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[Senate Report 110-408]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 863
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-408

======================================================================
 
                       IRAN SANCTIONS ACT OF 2008

                                _______
                                

                  July 7, 2008.--Ordered to be printed

                                _______
                                

   Mr. Baucus, from the Committee on Finance, submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 3227]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, having considered an original 
bill (S. 3227) to impose sanctions on Iran and for other 
purposes reports favorably thereon without amendment and refers 
the bill to the full Senate with a recommendation that the bill 
do pass.

             I. Background and General Reasons for the Bill

    The Finance Committee's consideration of the ``Iran 
Sanctions Act of 2008'' (``Act'') takes place in the context of 
heightened domestic and international concern over Iran's 
commitment to continue its uranium enrichment program. Reports, 
including the 2007 National Intelligence Report entitled 
``Iran: Nuclear Intentions and Capabilities'' (``2007 NIE 
Report''), suggest that Iran's uranium enrichment program may 
eventually provide Iran with the ability to create a nuclear 
weapon. Reports also suggest that members of Iran's government, 
including its President, Mahmoud Ahmadinejad, are dedicated to 
ensuring that Iran attains a nuclear weapon. Iran's uranium 
enrichment program poses a significant threat to the national 
security of the United States, as well as allied countries 
around the world. U.S. trade, economic, and other sanctions 
create a disincentive for Iran to continue its uranium 
enrichment program.

                A. BACKGROUND OF U.S. SANCTIONS ON IRAN

    Since the fall of the Shah of Iran on February 11, 1979, 
the relationship between the United States and Iran has been 
limited and strained. On November 4, 1979, Iranian radicals 
seized the U.S. Embassy in Tehran. The United States broke off 
relations with Iran in April 1980, and the United States and 
Iran have had only limited official contact since that time. 
The U.S. Embassy diplomats were ultimately released on January 
20, 1981, but their release did not mark any improvement in 
U.S.-Iran relations.
    Relations between the United States and Iran were minimal 
throughout the Administrations of Presidents Reagan and George 
H.W. Bush. In 1984, following the bombing of U.S. Marine 
barracks in Lebanon, President Reagan designated Iran as a 
``state sponsor of terrorism,'' which resulted in the 
application of sanctions against Iran for repeated support of 
acts of international terrorism. U.S. sanctions against Iran 
were strengthened in 1987, when President Reagan imposed an 
import ban to ensure that the United States would not 
contribute to the financial support of terrorism through the 
purchase of Iranian goods. President Clinton took additional 
steps to sanction and further isolate Iran.
    U.S.-Iran relations thawed somewhat with the election of 
the more liberal Ayatollah Khatami in 1997, and the United 
States offered to engage in official dialogue with Iran. In 
1998, Khatami agreed to participate in ``people-to-people'' 
dialogue with the United States, but refused to engage in 
direct talks with the United States.
    In 2000, reformists won control of Iran's parliament, which 
led to an easing of U.S. trade sanctions with Iran. In 2003, 
however, conservatives again gained strength with victories in 
Iran's municipal elections. And in June 2005, Mahmoud 
Ahmadinejad won a landslide victory in Iran's Presidential 
elections.
    Since entering office, Ahmadinejad has been a controversial 
President, and U.S.-Iran relations have further deteriorated 
under his watch. He has reiterated his commitment to continuing 
Iran's uranium-enrichment program, and ensuring that Iran 
attains a nuclear weapon. He has also made several remarks 
indicating his hostility toward the United States and our 
allies, including Israel.
    In the past several years, the United States has pursued 
unilateral and multilateral efforts to deter Iran's nuclear 
ambitions. The United States has imposed unilateral sanctions 
against Iran pursuant to Executive Orders and legislation. The 
United States has also pursued multilateral sanctions within 
the United Nations (``UN''), as well as with the European Union 
(``EU'') and other allies.

