- The Washington Times - Monday, July 25, 2005

The recent bombings in London and Egypt confirming the vulnerability of even relatively vigilant societies to Islamofascist terrorism raise a question: Are we serious about fighting this menace with every means at our disposal?

A test of the U.S. Senate’s seriousness will be offered as soon as today. Senators will be asked to choose between two amendments to the defense authorization bill (S 1042) bearing on one of this country’s most powerful and yet largely unutilized tools: Denying U.S. investment capital, technology and other commercial benefits to state-sponsors of terror.

To be sure, successive administrations have imposed economic and trade sanctions on terrorist-sponsoring states like Iran, Libya, Sudan, Cuba, Syria and North Korea. Existing law — notably, the International Emergency Economic Powers Act (IEEPA) — grants the president authority to bar U.S. companies from doing business with nations that do business with terrorists.

Unfortunately, there is a loophole in the law, a loophole some U.S. firms have used to circumvent and undermine U.S. sanctions. By establishing an offshore subsidiary, these companies have engaged in commerce with sanctioned states though the parent is prohibited from doing so.

In some cases, the affront to the letter and spirit of the law has been egregious. Fronts with little more than an offshore post office box are created to do end-runs around official efforts to stem the money flow to those trying to kill us.

This practice has properly inspired bipartisan outrage in the Senate. Last week, two senators — Frank Lautenberg, New Jersey Democrat, and Susan Collins, Maine Republican and chairman of the Senate Governmental Affairs Committee — expressed incredulity and anger at this flouting of the law and outdid each other offering amendments to end it.

Mr. Lautenberg said: “President Bush has made the statement that money is the lifeblood of terrorist operations. He could not be more right. Amazingly, some of our corporations are providing revenue to terrorists by doing business with these rogue regimes. My amendment is simple. It closes a loophole in the law that allows this to happen, that allows American companies to do business with enemies of ours.”

Mrs. Collins declared: “The allegations are that these foreign subsidiaries are formed and incorporated overseas for the specific purpose of bypassing U.S. sanctions laws that prohibit American corporations from doing business with terrorist-sponsoring nations such as Syria and Iran. There is no doubt that this practice cannot be allowed to continue. … The examples we have heard, where American firms simply create new shell corporations to execute transactions they themselves are prohibited from engaging in, are truly outrageous.”

If the two senators share a determination to stop U.S. companies from using foreign subsidiaries to engage in such “truly outrageous” behavior, they part company over how to do so. The Lautenberg amendment would explicitly amend IEEPA to ensure foreign subsidiaries controlled or 51 percent or more owned by American businesses are bound by the same sanctions regimes as the parent companies.

Citing State Department concerns about the effect such an “extraterritorial” extension of U.S. law would have on American foreign investments and this country’s relations with its allies, Mrs. Collins offered an alternative to the Lautenberg language. The amendment would penalize individuals or entities who evade IEEPA sanctions — if they are “subject to the jurisdiction of the United States.” This merely restates existing regulations.

The problem is that, in purportedly closing one loophole, this provision would appear to create new ones. As Mrs. Collins told the Senate: “Some truly independent foreign subsidiaries are incorporated under the laws of the country in which they do business and are subject to that country’s laws, to that legal jurisdiction. There is a great deal of difference between a corporation set up in a day, without any real employees or assets, and one that has been in existence for many years and that gets purchased, in part, by a U.S. firm.”

It is a safe bet every U.S. company foreign subsidiary doing business with terrorist states will claim it is one Mrs. Collins would allow to continue enriching our enemies, not one prohibited from doing so. If the Senate is serious about closing this loophole, it must adopt the Lautenberg Amendment.

The Lautenberg amendment will not, by itself, win the war on terror. It is evidence of our seriousness, however. Flouting American law in ways that undermine the financial front in that war is not only, as Mrs. Collins puts it, “outrageous”; it is hazardous to our health. And, as the most recent attacks in Europe and the Middle East underscore, not just our health but that of others — including those in whose countries such foreign subsidiaries operate.

Adopting the Lautenberg amendment will have another salutary effect. It would require the Securities and Exchange Commission to ensure shareholders are made aware if publicly traded companies own at least 10 percent of a foreign company doing business in violation of U.S. sanctions on state-sponsors of terror. Such transparency would let American investors demonstrate their seriousness about this war, too, by divesting stocks of companies that partner with our enemies.

Frank J. Gaffney Jr. is President of the Center for Security Policy and a columnist for The Washington Times.

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