the sins of the past—this would show American fairness. We should send Ambassador Bill Richardson to see SPLA opposition leader John Garang and persuade him that making peace and sharing in the oil and grain wealth of the country, something Khartoum would be willing to do if America brought him to the table, would be far better than endlessly and purposelessly carrying on civil war—this would demonstrate America's power in the only very it should, creating peace and prosperity for those who have never known it.
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   ———

EXHIBIT A.—BASHIR LETTER TO HAMILTON (TEXT ONLY)


April 5, 1997.
Representative LEE H. HAMILTON,
Ranking Democrat, House Foreign Affairs Committee,
U.S. House of Representatives,
Washington, DC.

    DEAR CONGRESSMAN HAMILTON: It was with pleasure that I received the report of your constructive meeting with my aide, Dr. Abubaker Shingiati, on February 21, 1997. As you are well aware, U.S.-Sudan bilateral relations remain severely strained, and we welcome any channel of communication that can better enable both sides to formulate solutions for issues of importance to both our countries. We here in the Sudan remain confused and perplexed at the continuing efforts of your government to collaborate with our neighboring countries in order to effect a ''coup d'etat'' in Khartoum at the very moment we are making our most serious efforts to address the various outstanding bilateral concerns.

    Perhaps the American people are unaware of the serious dialogue initiated by my government to improve relations with not only our neighboring countries, but most importantly with the minority segments of our own Sudanese population. These efforts have culminated with a comprehensive Peace Treaty that will be signed in Khartoum on April 2l, 1997 by virtually all the major Christian and Animist tribal leaders from Sudan's southern provinces, including many important members of the SPLA. Each of the critical concerns raised by our minority segments, including the right to self-determination, are addressed in the Peace Treaty. I would like to take this opportunity, apologizing in advance for the short notice, to formally extend an invitation to you to attend the Pence Treaty's signing ceremony on April 21st in Khartoum as my special guest so you may witness the progress towards a lasting peace we are making here in the Sudan.
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    As I am sure you can appreciate, being the largest country by land mass in Africa with porous borders and a largely tribal community make-up, we face unique difficulties in formulating and implementing policies centrally. We concede that not everything which has taken place during the past seven years of rule under my government was desirable, but we ask that the American people also take into consideration the circumstances surrounding our difficulties. Nevertheless, in an effort to avoid the empty rhetoric that so often defines relations between African nations and the United States, we would like to suggest and offer the following confidence building measures as steps towards improving our bilateral relationship:

    A. To improve communications at the working level, we would urge that future visits to Khartoum of your capable ambassador, Mr. Timothy Carney, include meetings with a wider array of people, including key policy-makers in my government, in order that he might make a more complete evaluation of the ground realities in Sudan. In the spirit of openness and cooperation, we will gladly provide him with access to our leadership at all levels, both political and societal, and facilitate whatever meetings or visits he may wish to conduct.

    B. We extend an offer to the FBI's Counter-terrorism units and any other official delegations which your government may deem appropriate, to come to the Sudan and work with our External Intelligence Department in order to assess the data in our possession and help us counter the forces your government, and ours, seek to contain. For example, we would welcome academics specializing in counter-terrorism methods to give seminars in Khartoum. It is patently unfair for the United States to continue its policy of accusing the Sudan of various terrorism complicities, then answering our queries about what specifically the U.S. would like us to do to correct matters with ambiguous responses that hide behind the veil of ''classified methods, sources, etc.''
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    We are open to all constructive ideas for resolving once and for all the issue that Sudan continues to harbor terrorists and is acting as an agent for the Islamic Republic of Iran. These accusations are simply not true, and we are prepared to stand behind our words with concrete actions—but only if such actions are taken in the spirit of engagement and reconciliation, not as reason for further punishments in the international community.

    C. We invite you and your staff, as well as other members of Congress that may wish to objectively verify the realities of our situation to come to the Sudan for a first-hand accounting. We would also urge you to visit with the strongest critics of my government's policies in order to insure the most balanced view. Find out how many minorities have been and will continue to be a part of the national government, that the distribution of power within the National Assembly is not different from the distribution of our population, that women are treated equally and that Islamic Sharia laws are only applicable in the Northern parts of Sudan. Come and see for yourself who is violating human rights. We believe you will be surprised by the answers.