            B. SANCTIONS IMPOSED PURSUANT TO EXECUTIVE ORDER

    In an effort to further isolate and contain Iran, 
Presidents Reagan, Clinton, and George W. Bush issued several 
Executive Orders that imposed sanctions on Iran.
    Executive Order (``EO'') 12613, issued on October 29, 1987, 
bans the importation into the United States of goods or 
services of Iranian origin.
    EO 12957, issued on March 15, 1995, prohibits U.S. persons 
from entering into contracts that lead to the development of 
Iran's petroleum sector.
    EO 12959, issued on May 6, 1995, bans the importation into 
the United States of goods or services of Iranian origin. EO 
12959 also bans the exportation to Iran of any U.S. origin 
goods, services, or technology. And EO 12959 banned new 
investment by U.S. persons, or entities owned or controlled by 
U.S. persons, in entities owned or controlled by the Government 
of Iran.
    EO 13059, issued on August 19, 1997, further tightened 
sanctions by prohibiting the direct or indirect exports of U.S. 
origin products to Iran. EO 13059 also expanded the import 
prohibition to cover goods or services owned or controlled by 
the Government of Iran.
    EO 13224, issued on September 23, 2001, allows the 
President to block the assets of persons who commit, threaten 
to commit, or support terrorism. Several Iranian entities have 
been designated under this EO.
    EO 13382, issued on June 28, 2005, allows the President to 
block the assets of proliferators of weapons of mass 
destruction and their supporters. On October 21, 2007, the 
President designated several Iranian entities, including the 
Iranian Revolutionary Guard and several Iranian banks, under 
this EO.

                C. LEGISLATIVE SANCTIONS IMPOSED ON IRAN

    The Iran-Iraq Arms Nonproliferation Act of 1992 was signed 
into law on October 23, 1992 (Pub. L. 102-484). It requires 
denial of license applications for exports to Iran of dual use 
items, and imposes sanctions on foreign countries that engage 
in proliferation activities that contribute to Iran's efforts 
in this area.
    The Iran and Libya Sanctions Act of 1996 was signed into 
law on August 5, 1996 (Pub. L. 104-172). It requires the 
President to sanction U.S. and foreign companies if the 
President determines that such companies have invested more 
than $20,000,000 annually in Iran's petroleum or natural gas 
sectors. To date, no companies have been sanctioned under this 
legislation. In 2006, the title of this legislation was changed 
to the Iran Sanctions Act (``ISA'') (Pub. L. 109-293).
    The Iran Nonproliferation Act of 2000 was signed into law 
on March 14, 2000 (Pub. L. 106-178). It imposed sanctions 
against foreign persons transferring controlled goods to Iran. 
It was amended in 2005 to include Syria and renamed the Iran 
and Syria Nonproliferation Act (Pub. L. 109-112). In 2006, it 
was further amended to include North Korea and renamed the 
Iran, North Korea, and Syria Nonproliferation Act (Pub. L. 109-
353).
    The Iran Freedom Support Act (``IFSA'') was signed into law 
on September 30, 2006 (Pub. L. 109-293). It codified certain 
sanctions imposed under EOs 12957, 12959, and 13059, but 
provided the President with the discretion to terminate these 
sanctions if the President notified Congress at least 15 days 
in advance of termination. The IFSA also provided that the 
President should initiate investigations upon the receipt of 
credible information that a U.S. or foreign person is investing 
in Iran's petroleum or natural gas sector in violation of the 
ISA. In addition, the IFSA removed Libya from the scope of the 
Iran and Libya Sanctions Act of 1996, changing the title of the 
legislation to the Iran Sanctions Act and extending sanctions 
in the legislation until December 31, 2011.

