National Defense Authorization Act for Fiscal Year 2006
NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2006 -- (Senate - July 26, 2005)
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Ms. COLLINS. Mr. President, the Senator from New Jersey has shed much needed light on a disturbing problem, and that is the improper use of foreign subsidiaries by U.S. firms to conduct business in certain rogue nations where they might otherwise be barred from doing business by U.S. sanctions laws.
Like the Senator from New Jersey who has been a real leader on this issue, I have been very disturbed to read of allegations that foreign subsidiaries of some of the best known American corporations have been conducting operations in countries such as Iran and Syria, even though U.S. sanctions laws prohibit their U.S. parents from doing so directly. There are allegations that some of the subsidiaries in question are not even real companies but, rather, they are shell corporations that were created just for the purpose of evading the law.
These reports highlight that our sanctions laws are not as tough and as effective as they should be. In seeking a solution to this problem during the past year, I have consulted extensively with the Treasury Department, the State Department, and other experts. It turns out to be very complicated and presents a technical set of legal and foreign policy issues to accomplish the goals that both the Senator from New Jersey and I share.
Let me try to frame the choice that is now before our colleagues.
We have before the Senate two proposals designed to extend the reach of U.S. law, specifically the International Emergency Economic Powers Act, or IEEPA, to cover companies doing business with countries covered by U.S. sanctions laws.
Let me explain what my proposal would accomplish. It does four things. First, it would extend IEEPA to prevent U.S. companies from trying to evade the law by moving operations overseas.
Second, my amendment would prohibit U.S. companies from approving, facilitating, or financing actions that are illegal under IEEPA.
Third, it ratchets up the penalties for violations of the law from $10,000 per civil violation and $50,000 per criminal violation to $250,000 and $500,000 respectively.
And fourth, it ensures that the Treasury Department has the subpoena power it needs to enforce the new sanctions.
Let me explain what it would not do. Most important, my proposal would not jeopardize our working relationships with key allies by attempting to assert U.S. jurisdiction on companies that operate and are incorporated elsewhere.
Second, it will not provide yet another incentive for American companies to move their jobs overseas through corporate inversions.
These are the main problems with the approach of my colleague from New Jersey. Again, I emphasize that I share the same goal as my colleague from New Jersey, and I salute him for focusing much needed attention on a very real problem.
Let me explain further. My colleague's amendment attempts to impose sanctions on businesses operating and incorporated in foreign countries. So, for example, if a U.S. firm has a subsidiary in Great Britain, my colleague's amendment proposes to extend U.S. law to that subsidiary, even if U.S. law is inconsistent with British law.
This is a dangerous and imperious approach to foreign policy. If other countries tried to impose similar rules on us, imagine how we would respond. For example, imagine if Saudi Arabia tried to impose criminal and civil penalties on a Saudi firm's U.S. subsidiary operated and incorporated under the laws of our country because that firm was doing business in Israel, or imagine if Germany attempted to impose sanctions on a German firm's American subsidiary, again operating here under our laws and regulations, for not meeting German labor laws that are inconsistent with our laws.
Moreover, my colleague's amendment would create the perverse incentive for American firms to invert or move overseas in order to avoid the onerous and extraterritorial application of our sanctions laws. We must not choose that path.
There is a very real problem here with some American companies exploiting an exception that is in the current law, but I believe that the proposal I have advanced would greatly strengthen our laws, would provide new tools for enforcement, and would enormously increase penalties for violations.
It would make crystal clear that a U.S. company is prohibited from in any way approving, facilitating or financing actions of a subsidiary that would be illegal under the sanctions law.
I reserve the remainder of my time.
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Ms. COLLINS. Mr. President, again I commend the Senator from New Jersey for focusing attention on what is a very real problem, and that is that the current law is not tough enough and there are reports that subsidiaries of some very well-known American corporations are doing business in states where U.S. sanctions laws apply. But I think when you deal with this area, you need to be very careful to not craft a proposal that has unintended consequences.
Moreover, my colleague's amendment does not do what the Treasury Department's Office of Foreign Asset Control, OFAC, has specifically named as the legislative step that would be of most benefit to them, and that is substantially increasing the penalties in the current law.
My proposal would do that. Senator Lautenberg does not include increases in the penalties.
In addition, my proposal explicitly grants the Treasury statutory subpoena power to ensure that it has all of the enforcement tools it needs.
But let me go back to the underlying issue. The Collins amendment would be very specific in barring any action by a U.S. firm in approving, facilitating or providing financing for any action by its foreign subsidiary that would be unlawful for the parent company to engage in.
It would also prevent U.S. companies from evading the law by setting up a subsidiary overseas, a shell corporation. So I think the proposal that I have set forth greatly strengthens the current law.
We do not, however, want to create a perverse incentive that would encourage American companies to invert and reincorporate overseas, and I fear that could well be the result of the amendment of Senator Lautenberg.
I am concerned about something else, and I have given these examples. We don't want to open the door to foreign governments trying to impose on the American subsidiaries of firms incorporated in their countries, their countries' laws.
Let me give the example again. What if the Saudi Government tried to impose a restriction on doing business in Israel on the American subsidiary of a Saudi firm? We would be outraged about that.
This proposal raises many complex technical questions, and that is why the Treasury Department and the State Department have urged caution and much prefer the approach embodied in the Collins amendment.
I reserve the remainder of my time.
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Mr. LAUTENBERG. I appreciate that clarification.
I ask the Senator from Maine, under your amendment, is it possible for a foreign subsidiary owned and controlled by a U.S. company to do business with Iran?
Ms. COLLINS. Mr. President, if the Senator would yield from his time, I would be happy to answer that question.
Mr. LAUTENBERG. I respect the Senator from Maine and do allow time for an answer, if it is a short answer, please.
Ms. COLLINS. Mr. President, under my amendment, it is very clear that an American parent could not in any way be involved in a subsidiary's decision to do business in a prohibited nation. It could not approve it. It could not facilitate it. It could not direct it. It also could not set up a subsidiary for the purpose of evading the law.
Mr. LAUTENBERG. If the Senator would yield for a question on my time. Can a subsidiary do business with Iran?
Ms. COLLINS. The subsidiary could not do business if it were in any way directed to do so, approved, financed, in any way, by the American parent. The language is very clear on that.
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