    D. We strongly urge appropriate authorities of the U.S. Government to help us bring those elements in our population who have not yet agreed to terms of peace and reconciliation to the negotiating table. Would it not be in the greater interests of peace and stability in the region for the United States to play a constructive role in supporting the Peace Treaty that we have reached recently, rather than the role of military aide supplier to rebel forces?

    Congressman Hamilton, as a foreign policy expert, you inevitably understand the need for stability in a region that has Nile waters, billions of barrels of crude oil reserves and the potential to become a major agricultural center producing food for the Horn of Africa. We are committed to making stability and improved external relations with our neighbors, protection of basic rights and countering the forces of terrorism the cornerstones of our foreign policy in the region. We are grateful for your offer to take these serious issues to the appropriate levels of your government. Your sense of fairness is an example eve can carry to the Sudanese people as the beacon of American ideals.
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    As we undertake this process, may I suggest regular communication with our State Minister for Foreign Affairs, Dr. Mustafa Osman Ismaeli. Our embassy in Washington can provide you with his details. You are, of course, welcome to communicate directly with me at any time you wish. We look forward to a new era of dialogue with America and to your visit here in Khartoum.

Sincerely,

Omer Hassan Ahmed El Bashir,
President of the Republic of Sudan.
   ———

    Mr. MCCOLLUM. I want to thank you and thank the entire panel for your comments.

    Ms. Almquist and Mr. Latham, I might say at the outset that, as far as humanitarian aid and hospitality services are concerned, I would be willing, and, I suspect, the members of this panel would be willing to make exceptions that would allow both of your interests to be served.

    It was my original intent when drafting this legislation with Mr. Schumer that we cut off U.S. dollars flowing to support terrorism. And, as money is fungible, there is no sense in having American investment in the countries that are indeed supporting terrorist state organizations or independent organizations training on their territories and so on. That is almost an amoral thing to allow to happen since we are cutting off the money coming here, which was from these states to people in the United States, presumably with possibilities that that money might be used for purposes that would be less than desirable on our part.
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    So I realize that these lines are not always clear. And I also realize that is why we gave a lot of discretion to the Treasury Department before, but it was abused—so now we are back here having to make these decisions ourselves.

    With that in mind, Ms. Mann, I want to ask you broadly to comment on what Mr. Ijaz just said. It seems to me that the two of you have fundamentally different perspectives from which you are reaching these points, and I am concerned. I don't want us to irreparably drive a wedge so we can't achieve the result that we want to, which is to get Sudan and other terrorist states to disavow the terrorist acts in the entities that are there.

    On the other hand, Ms. Mann, you have suggested even harsher remedies than we have proposed in this bill in terms of going forward to sanctions as, I presume, a method of trying to deal with these states. Would you comment on Mr. Ijaz's approach?

    Ms. MANN. Yes. But first I would like to point out that both Mr. Ijaz and I actually do not disagree over the fact that Sudan and Syriae actively support terrorism. I think is an important point that shouldn't be lost on this committee. However, we do disagree in terms of a strategy.

    I do not believe, and I have never seen any evidence, that Syria and Sudan would give up their firmly held and deeply rooted ideologies in support of terrorism if the U.S. just continues a dialogue with these regimes. I would argue also that part of these regimes instruments of actually staying in power is their support of terrorism and that these regimes are not going to give up the valuable instrument of terrorism for the promise of perhaps a little bit more money. I have never seen any evidence of that, and I don't believe it. We have had a dialog for some years with both the Governments of Sudan and Syria, where presumably these arguments have been brought up, and the prospect of more American business has been brought up—none of this has changed Sudanese or Syrian behavior significantly.
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    I would also argue that these countries would indeed be threatened by an economic opening. Many argue that one of the reasons why Syria was hesitant to follow through on a full peace agreement with Israel was the prospect of opening up Damascus to western and Israeli tourism, economic ventures and political ideas, which would threaten Syrian President Assad's grip on power. When authoritarian governments choose to have an economic opening, like in China, they face the very real threat that democratization will accompany that economic opening. This is a serious problem for authoritarian governments such as in Syria.