                  D. UNITED NATIONS SANCTIONS ON IRAN

    The UN Security Council has recently passed several 
resolutions calling on Iran to suspend its uranium enrichment 
activities, and has imposed sanctions on Iran due to its 
failure to comply with such Resolutions.
    UN Security Council resolution 1696 (``resolution 1696''), 
adopted in July 2006, demanded that Iran suspend all its 
uranium enrichment and reprocessing activities. Resolution 1696 
also called on UN Member States to prevent the transfer of 
goods and services that could assist Iran in its uranium 
enrichment and reprocessing activities, or ballistic missiles 
programs.
    UN Security Council resolution 1737 (``resolution 1737''), 
adopted in December 2006, found that Iran had not complied with 
Resolution 1696, required Member States to take all necessary 
measures to prevent the supply of certain goods or technologies 
that could contribute to Iran's uranium enrichment, 
reprocessing, or heavy water-related activities, or to the 
development of a nuclear weapon, and prohibited Member States 
from procuring such products from Iran. Resolution 1737 also 
required Member States to impose export controls on sensitive 
goods and technologies not covered by the export ban. The 
Resolution further required Member States to freeze the assets 
of certain persons and called upon Member States to exercise 
vigilance regarding the entry into their territories of persons 
engaged or associated with providing support for Iran's 
proliferation of sensitive nuclear activities. And the 
resolution required Member States to report the entry of 
certain persons to the UN Security Council.
    UN Security Council resolution 1747 (``resolution 1747''), 
adopted in March 2007, found that Iran had failed to comply 
with Resolutions 1696 and 1737. It prohibited Member States 
from procuring arms or related materials from Iran and called 
on Member States to prevent the export of goods listed on the 
UN Register on Conventional Arms to Iran. Resolution 1747 
further expanded the list of persons whose assets must be 
frozen by Member States. And resolution 1747 expanded the list 
of persons whose entry Member States must report to the UN 
Security Council.
    UN Security Council resolution 1803 (``resolution 1803''), 
adopted in March 2008, noted that Iran had not fully ceased its 
uranium enrichment and reprocessing activities. It expanded 
sanctions by prohibiting the export of additional sensitive 
goods and technologies to Iran. It also prohibited the entry of 
certain named individuals into Member States and expanded the 
list of persons whose assets must be frozen by Member States.

                E. PERSISTENCE OF NUCLEAR WEAPONS THREAT

    Notwithstanding U.S. and multilateral sanctions against 
Iran, significant concern remains that Iran continues to enrich 
uranium in order to develop a nuclear weapon. But Iran 
continues to insist that it is enriching uranium only for 
peaceful purposes.
    The 2007 NIE Report found that Iran had likely discontinued 
its nuclear weapons program in 2003. But the NIE Report also 
stated that Iran's political leadership could reverse that 
decision at any time. Finally, the 2007 NIE report found that 
Iran has the scientific, technical, and industrial capacity 
eventually to produce nuclear weapons if it decides to do so.
    In recent months, both the EU and the United States have 
offered Iran a package of incentives to convince Iran to 
abandon its uranium enrichment program in exchange for 
increased official dialogue with both the EU and United States. 
Iran rejected this offer, and Britain and the EU have announced 
their intent to apply strengthened financial sanctions against 
Iran.

                        F. CONGRESSIONAL ACTION

    Congressional action has focused on applying additional 
sanctions to pressure Iran to abandon its uranium enrichment 
program.
    In the 110th Congress, Members have introduced several 
bills to strengthen and tighten sanctions on Iran. S. 970 
(Smith) and H.R. 1400 (Lantos) would tighten U.S. sanctions on 
Iran by, in part, removing the President's authority to waive 
trade and other economic sanctions against Iran. Additionally, 
H.R. 1400 would attempt to compel third countries, such as 
Russia, to impose strengthened sanctions against Iran.
    H.R. 1357 (Ros-Lehtinen) would require managers of U.S. 
Government pension plans or thrift savings plans, managers of 
pension plans maintained in the private sector by plan sponsors 
in the United States, and managers of mutual funds sold or 
distributed in the United States to divest assets from those 
entities that invest more than $20,000,000 annually in Iran's 
petroleum and natural gas sectors. S. 1430 (Obama) and H.R. 
2347 (Frank) would authorize State and local governments to 
require and enforce the divestment of their assets from 
entities that invest more than $20,000,000 annually in Iran's 
petroleum and natural gas sectors. Both S. 1430 and H.R. 2347 
would protect mutual fund and other investment companies from 
shareholder action for losses that occur from such divestment.

