Sen. D’Amato’s Committee Serves Notice On Those Who Aid And Abet U.S. Adversaries: No Fund-Raising On American Markets
(Washington, D.C.): The Senate Banking
Committee made history today. Under the
leadership of its Chairman Alfonse
D’Amato (R-NY), the Clinton
Administration, U.S. investment bankers
and other financial institutions — both
public and private sector — and foreign
governments were warned by Senator after
Senator: Those in violation of
U.S. sanctions law or who engage in other
activities inimical to American national
security interests will be denied, in
Sen. D’Amato’s words, the
“privilege” of raising capital
in this country’s markets.
Similar notice was pointedly served on
American governmental mechanisms — e.g.,
the U.S. Export-Import (ExIm)
Bank and the Overseas Private Investment
Corporation — engaged in
underwriting or guaranteeing loans to
U.S. suppliers doing business with
foreign offenders.
Chairman D’Amato described the purpose
of the Banking Committee’s hearing on the
violation of the Iran-Libya Sanctions Act
(ILSA) by France’s Total, Russia’s
Gazprom and Malaysia’s Petronas in the
following terms:
“This morning the committee
will examine whether foreign
companies engaged in activities
that are in violation of U.S. law
and policy against terrorism and
nuclear proliferation should
receive financial support from
U.S. government entities like the
Export-Import Bank or enjoy the
privilege of raising private
capital in our financial
markets.”
Sen. D’Amato hoisted the Clinton
Administration on its own petard when he
quoted former Under Secretary of
State for Policy Peter Tarnoff
as saying in November 1995 — when the
Banking Committee was first considering
legislation that became the Iran-Libya
Sanctions Act: “A straight
line links Iran’s oil income and its
ability to sponsor terrorism, build
weapons of mass destruction, and acquire
sophisticated armaments. Any government
or private company that helps Iran to
expand its oil must accept that it is
contributing to this menace.”
‘Let’s Not Kid Ourselves’
With characteristic directness, Sen.
D’Amato described the decision before the
United States with respect to the
prospective $2 billion
Gazprom-Total-Petronas deal to develop
Iran’s offshore South Pars gas field:
“Let’s not kid ourselves. We
understand that there are
those commercial interests who
put on the back shelf the
national interest and security of
this country…and turn
a blind eye towards aggression,
towards the terrorist activities
which Iran has sponsored and
continues to sponsor.“The Iranian-Libyan
Sanctions Act was enacted
specifically to prevent this from
happening. It was
enacted with the administration’s
full support. Now with this
blatant violation, I believe the
administration has a moral and
legal responsibility to enforce
the provisions.”
D’Amato’s Recommendations
Sen. D’Amato declared, “as a
first step, all Export-Import
financing for Gazprom should be stopped
immediately.” Then, he
identified the next area for attention —
and action: “Gazprom’s
proposed billion dollar bond
offering” scheduled to come to
market next month:
“Should foreign companies
engaged in activities which
violate U.S. laws and undermine
our policies be allowed
unrestricted access to our
capital markets? Should Russian
companies that are providing
missile aid to Iran or financing
gas deals with them be able to
seek financing in our markets or
activities which threaten our
national security? Should the
United States just sit back and
allow Gazprom to do business as
usual?“I don’t believe so.
Gazprom should not be entitled to
do business on the basis that all
is well and that we have an
unrestricted free capital market,
because the fact of the
matter is that their conduct is
in blatant violation of our
law….“The U.S. has a strong and
solid tradition of free and open
markets, which I support. But our
markets must not be misused by
rogue terrorists. And that’s what
the legislation has provided for.
I don’t believe that we should
help finance their immoral
activities against us and other
civilized nations. The
Iran-Libyan Sanctions Act
provides that the United States
may impose, and indeed restrict
U.S. financial institutions from
making loans above $10 million to
any of the sanctioned countries.”
Enter Mitch McConnell
The hearing’s lead witness was Senator
Mitch McConnell (R-KY), chairman
of the powerful Senate Appropriations
Subcommittee on Foreign Operations. Among
the many highlights of Chairman
McConnell’s testimony were the following:
“There’s no question this
deal strikes to the heart of your
bill [the Iran-Libya
Sanctions Act], Senator D’Amato.