    I do not think diplomatic and a economic engagement is panacea for terrorism. I have never seen any evidence that terrorist-sponsoring countries, where the use of terrorism as a political instrument is part of their firmly held ideologies and means for staying in power, would change or give up terrorism for the prospect of perhaps some more money. Indeed I think these countries would see the prospect of Western-sponsored economic uberalization as a double-edged sword that could cut against their own grip on power.

    Mr. MCCOLLUM. But Mr. Ijaz seems to disagree with you and suggests that—I don't want to put words in his mouth—if we had this relationship based on economic incentives, and there is evidence that some of the terrorist-list states might change. Then we would have the changes that they are fearful we would have, the very fears you say would prohibit them from doing this. I know that is a chicken and the egg problem.

    Ms. MANN. With all due respect, Mr. Chairman, we have had a dialog with Syria and Sudan for years, we have had embassies in these countries for years, and we have been carrying on these kinds of conversations with them for years, and it hasn't worked. I am not saying that it shouldn't have been tried. I think it was worthwhile to have tried such an incentives-oriented engagement policy, very worthwhile, but it hasn't worked. One of the main reasons it hasn't worked is because our policy lacks strong disincentives—it's all carrots and no sticks—regarding Sudan and Syria. That is why I think closing sanctions loopholes and treating all terrorist countries the same, especially these two sponsors, Syria and Sudan, who give tactical support to terrorism, is very important. I don't think more of the same old strategy of all carrots and no real sticks, that hadn't worked is an appropriate solution to the problem of these states' support of international terrorism.
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    Mr. MCCOLLUM. Let me ask you a specific question or two in my time left here. In your written testimony, you of the things that you thought were also loopholes besides the financial transactions.

    Ms. MANN. Yes.

    Mr. MCCOLLUM. It is my understanding that there are tight prohibitions against doing business with terrorist states that normally apply only to transactions of the companies or entities owned or controlled by or action on behalf of a terrorist government and not with——

    Ms. MANN. That is right.

    Mr. MCCOLLUM [continuing]. A much larger number of companies or entities in which a terrorist state has an interest. In other words, the state might have a 30-percent interest in a company, and that would not be covered by this. Is there some interest that we could allow at all that—for example, in the Banking Committee where I serve with Mr. Schumer and a couple others on the Judiciary Committee, we are in the process of discussing what we call modernization and whether or not we should allow U.S. commercial banks to be able to be involved in business transactions of owning other commercial entities; in other words, mixing commerce and banking together. And there is a formula that some are supporting right now that would suggest it would not be against the public interest, or be less offensive, to allow, say, 15 percent investment or something of their assets in commercial entities or in ownership of a certain percentage of another business, if not the total ownership or so forth. There are all kinds of ways you can configure restrictions and restraints.
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    Would you suggest that we should prohibit any kind of activity with regard to entities that any ownership interest is in by one of these terrorist states, or could we come up with some formula like 15 percent or 10 percent or 20 percent and let it go at that?

    Ms. MANN. Well, I think it is important that we do look again at how we target front companies. As CIA Director-Designate George Tenet has recently testified also before Congress, this is becoming an increasingly difficult problem and increasingly more prevalent problem as terrorists become more sophisticated.

    I don't know if I would advocate a specific percentage, but I would draw your attention to the example that I also have in my written testimony of 103 banks and financial institutions that OFAC, the Office of Foreign Assets Control, has identified as being connected to Libya. These are companies that Libya can use for nefarious purposes. Of those 103, there are 75 which are open for business, open for U.S. business. That is the vast majority. So I would just urge you and your fellow Congressmen to look at the issue of front companies being used by terrorist-sponsoring states and pay special attention to it.

    I think it may be unhelpful to get into specific percentages as is the case now for designating a front company in terms of ownership and control, more than 50 percent. That allows for a vast amount of room for terrorist sponsoring countries to buy into and then use front companies for their activities.

    Mr. MCCOLLUM. You mean if a terrorist country owns any percentage of a business or bank, then that is a front company or subject to being intimidated into a position of being a front for that country's activities?
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    Ms. MANN. Well, I think that is what we would have to look at. I think we would have to see if a terrorist-sponsoring country has an interest in particular company and then see if it is being used by these terrorist states. It is hard to believe that even a very slight interest held in a company by, let's say, Libya would not be used at all by Libya for its own interests which include sponsoring terrorism. I think we need to pay particular attention to these front companies and vigorously target them.