                        II. Summary of the Bill

    The Act has nineteen sections. It includes provisions (1) 
tightening trade and financial sanctions on Iran; (2) 
tightening other sanctions on Iran; (3) eliminating certain tax 
incentives for U.S. taxpayers that are subject to sanctions for 
investing in Iran; (4) governing nuclear cooperation between 
the United States and third countries, and supporting the 
creation of an international nuclear fuel bank; (5) providing 
for additional engagement with the people of Iran; (6) 
requiring the United States to cut its contributions to the 
World Bank if the World Bank grants new loans to Iran; and (7) 
imposing reporting requirements on the President and 
administration. These provisions are described in more detail 
below.

                    A. TRADE AND FINANCIAL SANCTIONS

    The legislation tightens existing, and imposes additional, 
trade and financial sanctions on Iran. The legislation would do 
this by codifying the existing prohibition on direct and 
indirect (1) exports of United States origin goods to Iran; and 
(2) imports of Iranian origin goods into the United States. The 
legislation also provides specific exceptions to the export ban 
for agricultural commodities, medicine and medical devices, 
products exported for humanitarian purposes, and informational 
materials. The legislation does not provide any specific 
exceptions for the import prohibition. But the legislation 
provides that the President may waive the export and import 
prohibition if the President determines that such a waiver is 
in the national interest of the United States.
    The legislation also prohibits the United States Trade 
Representative or any other Federal official from taking 
actions that would grant trade preferences to, or lead to the 
World Trade Organization (``WTO'') accession of, Iran. The 
President may waive this prohibition if the President 
determines that such a waiver is in the national interest of 
the United States.
    Further, the legislation freezes the assets of Iranian 
diplomats and representatives of other government, military, or 
quasi-governmental institutions of Iran that are subject to 
sanctions under the President's International Emergency 
Economic Powers Act (``IEEPA'') authorities or any other 
provision of law. And the legislation freezes the assets of 
family members or associates of such persons if those family 
members or associates receive transfers of assets or property 
from such persons.

                      B. OTHER ECONOMIC SANCTIONS

    The legislation tightens existing U.S. sanctions laws by 
imposing sanctions on U.S. parent companies if they knowingly 
participate in violations of U.S. sanctions laws conducted by 
their foreign entities. And the legislation requires the 
President to initiate investigations under the Iran Sanctions 
Act to determine whether companies are investing in Iran's 
petroleum or natural gas sectors in violation of section 5(a) 
of that Act.

                           C. TAX INCENTIVES

    The legislation eliminates certain tax incentives for U.S. 
taxpayers that are subject to sanctions for investing in Iran. 
Specifically, the legislation includes a tax provision that 
would require U.S. taxpayers who are subject to certain 
economic sanctions for investing in Iran, or on whose 
affiliates such sanctions would have been imposed if such 
affiliates were U.S. persons, to amortize geological and 
geophysical costs paid or incurred in connection with the 
exploration for, or development of, oil or gas within the 
United States over 10 years.

                         D. NUCLEAR COOPERATION

    The legislation includes provisions that govern U.S. 
nuclear cooperation with Russia and support the creation of a 
nuclear fuel bank. The legislation includes a provision that 
prohibits the United States from entering into a nuclear 
cooperation agreement with Russia pursuant to section 123 of 
the Atomic Energy Act of 1954. Further, the legislation 
prohibits the United States from granting licenses for the 
direct or indirect export of nuclear-related goods, services, 
or technologies. And the legislation prohibits the United 
States from approving the direct or indirect transfer or 
retransfer to Russia of nuclear-related goods, services, or 
technologies.
    The legislation also expresses the sense of Congress that 
the President should provide contributions to the International 
Atomic Energy Agency (``IAEA'') for the IAEA's creation of a 
nuclear fuel bank to assure a backup supply of low-enriched 
uranium in nuclear fuel reactors. It further expresses the 
sense of Congress that in determining whether to make 
contributions, the President should consider whether other 
governments or entities have provided pledges to the IAEA for 
the nuclear fuel bank, whether the IAEA will oversee the 
nuclear fuel bank, and whether nuclear fuel will be provided 
only to those countries that comply with IAEA safeguards.