The proof is Tehran’s reaction.
According to the Iranian news
agency, the agreement calls our
bluff and represents a ‘moral
victory because world public
opinion, especially in Europe,
has taken a firm line against the
U.S., particularly with the
extraterritorial business of the
Act. This is the most valuable
aspect of the deal for us.’
That’s Tehran’s reaction.“Mr. Chairman, let me
emphasize that last point. Two
billion dollars isn’t enough for
Iran, it’s a victory over U.S.
law, the direct attack of
American interests that
Tehran values.“Let me turn to Gazprom’s
deal in Iran. Critics argue that
it is short-sighted to cut off
ExIm’s line of credit. There is
no question Gazprom could
eventually find alternatives to
U.S. suppliers. However, there is
also no question they would
compromise on American quality,
experience, and the ready
financing available under the
1994 MOU [with ExIm Bank]. Let’s
not forget, foreign investment in
Russia has been a flat line.
Official corruption, crime, and
weak legal and banking
institutions have been huge
deterrents. Gazprom’s 30 percent
share of an estimated $2 billion
investment clearly surpasses the
threshold established by law.“In a related area, I’ve
pressed the administration for
three years to use our AID
program and to take decisive
action against a growing
Russian-Iranian relationship in
the area of nuclear and ballistic
missile technology. I am deeply
disappointed in the
Administration’s reluctance to
aggressively tackle this issue.
However, it’s only fair to
acknowledge the problem
is in Moscow, where there is a
clear national security policy to
strengthen ties to Tehran.“With little evidence of
Russian interest in terminating
nuclear cooperation, I have a
hard time believing the Kremlin
will take any action which could
compromise the money-making
potential of this gas deal.
Russia’s irresponsible, if not
dangerous, alliance with Iran
should not compromise our policy
or the principal interests we
have at stake. U.S. Export-Import
Bank must serve those interests.
Let me be very clear here: the
Bank’s good standing is at stake.“Senator D’Amato, the
message of the day is simple: We
know Iran is aggressively
pursuing a nuclear weapons
program. U.S. agencies
and institutions should not
underwrite companies willing to
generate profits for Tehran to
buy or build that bomb.“
Senator McConnell noted in the
hearing that he had sent the Chairman of
the U.S. Export-Import Bank, James
Harmon, a letter on 22 October 1997. In
it, he forcefully told Mr. Harmon (who
also testified before the Banking
Committee today):
“I believe the Bank should
immediately suspend all pending
transactions involving Gazprom
and should not agree to any
further financing unless the
contract with Iran is terminated.
I will offer language in the
Foreign Operations conference to
be included in the Statement of
Managers reflecting this
position. There is no question
that Gazprom’s operational
capabilities are enhanced by U.S.
exports which could directly
improve the efficiency and
productivity of Iran’s fields.
This is absolutely unacceptable.
Moreover, I want you to
understand that I will take
whatever steps are necessary
consistent with the procedures
outlined in your September letter
to oppose the provision of
financing, given my view that oil
production falls into the
category of supporting a surplus
commodity….“I do not wish to
see congressional support for
your activities compromised
because you have financed
transactions which many believe
not only violate the intent of
ILSA, but also represent a threat
to U.S. national security
interests.”
(Emphasis added.)
Enter Sam Brownback
Sen. D’Amato credited Senators
Sam Brownback (R-KS) and Jon
Kyl (R-AZ) with catalyzing this
morning’s session on an expedited basis.
The former, who chairs the Foreign
Relations Committee’s Near Eastern and
South Asian Affairs Subcommittee,
continued his strong leadership in this
area by contributing to the
history-making character of the Banking
Committee’s hearing. Particularly
noteworthy were the following among his
remarks:
“I think this deal is
something we have to stand up and
speak out about. The
[Gazprom] bond offering would
essentially result in U.S.
investors funding activities
which pose serious threats to
U.S. national security interests.