    Mr. MCCOLLUM. It is just hard for us to legislate that way.

    Ms. MANN. I understand.

    Mr. MCCOLLUM. The State Department.

    Ms. MANN. I understand.

    Mr. MCCOLLUM. And all the discretion we are talking about comes into play here. They may or may not be doing it the right way.

    Mr. Schumer, you may be recognized.

    Mr. SCHUMER. Thank you, Mr. Chairman.

    I want to thank all of the witnesses. I apologize for being late. I just came down from New York.
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    I first want to just corroborate a point made by Mr. Ijaz think about the difference between Islamic fundamentalism and what he calls Islamic radicalism or terrorism. I think that is very important for all of us to do, because nobody wants to be in the position of bashing any particular religion. I have fundamentalists, I think, of all three of the great American religions in my district, and I understand the real differences.

    Having said that, I guess my first question to Mr. Ijaz is we have seven countries on this list. One is a largely Catholic country, Cuba. One is a country, North Korea, I don't know if they have a predominant religion, but I don't think it is Islam; what would be Buddhism and Confucianism, I am told, very fine religions, from the brief knowledge I have of them. But what I think we are trying to do in this legislation and in all of the antiterrorist legislation that has come up is try to separate actions from beliefs and try not to say just because someone is an X, they are more or less likely to be engaged in terroristic activities.

    Tell me how you think that either legislation like this or other actions by the United States leads to, quote, demonizing Islam as opposed to demonizing terrorism, which may be done by people of Islam, people of Catholic, people of Jewish, people of whatever.

    I remember one of the bills that I was active in labeled—which were both involved in—labeled a variety of groups, terrorist groups, on the group or groups like Hezbollah and Hamas and on the group—on the list also was a group called Chai, which is a militant Jewish group. And it struck me as very fair and very reasonable that once somebody crosses the line from advocacy to terrorism, which most of us would interpret to believe killing innocent men, women and children for political purposes, that we ought to come down harder. So I guess my first question is the question of terrorism and how going against terrorism per se demonizes Islam, if it does. You seem to say in the remarks it may.
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    Mr. IJAZ. Thank you, Mr. Schumer, Congressman Schumer.

    I think the way to look at these seven countries is the following: If you divide them into two categories, one are the countries that have Islam as a primary or a dominant, you know, form—system of government, philosophy, et cetera. And then the two that you describe as Confucian or Buddhist or Catholic, I would say that the overarching concern there is their Communist ideology. That is the real reason that we as America have looked very, very carefully at what it is that was going on in those particular cases.

    I will give you another example. It is not on the list, but came dangerously close. I think you asked the question earlier, Chairman McCollum, about—or maybe it was Mr. Barr—about other states that potentially came close to being on the terrorist list. My country of my heritage, Pakistan, was very nearly put on that list at one time.

    So what I see is the difference here is the following: That when you look at Libya, you look at Iran, and you look at Iraq, and you look at Syria, you have four countries in which you have effectively immovable dictatorial forces that are responsible for propagating the state sponsorship, if you will, of terrorism. In the Sudan, I believe that is the way it started. When Mr.—when President Bashir came to power, I believe, in fact, that is the way things started there.

    What I am suggesting is the difference in the case of Sudan is the following: That as of last year, as of the, quote-unquote, election—and I want to put that in very heavy quotation marks—I don't think that democracy exists in Sudan anymore than anybody else here does at the moment, but as of the election last year, you have now in every key government ministry and post that is of any relevance with regard to external relations of the Sudan a person who was educated in the West. Again, that is a very unique set of circumstances in a country that has been, you know, for so long ruled by what my colleague refers to as an ideolog, you know, ideologues and ideology in that sense.
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    So I would ask us to just keep in mind that there is, in fact, I think, a subtle difference. There is a process going on inside the Sudan in and of its own accord that I think requires and merits some very careful scrutiny on our part.

    Mr. SCHUMER. But that doesn't go to the point of demonizing Islam. Your basic thrust is a tactical point, as I understand it, that a better way to contain terrorism may be engagement as opposed to isolation.

    Mr. IJAZ. Exactly.