                          E. EXCHANGE PROGRAMS

    The legislation authorizes the President to carry out 
exchange programs with the people of Iran, especially the young 
people of Iran.

                      F. WORLD BANK CONTRIBUTIONS

    The legislation requires the United States to make 
proportional cuts in its contributions to the World Bank for 
loans granted by the World Bank to Iran after December 31, 
2008. The President may waive this requirement if the President 
determines that such a waiver is in the national interest of 
the United States.

                       G. REPORTING REQUIREMENTS

    The legislation requires the Secretary of Treasury to 
report to Congress foreign investments made in Iran's energy 
sector after January 1, 2008, and the determination of whether 
such investments are sanctionable offenses under section 5(a) 
of the ISA.
    The legislation also requires the Secretary of Treasury to 
report to Congress the names of people that operate or conduct 
business in the United States and also invest in Iran. And it 
requires the Secretary of Treasury to report to Congress on 
export credits given by foreign banks to persons that invest in 
Iran's energy sector, as well as any actions taken by the 
President to discourage or prevent such export credits.
    Further, the legislation requires the President to report 
on the actions taken by the United States to support the 
establishment of an international regime for the assured supply 
of nuclear fuel for peaceful means.
    Finally, the legislation expresses the sense of Congress 
that the Executive Director of the Federal Thrift Savings Board 
should report to Congress any investments in entities that 
invest in Iran.

                  III. General Description of the Bill

Section 1. Short Title

    Section 1 entitles the bill the ``Iran Sanctions Act of 
2008'' and provides a table of contents.

Section 2. Findings

    Section 2 makes Congressional findings that Iran is seeking 
to develop a nuclear weapons capability and that such a 
capability would be detrimental to the national security of the 
United States and its allies. Section 2 also finds that Iran 
has refused to comply with UN Security Council Resolutions and 
that Iran may be close to acquiring the material necessary to 
make a nuclear weapon. Finally, section 2 finds that the United 
States should use all political, economic, and diplomatic tools 
at its disposal to prevent Iran from acquiring a nuclear 
weapon.

Section 3. Sense of Congress

    Section 3 expresses the sense of Congress regarding UN 
Security Council Resolutions against Iran and expresses the 
sense of Congress regarding actions the United States should 
take to deter Iran from attaining a nuclear weapon.
    Section 3(1) expresses the sense of Congress that the 
United States should restrict Iran's ability to conduct 
international financial transactions.
    Section 3(2) expresses the sense of Congress that Iran 
should fully comply with UN Security Council Resolutions 1737, 
1747, 1803, and any subsequent UN Security Council Resolutions 
related to Iran's nuclear program.
    Section 3(3) expresses the sense of Congress that the UN 
Security Council should take further measures to tighten 
sanctions on Iran, as long as Iran fails to comply with the 
international community's demand to halt its uranium enrichment 
program.
    Section 3(4) expresses the sense of Congress that the 
United States should encourage foreign governments to require 
state-owned and private entities to cease investments in Iran's 
energy sector, and cease exports to and imports from Iran of 
refined petroleum products.
    Section 3(5) expresses the sense of Congress that Federal 
and State pension administrators should divest all assets from 
foreign companies that invest, or have invested, in Iran's 
energy sector.

Section 4. Construction with Respect to use of Military Force

    Section 4 states that nothing in the ``Iran Sanctions Act 
of 2008'' shall be construed as giving the President the 
authority to use military force against Iran.

Section 5. Definitions

    Section 5 defines several terms that are used throughout 
the Act.