And I can’t put it any blunter
than that. You’ve put it
as well that way, as has Senator
McConnell. This is something
which I believe we must examine
closely.“Now, I’d like to say right
at the outset that this is not a
case of being out to get Russia
or to prevent U.S. companies from
doing business with Russia. That
is not the intent at all. Gazprom’s
investments in Iran and Libya,
however, and its attempts to fund
these activities on the U.S.
market are a matter of national
security and one which, if
nothing else, needs to be brought
to the attention of the American
people who might invest in these
companies. We’re talking
about U.S. investors in Iran and
Libya via Gazprom.“Gazprom is a
centerpiece of Russian hard
currency earning structure and is
very closely linked to the Old
Guard Russian leadership.
It continues to be a major
instrument in the Russian
economic monopoly — as the
embargo on Turkmen gas
illustrates so well. And I had
the ambassador from Turkmenistan
in my office just this week
stating that again to me. It’s
also a bone of contention between
the Old Guard and the young
reformers in Russia, who are
trying to privatize the monolith.
However, Gazprom is short
on the cash it needs to get the
South Pars project up and
running. And in an act of sheer
gall, the company is planning to
get U.S. investors to pay for
this by selling convertible bonds
on Wall Street.“Though Gazprom claims the
funds will be raised and go
towards other projects, the fact
is that the income will free
up cash for South Pars. This
convertible bond — as well as
others planned in the amount of
some $6 billion [over the next
two years] — will ensure that
Gazprom is able to continue with
impunity its activities, some of
which pose serious threats to
U.S. national security interests.
Such bonds will also
provide the company with new
investors who will have a vested
financial interest in opposing
sanctions or international
penalties in the future.“Essentially, the matter
boils down to this: Should
American investors fund Iranian
ballistic and nuclear missile
development? And of course the
answer is ‘No.’ And yet
that is essentially the deal that
Gazprom will be offering to
unsuspecting American investors
when it launches its bond next
month.“Shouldn’t American
investors be aware that they
might be investing in a company
which is contravening U.S. laws? Should
the U.S. government be financing
the violation of our own laws?
Again, the answer is clearly ‘No’
— yet taxpayers
dollars are going to underwrite
guarantees of commercial loans
for Gazprom.“Finally, if investment in
Iran were not enough, it was
announced at the end of last week
that the Russian-Libyan
Inter-governmental Commission had
agreed … in principle to
‘participation by Russian
organizations in carrying out a
number of projects in Libya
in the sphere of power industry,
communications, transportation,
oil and gas extraction and the
construction of gas pipelines and
other infrastructure facilities.’
Gazprom strikes
again.“The time
has come to provide full
disclosure about the companies in
which Americans will be investing
their hard-earned money. We
should not stand by and watch
U.S. security firms, pension
funds, insurance companies,
corporations, personal investors
and others provide unconditional
cash to an enterprise that is
engaging in activities that could
compromise U.S. national
security. U.S. investors
should get the full story on
Gazprom’s activities before
helping to finance Iran’s nuclear
arsenal. And companies like
Gazprom, which engage in
activities harmful to the United
States, cannot and should not
expect the privilege of raising
funds in our markets.”
Enter Lauch Faircloth
Sen. Brownback’s testimony prompted Sen.
Lauch Faircloth (R-NC), Chairman
of the Banking Committee’s Subcommittee
on Financial Institutions and Regulatory
Relief, to broaden the lense further
still:
“…A Russian
state-owned firm is insulting the
U.S. by openly defying our
sanctions laws against Iran.
Then they come to Wall Street
saying, ‘Can we use your deep
pockets to help us finance this
deal?’ Well, Wall Street’s deep
pockets are simply the mutual
funds and pension funds of this
country. Why should America’s
small investors and retirees
finance the development of Iran’s
natural gas reserves? And when it
boils back down to it, that’s
exactly who’s doing it.“When I see these kind of
absurd things going on, it
reminds me of the old phrase the
Communists put in themselves: ‘Give
them enough rope and they’ll hang
themselves.’ And we’re trying.“Why should we finance
projects for our enemies? I
cannot understand anybody with
any common sense wanting to be
part of this deal. I
think Wall Street should say ‘No’
to the deal, and if they do not, then
I think we should block it by
legislation.“Mr. Chairman, let me also
add that this is also
part of a bigger problem, that is
the foreign influence in our
securities markets by governments
and companies connected to
governments. They’re
issuing bonds left and right. Last
week, I introduced a bill [S.