    Mr. MCCOLLUM. That doesn't deal with terrorizing Islam—I mean, demonizing Islam.

    Mr. IJAZ. Demonizing Islam.

    But here is the problem with the demonization of Islam, and that is that if you—again, you go down the list, over and over again, I mean, these are not small populations, whether it is Iran, whether it is Iraq, whether it is Libya, you know, and then the collateral damage in countries like Saudi Arabia; in other words, you cannot—maybe the Government doesn't sponsor terrorism in Saudi Arabia, but you are starting to see increasingly large amounts of the population wanting to move to the Islamic right, because they view what goes on here in the United States as being against Islam rather than against terrorism per se. We need to define our policy process in this country as against terrorism, not as against Islam as a religion. I think that is very, very important we state that difference.
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    Mr. SCHUMER. OK. Next point which Mr. McCollum touched on for Ms. Mann, and this is—I guess this is the fundamental question against our bill, and, obviously, I am an advocate of our bill, being cosponsor. What about the argument that—you have made the argument that discussion doesn't seem to work very well, and I am sympathetic to that based on the history that you site. On the other hand, the only time sanctions seem to me to have really worked is when the whole world does them—South Africa is the right case—and that when, unfortunately, our French or German or Italian allies rush in to fill the void that we may have left doesn't really do much good other than making us feel better, and that is a question I will get to in a minute. What is the answer there to you, that you would have, Ms. Mann, in regards to that?

    Ms. MANN. Well, I think multilateral sanctions have been effective.

    Mr. SCHUMER. Right.

    Ms. MANN. And we have seen that with Libya and Iraq in the Middle East in particular, which the State Department says——

    Mr. SCHUMER. Multilateral, I think everyone——

    Ms. MANN [continuing]. Are very important. But I think on the question of international terrorism, the United States must take a leadership position and has taken a leadership position in the cases of Iraq and Libya which led to multi lateral sanctions. The multilateral sanctions on Iraq and Libya wouldn't have been imposed without U.S. leadership there. To take a stand against international terrorism is a moral imperative, a strategic imperative, and for the United States a question of leadership.
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    I would also add a country where there aren't comprehensive multilateral sanctions, Iran. U.S. leadership against Iranian-sponsored terrorism has deterred international investment in Iran even without multi lateral sanctions. And, while I haven't done a conclusive analysis yet of the Iranian elections, we have seen a ''moderate'' for the first time since the 1979 revolution elected into office in Iran. And his election did not occur because we were talking to Iran and pouring investment into Iran. Instead, we took a leadership position there and made Iran pay a real economic price, which for its sponsorship of terrorism led to frustration there.

    So I think that sanctions, while more effective if they are multilateral can work unilaterally. As such a major player on the world scene, the United States has to take a leadership position on matters of our strategic and moral importance, like terrorism.

    Mr. SCHUMER. And it is your belief, for instance, that the lead unilateral sanctions that we proposed in Iran, admittedly not multilateral, have had an effect on changing the direction of the Government to some extent?

    Ms. MANN. I do. And I think in particular since the 1995 Executive Order by President Clinton, because before that we were still allowed to have some; U.S. oil companies were still to allowed to have some exports there.

    Mr. SCHUMER. Right.

    Ms. MANN. But since then I think we have in particular seen a change inside Iran. And I think our leadership is important. We have deterred investment by other companies as well. So the case that other companies are just going to rush in and take all of our business, I don't think that that argument has shown true in the Middle East, and Iran in particular. While there have been deals here and there, it has not been a massive race to invest and take over our business.
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    Mr. SCHUMER. Mr. Ijaz, given your knowledge of the Islamic world, do you agree with Ms. Mann's analysis of the situation in Iran? And I would just be interested knowing your view—to know your view of what is happening in Iran right now with the new elections. Is it an opportunity for the West, is it an opening, will the Government be better than the previous one in terms of terrorism?

    Mr. IJAZ. With all due respect to Ms. Mann, I do disagree with her analysis on Iran for the following reason: I think that what you are seeing throughout the Islamic world, and particularly in the radical states, is an internal implosion. They have failed on their own merits. In other words, the Iranian revolution was designed to try and bring the fundamentalism of Islam, if you will, back to the surface.

