SEN. SARBANES: The committee will come to order. The Banking, Housing & Urban Affairs Committee meets this morning to hear testimony with respect to the reauthorization of the Iran-Libya Sanctions Act, commonly known as ILSA. This act, which was passed by Congress in 1996, expires on August 5th of this year. And therefore, we face an immediate reauthorization question.

I'd like to note for the record that there's strong support in the Congress for the reauthorization. Seventy-seven senators have co- sponsored such legislation, led by Senators Schumer and Smith, who are to appear before us shortly. In the House of Representatives, the International Relations Committee on 20th June passed a five-year reauthorization of ILSA, including in it a strengthening of the Libyan component. That came out of the committee on a vote of 41-3.

ILSA was enacted in 1996 in response to Iran's support for terrorism, its pursuit of weapons of mass destruction. Concerning Libya, ILSA was enacted to compel the regime in Tripoli to abide by all of the U.N. Security Council resolutions concerning the bombing of Pan Am 103 flight. ILSA requires the president to impose two out of a list of six sanctions against foreign firms that invest in the energy sectors of Iran and Libya respectively.

It should be noted that under the terms of ILSA, its application would end to Libya if the president of the United States determined that Libya had fulfilled all U.N. Security Council resolutions relating to the bombing of Pan Am 103. For Iran, ILSA would terminate if Iran ceases its efforts to acquire weapons of mass destruction and is removed from the State Department's list of state sponsors of terrorism. ILSA does contain a presidential waiver for U.S. national interest reasons or if the parent country of a violating firm agrees to impose economic sanctions on Iran.

Let me just briefly turn to each country. The latest State Department report, "Patterns of Global Terrorism," states, and I quote -- the State Department, now -- "Iran remained the most active state sponsor of terrorism in 2000. Its Revolutionary Guard (core?), ministry of intelligence and security, continued to be involved in the planning and execution of terrorist acts and continued to support a variety of groups that use terrorism to pursue their goals."

Iran is also stepping up its efforts to acquire weapons of mass destruction. The latest unclassified CIA report to Congress on worldwide acquisition of weapons of mass destruction notes, quote, "Iran remains one of the most active countries seeking to acquire weapons of mass destruction and advanced chemical-weapons technology from abroad. In doing so, Tehran is attempting to develop an indigenous capability to produce various types of weapons -- chemical, biological and nuclear -- and their delivery systems," end of quote.

As for Libya, it has fulfilled only one aspect of the U.N. Security Council resolutions relating to the Pan Am 103 bombing, handing over suspects for trial. It has not fulfilled the requirement to pay compensation for the families of the victims, to accept responsibility for the actions of its intelligence officers, and to fully renounce international terrorism. In fact, on April 19th, President Bush stated, and I quote him, "We've made it clear to the Libyans that sanctions will remain until such time as they not only compensate for the bombing of the aircraft but also admit their guilt and express remorse."

Because Iran and Libya have clearly not fulfilled the requirements of the ILSA legislation, I think to terminate these sanctions would send the wrong message. And therefore, I support reauthorizing this legislation. Just last week, indictments were handed down by our Justice Department in the Khobar Towers bombing case in which 19 of our airmen in Saudi Arabia were killed in 1996. The attorney general, Attorney General Ashcroft, stated publicly at the time that Iranian officials, quote -- I'm now quoting the attorney general -- "inspired, supported and supervised members of Saudi Hezbollah, which carried out the attack."

We've delayed the hearing this morning, I think, as everyone knows, because there were votes on the floor of the Senate. I hope that does not create any inconvenience. We have, I think, a very good panel of witnesses that we're going to be hearing from this morning. First we're going to hear from the two original co-sponsors of the legislation, our colleagues, Senator Schumer and Senator Smith. Then we will go to a panel that will include two witnesses from the State Department, and then we'll go to a second panel, which includes a number of people from the private sector that we're looking forward to hearing.

With that, I'll turn to my colleagues for their statements. Senator Miller, did you have an opening -- no, all right. Senator Smith, I think I saw you come in first, and why don't we proceed in that order?

STATEMENT OF

GORDON SMITH
A Senator from Oregon

SEN. SMITH: Thank you, Mr. Chairman. This bill truly may be one where, as our nation pursues its national interests, we may be running up against our national values. And Senator Schumer and I are here to stand for the proposition that we must not surrender our national values.

Mr. Chairman, I thank you for allowing me to testify before the Senate Banking Committee regarding the reauthorization of the Iran- Libya Sanctions Act, or ILSA. I'm proud to stand here with my colleague from New York, Senator Schumer, who has been a stalwart, an outstanding advocate of ILSA and its reauthorization.

Our legislation, as we are here before you today, has 76 co- sponsors. And we expect more to sign on now that the legislation has been introduced. It is truly a bipartisan effort. And we hope to have the reauthorization signed into law before the August 5th expiration date.

Iran continues to support international terrorism and is developing weapons of mass destruction at an alarming rate. Iran is the leading state sponsor of international terrorism in the world. Iran not only finances Hezbollah, Islamic Jihad and Hamas, reportedly providing them $100 million a year, but also trains them and supplies them with munitions. Further, we now hear reports that Iran has moved on from proliferation to proliferator, with exports of fuel and missile guidance systems to export to other terrorist states.