1315] to create an Office of
National Security at the SEC
[Securities and Exchange
Commission] to monitor this kind
of bond offering. I am
particularly concerned about
China and companies that are
directly connected to the Chinese
government and the Chinese army.
Billions of dollars worth of
those bonds are flooding into our
market. I plan to look at the
Chinese aspect of this bond issue
next week.”
Enter Chris Dodd
Even one of the Banking Committee’s ranking
Democrats, Sen. Chris Dodd
of Connecticut was moved to associate
himself with his Republican colleagues —
specifically, Chairman D’Amato and Senator
Bob Bennett (R-UT), the latter
of whom had cited approvingly Sen.
McConnell’s words and a recent newspaper
headline that said “The Evil Empire
is Alive and Well and Its Headquarters
Are in Tehran.” Sen. Dodd went on to
add:
“I’m not opposed to my
country standing alone. We did
for a long time on South Africa.
It was virtually — for many
months it was the United States
that was moving. And many said,
‘Look, you’re going to stand
alone on this.’ Ultimately, we
were on the right side of
history. Others joined us. And
I think we’re on the right side
of history on this issue.”
Watch This Space
It is predictable that the Clinton
Administration will attempt to respond to
this historic and withering expression of
bipartisan opposition with a gambit of
proven effectiveness: the
slow-roll.
Convinced that its assiduously promoted
“strategic partnership” with
Russia hangs in the balance and that
relations with Europe are already
stressed out with Helms-Burton and
charges of U.S. extraterritoriality, the
Administration no doubt sees the
necessity of forestalling — and
ultimately eliminating — this
“threat to key alliances.”
Specifically, the Clinton team plans
to take full advantage of the provisions
of the Iran-Libya Sanctions Act that
allow the executive branch, at the
President’s direction, to take as
much as 180 days to react to
violations. By delaying the start of that
180 day period for as long as possible,
the clock leading to sanctions will not
be started. The Administration cynically
calculates that, with Congress in recess
over the next few months, critical
attention will wane and pressure for
action like that discussed by Senators
today will dissipate.
In the end, the Clinton
Administration will try to package
“assurances” from the
governments of the companies involved in
the Total consortium with Iran that they
will redouble their efforts to halt
missile technology sales to Iran and
other transfers of weapons of mass
destruction. Just as China has
gotten Presidential approval for its bid
to purchase U.S. nuclear reactors on the
basis of such fatuous and empty
“assurances,” this newest
package will be presented as an effective
substitute for direct U.S. sanctions
against these foreign enterprises. In
fact, it will amount to nothing less than
a waiver of any serious ILSA sanctions.
The Bottom Line
To understand where this will end, one
need look no further than Saddam
Hussein’s latest spittle in America’s
eye. Following the latest, intensive
effort by Russia and France (and China)
to undermine the U.N. sanctions regime
against Iraq, Baghdad perceived a
fractured coalition that would not resist
his long-awaited breakout, starting with
the expulsion of all U.S. inspectors from
Iraqi territory.
The message should be clear: The
Senate must not leave town without
establishing the following:
- The Administration’s
“slow roll” strategy
will not be tolerated
and that a Presidential
determination that ILSA is being
violated by the Total consortium
should be made forthwith. - No package of
“assurances” will be
allowed to substitute for the
clearly required, tough and
direct sanctions against Total,
Gazprom and Petronas — in
the case of Gazprom, including
access to U.S. capital markets. - There must be no
further disbursements under ExIm
Bank loan guarantees to Gazprom
— including those already
approved by ExIm’s Board but not
released by commercial banks. - The President should be
called upon to use any measures
necessary, including his
authority under the International
Economic Emergency Powers Act
(IEEPA), to prevent Gazprom from
going forward with the $1 billion
bond offering it is expected to
issue in the U.S. market in the
near future.
– 30 –
1. Evidence of
this strategy was on display in the
course of this morning’s hearing: The
State Department’s representative —
Deputy Assistant Secretary of State for
Energy Resources and Economic Sanctions
— took the astonishing, if not
unprecedented, step — presumably under
instructions from his superiors — of
leaving the witness table after he
finished reading his prepared statement
and initially declined to respond to
questions. Only after Chairman D’Amato
insisted that he return and answer
questions that would obviously not
require answers involving classified
information did Secretary Ramsey address
Senatorial concerns.
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