Section 6. Expansion of Definition of Person in the Iran Sanctions Act 
        of 1996

    Section 6 amends the definition of ``Person'' in the Iran 
Sanctions Act of 1996 to include a financial institution, 
insurer, underwriter, guarantor, and any other business 
organization, including any foreign subsidiary, parent, or 
affiliate of one of the foregoing. Section 6 also clarifies 
that a governmental entity operating as a business enterprise 
may include an export credit agency.

Section 7. Russia Nuclear Cooperation

    The provisions of section 7, which fall within the 
jurisdiction of the Senate Foreign Relations Committee, govern 
nuclear cooperation between the United States and Russia.
    Section 7(a) provides that certain policies shall apply to 
Russia until such time as the President makes the certification 
to Congress described in section 7(c).
    Section 7(b) sets out the policies that apply to Russia. 
First, it provides that the United States may not enter into a 
nuclear cooperation agreement with Russia pursuant to section 
123 of the Atomic Energy Act of 1954 (``a 123 Agreement''). 
Second, it provides that the United States may not issue 
licenses for the direct or indirect export to Russia of any 
nuclear goods, services, or technology that would be subject to 
a 123 Agreement. Third, it prohibits the United States from 
approving the direct or indirect transfer or retransfer of 
nuclear goods, services, or technology that would be subject to 
a 123 Agreement.
    Section 7(c) provides that the President may only make a 
certification to Congress under this section if the President 
determines that (1) Russia has suspended nuclear assistance and 
transfers of advanced conventional weapons and missiles to 
Iran; or (2) Iran has completely, verifiably, and irreversibly 
dismantled all nuclear enrichment-related and reprocessing-
related programs.
    Section 7(d) provides that the policies in section 7(b) 
shall remain in effect until such time as the President makes a 
certification to Congress as described in section 7(c).

Section 8. Economic Sanctions Relating to Iran

    Section 8 codifies existing, and imposes additional, trade 
and financial sanctions against Iran.
    Section 8(a) provides that the sanctions set forth in 
section 8 shall enter into force 15 days after enactment of the 
Act.
    Section 8(b) imposes trade-related and financial sanctions. 
There are three trade-related sanctions imposed by section 
8(b). First, section 8(b) provides that no articles of Iranian 
origin may be imported directly or indirectly into the United 
States, and no articles of United States origin may be exported 
directly or indirectly to Iran. Second, section 8(b) sets forth 
several exceptions that permit the direct or indirect 
exportation of (1) agricultural commodities; (2) medicine or 
medical devices; and (3) articles that provide humanitarian 
assistance to the Iranian people and (4) information materials 
to Iran. Third, section 8(b) prohibits the United States Trade 
Representative or any other Federal official from taking any 
action that would extend trade preferences--such as those 
afforded under our Generalized System of Preferences program--
to, or lead to the World Trade Organization accession of, Iran.
    The financial sanctions included in section 8(b) require 
the President to freeze the assets of Iranian diplomats and 
representatives of other government and military or quasi-
governmental institutions of Iran that are subject to sanctions 
(``sanctioned Iranian persons'') imposed under the President's 
International Emergency Economic Powers Act authorities or any 
other provision of law. Section 8(b) also requires the 
President to freeze the assets of family members or associates 
of sanctioned Iranian persons if those family members or 
associates receive transfers of assets or property from such 
sanctioned persons. Section 8(b) requires the President to 
report to Congress the names of any individuals sanctioned 
under this section. And section 8(b) prohibits the head of a 
U.S. executive agency from entering into a procurement contract 
from a person that is sanctioned under section 5(a) of the Iran 
Sanctions Act of 1996.

Section 9. Liability of parent companies for violation of sanctions by 
        foreign entities

    Section 9(a) subjects U.S. parent companies to penalties if 
the parent company knowingly participates in violations of U.S. 
sanctions laws carried out by its foreign subsidiaries. This 
section is intended to close a loophole that allows U.S. 
companies to establish foreign subsidiaries to circumvent U.S. 
sanctions law.
    Section 9(b) provides that penalties shall be imposed for 
violations of section 9 only for acts that are commenced on or 
after the date of enactment, or ongoing on the date of 
enactment. Section 9(b) excepts U.S. parent companies from 
liability under this section if the parent divests or 
terminates its business with the foreign subsidiary not later 
than 90 days after the date of enactment of this Act. Section 
9(b) ensures that section 9 does not have retroactive effect.
    Section 9(c) defines terms used in Section 9.