Mr. Chairman, I'm not in my statement, but as I read the news, the rhetoric of the leaders of Iran, even of their moderates, they speak in terms of the extermination of Israel, of its elimination, removing it from the map. And that is something that we cannot take as anything but deadly serious.

Also, Libya still refuses to abide by the United Nations Security Council resolutions regarding the bombing of Pan Am 103, which requires that Tripoli formally renounce terrorism, accept responsibility for the actions of its government officials convicted of masterminding the bombing, provide information about the bombing, and pay appropriate compensation to the families of the victims. Further, Libya is a prime suspect of many past terrorist operations.

ILSA threatens the imposition of economic sanctions against foreign entities investing in Iran and Libya's energy sectors. It has been very effective. Of 55 major petroleum projects for which Iran has sought foreign investment in the last five years, only a half- dozen or so have received any foreign investment, and none has been completed. Without such investment, Iran's oil production will continue to decline, as will its ability to pay for its expensive weapons programs.

While I have never been a strong supporter of unilateral sanctions as an effective diplomatic weapon, I do believe that ILSA is an exception. ILSA works. We can and must continue to send a signal to those governments in the Middle East that sponsor terrorism that the United States government will do all it can to work against their goals, to prevent new holocausts and to stand by our allies, such as Israel. I hope that this committee will swiftly and favorably report out this legislation and that it will pass quickly on the Senate floor. And I look forward to your questions.

SEN. SARBANES: Thank you very much, Senator Smith. Senator Schumer.

STATEMENT OF

CHARLES SCHUMER
As Senator From New York

SEN. SCHUMER: Thank you, Mr. Chairman. I want to thank you for holding these hearings and for granting Senator Smith and I the opportunity to open this hearing. And I want to thank Gordon Smith, who, on every issue we've worked on, is just a terrific partner to work with. And I thank him for his true leadership on this legislation.

I know we're beginning late here today, so I will try to be brief. I think that's all right, because everyone on this committee is acquainted with what ILSA is all about, and 16 of the 20 members of this committee signed as original co-sponsors. Senator Smith and I introduced the bill a few weeks ago with a total of 77 original co- sponsors.

So let me just say a few words. There has been movement on the part of the administration and some here in Congress to weaken ILSA by watering down its provisions. Many of these people would do away with ILSA altogether, but because of the enormous support in Congress for the five-year reauthorization, their strategy is to reduce the extension of ILSA to two years and add new waiver provisions that would effectively kill the bill.

I am here today to say that ILSA must be renewed fully intact for a five-year term. Over the past five years, Iran and Libya have done nothing to show they would be welcomed into the community of nations and benefit from better relationships with the U.S. and our allies. Despite the election of the so-called moderate President Khatami in 1997, Iran remains the most active sponsor of terrorism and has been feverishly seeking to develop weapons of mass destruction, as Senator Smith has outlined.

Just last week, a federal grand jury found the Iranian government, quote -- Iranian government officials, quote, "supported and directed the Hezbollah terrorists who blew up the Khobar Towers in Saudi Arabia," killing 19 brave American servicemen. And Iran proudly supports Hamas, whose most recent claim to fame was sending a suicide bomber into a crowded disco in Tel Aviv, killing 21 young Israelis and injuring dozens more.

These are not actions worthy of American concessions. I agree completely with Gordon Smith. This is an issue of morality. What does the world think when its greatest power relaxes -- what would the world think when the world's greatest power relaxes sanctions on a nation, two nations, that have shown themselves to be so outside the family of nations, not simply engaged in a dispute, not simply trying, you know, two sides to an argument, but some of the most dastardly acts that we have seen?

The bottom line is simple. If these nations are serious about entering the community of nations and seeing their economies benefit from global integration, they must change their behavior. The argument that we should lift sanctions in hopes that Iran and Libya might change their behavior is backward reasoning, backward logic, backward morality. And so I would hope, Mr. Chairman, that we would continue ILSA.

I just want to say a few words about sanctions policy in general. I think it's understandable that the administration would want to review U.S. sanctions policy to make sure it's working effectively. But ILSA is about the best we have. It's highly flexible. It grants the president full waiver authority on a case-by-case basis. It contains a menu of sanctions, ranging from a slap on the wrist to more serious economic retaliation. And its sunset provisions are profoundly reasonable.

If we're not going to maintain ILSA, we're not going to maintain any sanctions policy at all. And I think, you know, there are a couple of reasons that we are in the greatest country in the world. One is our economic might, but another is that Statue of Liberty that stands so proudly in the harbor of the city I come from, New York. It's a beacon of freedom. It's a beacon of what's right.

We are known as a country who tries to do the right thing. To simply cave in to economic pressure at this point in time, I think, would not only hurt our relationships in the Middle East. It would harm and do some serious harm to the greatness of this country. And so I urge that ILSA be renewed.

SEN. SARBANES: Well, thank you very much. We thank both of you for your very strong statements. I just have one sort of modification. Jefferson, right back at the beginning of the republic, said that -- I'm trying to paraphrase; I'll get the actual quote and put it in the record -- but that staying true to our national values actually served our national interests, that that was encompassed within the concept of national interests, and therefore we ought not to allow ourselves to fall into the habit of thinking that somehow they are contradictory to one another. And I just think it's important to remember it in this context.

I have no questions. Senator Miller? Thank you all very much. And thank you for the leadership you have taken on this issue.