    The revolutionary fervor of the Islamic world is not going to end no matter what we do in this country. That is happening on its own merits, and it is a process that I think really cannot be controlled by any legislation that we would put in place. But what has happened in Iran is a realization that they went too far to the right, or, I am sorry, this way, to your right, to my left. Too far to the right. And in the process of doing that, they made a gross error in judgment about how long they would be able to stay in power. Just like the Saudis had gone, in my judgment, a little bit far to the left, they are now seeing that they have to come back to the right to be able to stay in power. Just as the Iranians went too far to the right, they now are seeing that they have to come back a little bit to the middle to be able to just maintain power, much less anything else.

    Now, the one other point I would like to make about constructive engagement, which is what I am advocating here in this process—I can't talk about it in open session, but I would be happy with either one of you gentlemen to talk about it in closed session in more detail—but there are things going on behind the scenes, much of it at my own initiation as a private citizen of the United States, between the Sudan and other Middle Eastern countries, including Israel, that, in my judgment, are very, very constructive elements of how you can take someone who is considered to be a rogue Islamic state and put them in a position to actually mediate with those fringes of Islam that we don't want to have anything to do with, nor do we understand, nor do we have the resources to go and find out what they are all up to, and at the same time bring them back into a more, you know, logical and rational position.
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    So I think there is this constructive engagement process that, if we were to advocate it, I think you would get the Sudan to actually help you to bring these radical Islamic states in line. I will give you a very concrete example. The rapprochement between Iran and Saudi Arabia was primarily mediated by Dr. Hassan Al Turabi, the de facto Islamic force in the Sudan. He is doing the same thing between Iran and UAE. You know, I mean, it is happening in many different components, and it is because the purist Islamic influence these people have.

    Mr. SCHUMER. Just one final question. Up to now, at least with the chairman's questions and mine, we have been debating tactics, assuming we all want to go after terrorism. But there is something else that bothers me here, and that is more or less a moral question.

    When I think of some of the acts that terrorists try to do, whether it is blowing up an airplane as over Lockerbie, Scotland, or blowing up the World Trade Center in my city, and I think of the horror wrench brought on the families there, it turns my stomach. It is beyond even the cold war spy versus spy and all of that kind of stuff that has gone on. And obviously we have some people in our own country trying to do similar things. We talk in the shadow of the trial of McVeigh.

    And Chairman McCollum and I have tried to do everything we can to eradicate terrorism at both levels. But if—and let's just assume this for the sake of argument, that the governments are either involved in the terrorism, as they are in some of these seven states, or at the very least not doing anything to clamp down on it, as they probably are in all of the seven, isn't there—and this is no Mr. Latham and Mr. Ijaz who took the contrarian position. Don't we sort of have—I mean, I find it morally almost repugnant to say, well, let's trade, let's give them economic rewards, let's include them in the family of nations.
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    It seems to me there is a line. Understanding that each state has its own interest, understanding that we in the United States are not the fount of all wisdom as much as sometimes we think we are, but when you step over that line and just murder, and that is what it is, civilians, in another country who are just going about their lives and having their families and everything else, that maybe we shouldn't deal with these—maybe the debate about tactically which is better is beside the point. Maybe there is just a moral issue here, and then you go to Ms. Mann's point that moral leadership is required, and maybe others fall into line.

    So I would like to ask, and I am sure both you gentleman, being conscientious folks, have thought about this: What is your answer to that type of question, which I think in part motivates me. I don't know if it motivates Bill, but it probably motivates the whole Congress when we go after this.

    So, Mr. Latham, you first, and then Mr. Ijaz.

    Mr. LATHAM. Thank you.

    The arrangement between Sheraton and the Government of Syria goes back to 1973. We are historically locked into this contract. Sheraton is very diligent in complying with all the regulations as enunciated by the prior panelists. We confer regularly with OFAC. As a company, and I am speaking, I guess, personally on this, I believe that what we are trying to accomplish is an important—when I say ''we,'' what the United States is trying to accomplish is important. I think the means may be somewhat misdirected in the sense that we should be going after terrorism as an activity. Any contracts, business relationships, any kind of commercial activity which furthers the growth of terrorism should be addressed not only by the United States, but by the United States bringing other countries with them in a unified approach to this.
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    If I am precluded as a company from operating my hotel in Damascus, within 24 hours there will be five other management companies from the rest of the world that are anxious and pursuing aggressively the opportunity to manage that hotel. My business is not terrorism-related. I am in a commercial activity where I provide a management service. I have no investment in that in that country. I bring no resources of a terrorist application to my process. I am simply a commercial corporation doing business on a worldwide scale.

