Senate Cracks Down On US Businesses Dealing With Syria, Iran

Karen Matusic, Dow Jones Newswires:

The Senate approved on Tuesday legislation that strengthens penalties against U.S. companies doing business with countries deemed "terrorist states" by the U.S. government. READ MORE

An amendment sponsored by Sen. Susan Collins, R-Maine, approved as part of the Senate Defense Authorization bill, cracks down on any U.S. company to set up a foreign subsidiary in an attempt to avoid U.S. sanctions under the International Emergency Economic Powers Act (IEEPA).

"It prevents U.S. corporations from creating a shell company somewhere else in order to do business with rogue, terror-sponsoring nations such as Syria and Iran," Collins said in a statement.

"The bottom line is that if a U.S. company is evading sanctions to do business with one of these countries, they are helping to prop up countries that support terrorism - most often aimed against America," she added.

Current law doesn't specifically bar foreign subsidiaries of U.S. companies from doing business with terrorist nations as long as these subsidiaries are considered truly "independent of the parent."

There are reports that some U.S. companies have exploited this loophole in the law by forming and incorporating subsidiaries overseas for the specific purpose of bypassing sanctions laws that prohibit U.S. companies from doing business with nations that sponsor terrorism.

The amendment was worded in such a way to avoid hampering U.S. relations with allies by directing the IEEPA solely at the actions of U.S. parent companies and their employees, Collins said.

"The vote by the Senate today makes clear that U.S. corporations cannot circumvent the law to do business with terrorist states and strengthens the enforcement of this law," she said.

"At the same time, the legislation is carefully crafted to avoid unintended consequences that will harm our relations with our international allies."

A host of industrial and foreign trade lobby groups viewed Collins's amendment as a more attractive alternative to one put forward by Sen. Frank Lautenberg, D- N.J., that would have applied U.S. unilateral sanctions law extraterritorially to foreign subsidiaries of U.S. companies.

In a letter signed by the Coalition for Employment through Exports, Emergency Coalition for American Trade, National Foreign Trade Council, USA*Engage, U.S. Council on International Business and the U.S. Chamber of Commerce, senators were told that the amendment would "greatly strain relations with the United States' primary trading partners, and should be opposed."

"Extraterritorial measures irritate relations with the very nations the U.S. must secure cooperation from to promote multilateral strategies to fight terrorism and to address other areas of mutual concern," the groups said in the letter.

"Foreign governments view U.S. efforts to dictate their foreign and commercial policy as violations of sovereignty, often leading them to adopt retaliatory measures more at odds with U.S. goals," it added.

Lawmakers have cited subsidiaries of Halliburton Co.(HAL), ConocoPhillips ( COP), Cooper Cameron (CAM) and General Electric Co. (GE) as among the companies doing business with nations on a U.S. government list of states accused of sponsoring terrorism. All companies have since broken any ties with Iran.

-By Karen Matusic, Dow Jones Newswires; 202-862-9241; Karen.Matusic@ dowjones.com