    Mr. SCHUMER. What if, Mr. Latham, and I realize this is a difficult question, but what if you were persuaded or it seemed fairly persuasive that by you leaving Syria, by Sheraton leaving Syria, even another Western company should come in and manage the hotel, it might decrease the amount of activity that Syria would engage in in terms of worldwide terrorism? How would you face that kind of question then?

    Mr. LATHAM. We would look at it as a policy issue within our company. Personally I don't believe that that really would happen, but I think that you would find in examining Sheraton's performance on the world scale and reviewing that of ITT that we are good citizens.

    Mr. SCHUMER. Right. I have no doubt and I am not casting any aspersions on you. I am asking you here some theoretical questions to help us deal with the provocative questions that you and others have brought up.

    Mr. Ijaz, do you want to answer that?

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    Mr. IJAZ. I think you have raised probably the question that comes in the hierarchy of the importance of questions, that is the critical one. And I would answer it in the following way: If it can be determined that a particular type of activity is going to enhance a government's ability to sponsor or foster terrorist activities, we have to be, as Ms. Mann said, the leader of the world and clamping down on that. Whether the Germans go along with us or not, or whether the French go along with us or not is irrelevant. We have to do that.

    The problem is that you are increasingly starting to see these—with the globalization, the information age, the ability for Hamas, for the sake of argument, to operate from right here in the United States. Hamas has a more sophisticated network of operations here in the United States than they do in countries like the Sudan. I, by the way, have visited the Hamas office in Khartoum. It is a joke, to be very honest with you; it is a joke.

    So all I am suggesting to you is when we look at the moral imperative, what we have to think very, very carefully about is whether or not we are using a blunt instrument or whether we are using a fine ballpoint pen to write something that will actually stop on those lines where a government is, in fact, doing something that is wrong.

    That is why I have advocated, for example, moving our embassy back to Khartoum. The State Department, the CIA, all the other intelligence agencies in this country have stated on their own that there was no tangible reason—for moving it out—the information that they were given about moving the embassy out in the first place was wrong.

    One of the reasons that I have advocated that is because we would then know what is actually going on on the ground. One week a month or 3 days a month is not enough to know what is physically happening on the ground by meeting all of the various people to know what is actually going on in these countries. That is a critical part of our intelligence. A satellite cannot tell you whether or not a Sudanese farmer is a Hamas terrorist, but going around the countryside and physically seeing these people, talking to them in their languages, listening to these study groups that they get together and so forth, which I have done, to see who is really doing something wrong and who isn't, that is the engagement I am talking about. I am not willing to compromise on terrorism, I am just saying we have to be more surgical about the way we root it out.
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    Mr. SCHUMER. Thank you, Mr. Chairman.

    Mr. MCCOLLUM. Thank you, Mr. Schumer.

    I just want to follow up by making the observation to all of you that we are not interested in trying to overly micromanage it. And nobody here, including me, wants to have the appearance that we are somehow anti-Muslim or trying to use this in some manner to foster that impression. We are just the contrary. Terrorism is indeed what we are after.

    I could argue that the profits that are made by the Government of Syria from your hotel, Mr. Latham, could go to the support of a terrorist activity because all money is fungible, you know. They are hiring you. It is not your hotel. You don't own it. But somehow indirectly because of this contract, theoretically, maybe there is some benefit.

    I don't think that we are going to get into that kind of a type of operation here, as I said earlier. But the issue for us here is part of the fundamental question you raise, Mr. Ijaz, by putting a declaration of American policy in the statute that says, we are not going to let investment happen, investment in a way that really puts money into the country where the country is indeed putting support to terrorist organizations, whether or not that would in any way provide some leverage and some benchmark upon which the State Department and others could then say, look, this is the measuring device. You can come off the terrorist list altogether if you do X, Y and Z and cooperate with us on this, and then the investment can come in there. You are suggesting that that isn't going to work. Ms. Mann is suggesting that to let the open door policy go along isn't going to work. So we have to decide which way we are going to go, and I think most of us on this panel believe that some kind of a stick is necessary in this case. It is a carrot and the stick sort of thing.
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    And I certainly have been told by government officials of the Government of Sudan in my office fairly recently that they are more than willing to do X, Y, and Z and that they have done X, Y, and Z in the past. But I must tell you that some of the best sources that we have in our government say that, yes, as was openly said today, this was done, Y was done. But despite their saying X, it hasn't been done.

    Mr. IJAZ. Sure.

    Mr. MCCOLLUM. And the problem is that we do not wish to condone nor encourage in any way terrorism as a moral matter, but we also should be very pragmatic in trying to state clearly American policy, for the ambivalence of that policy itself has produced wars in the past.

    And if we can succinctly state this, clearly state this in terms of American business interest not being allowed to invest, if you will, in ways that will wind up encouraging or promoting or training terrorists or terrorist organizations, then that is where I think we have the obligation to do it.

    You call that moral, as Mr. Schumer says. Yes, it is moral. You call it practical, pragmatic diplomacy, I think it is. Diplomats like to have their hands free and don't want us telling them how to do it, and we understand that, too. But there is a line we have to draw. The Members will draw a very bipartisan line in the next few days with this legislation.

    Well, I want to thank all of you for coming. You have contributed immensely to this. As I have said, you helped us shape what we are going to do, and we appreciate very much your participation. This hearing is adjourned.
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    [Whereupon, at 12:30 p.m., the subcommittee adjourned.]

48–095 CC

1997
PROHIBITION ON FINANCIAL TRANSACTIONS WITH COUNTRIES SUPPORTING TERRORISM ACT OF 1997

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIME

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

ON

H.R. 748
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PROHIBITION ON FINANCIAL TRANSACTIONS WITH COUNTRIES SUPPORTING TERRORISM ACT OF 1997

JUNE 10, 1997

Serial No. 45

Printed for the use of the Committee on the Judiciary

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
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SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTH, New Jersey

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THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director

Subcommittee on Crime
BILL McCOLLUM, Florida, Chairman
STEVEN SCHIFF, New Mexico
STEPHEN E. BUYER, Indiana
STEVE CHABOT, Ohio
BOB BARR, Georgia
ASA HUTCHINSON, Arkansas
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina

CHARLES E. SCHUMER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey

PAUL J. MCNULTY, Chief Counsel
GLENN R. SCHMITT, Counsel
DANIEL J. BRYANT, Counsel
NICOLE R. NASON, Counsel
DAVID YASSKY, Minority Counsel

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C O N T E N T S

HEARING DATE
    June 10, 1997

TEXT OF BILL
    H.R. 748

OPENING STATEMENT
    McCollum, Hon. Bill, a Representative in Congress from the State of Florida, and chairman, Subcommittee on Crime

WITNESSES

    Almquist, Kate, policy analyst, World Vision Relief and Development, Inc.

    Ijaz, Mansoor, chairman, Crescent Investment Management, L.P.

    Latham, James D., senior vice president and general counsel, ITT Sheraton Corp.

    Mann, Hillary, associate fellow, Washington Institute for Near East Policy

    Newcomb, R. Richard, Director, Office of Foreign Assets Control, Department of the Treasury
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    Ramsay, William C., Deputy Assistant Secretary of State for Energy, Sanctions and Commodities, Bureau of Economic and Business Affairs, Department of State

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Almquist, Kate, policy analyst, World Vision Relief and Development, Inc.: Prepared statement

    Ijaz, Mansoor, chairman, Crescent Investment Management, L.P.: Prepared statement

    Latham, James D., senior vice president and general counsel, ITT Sheraton Corp.: Prepared statement

    Mann, Hillary, associate fellow, Washington Institute for Near East Policy: Prepared statement

Newcomb, R. Richard, Director, Office of Foreign Assets Control, Department of the Treasury:
Letter dated October 15, 1997 from Barbara Larkin
Prepared statement

    Ramsay, William C., Deputy Assistant Secretary of State for Energy, Sanctions and Commodities, Bureau of Economic and Business Affairs, Department of State: Prepared statement
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