Section 10. Mandatory investigations into the imposition of sanctions

    Section 10(a) amends section 4(f) of the Iran Sanctions Act 
of 1996 to require the President to initiate investigations to 
determine whether companies are investing in Iran's petroleum 
or natural gas sectors in violation of section 5(a) of the Iran 
Sanctions Act of 1996. Section 10(a) also provides that the 
President may extend the time period for making a determination 
under this section if the President is unable to make such a 
determination in the initial 180 day period.
    Section 10(b) provides that this section shall apply only 
to investigations that are based on information received on or 
after 90 days after the date of enactment of the Act.

Section 11. Elimination of certain tax incentives for oil companies 
        investing in Iran

                              PRESENT LAW

    Geological and geophysical expenditures (``G&G costs'') are 
incurred by a taxpayer for the purpose of obtaining and 
accumulating data that will serve as the basis for the 
acquisition and retention of mineral properties by taxpayers 
exploring for minerals. G&G costs incurred by independent 
producers and smaller integrated oil \1\ companies in 
connection with oil and gas exploration in the United States 
may generally be amortized over two years.\2\ Major integrated 
oil companies are required to amortize all G&G costs over seven 
years.\3\ For these purposes, a major integrated oil company, 
with respect to any taxable year, is a producer of crude oil 
which has an average daily worldwide production of crude oil of 
at least 500,000 barrels for the taxable year, had gross 
receipts in excess of $1 billion for its last taxable year 
ending during the calendar year 2005, and generally has an 
ownership interest in a crude oil refiner of 15 percent or 
more.\4\
---------------------------------------------------------------------------
    \1\ Generally, an integrated oil company is a producer of crude oil 
that engages in the refining or retail sale of petroleum products in 
excess of certain threshold amounts.
    \2\ Sec. 167(h)(1).
    \3\ Sec. 167(h)(5).
    \4\ Id.
---------------------------------------------------------------------------
    In the case of abandoned property, any remaining basis may 
not be recovered in the year of abandonment as all basis is 
recovered over the applicable amortization period.

                        DESCRIPTION OF PROPOSAL

    Section 11 provides that for taxpayers on whom certain 
economic sanctions for investing in Iran are imposed, or on 
whose affiliates such sanctions would have been imposed if such 
affiliates were U.S. persons, G&G costs paid or incurred in 
connection with the exploration for, or development of, oil or 
gas within the United States must be amortized over 10 years. 
For this purpose, the economic sanctions requiring the extended 
G&G amortization consist of (1) sanctions under section 5(a) of 
the Iran Sanction Act of 1996 and (2) sanctions described in 
Executive Orders 12959 \5\ or 13059,\6\ or under any other 
prohibition on transactions with respect to Iran imposed under 
the authority of the International Emergency Economic Power 
Act.\7\ For purposes of this provision, an affiliate is defined 
as a member of an affiliated group under section 1504(a) 
determined using a 50 percent (instead of 80 percent) voting 
and value test and including insurance companies, foreign 
corporations, and corporations with respect to which an 
election under section 936 is in effect.
---------------------------------------------------------------------------
    \5\ 60 Fed. Reg. 24,757 (May 9, 1995).
    \6\ 62 Fed. Reg. 44,531 (Aug. 21, 1997).
    \7\ 50 U.S.C. sec. 1701 et seq.
---------------------------------------------------------------------------
    If the sanctions with respect to the taxpayer are lifted 
(either because the taxpayer comes into compliance or because 
the sanctions regime terminates), the taxpayer may elect to 
treat any remaining unamortized G&G costs incurred prior to or 
during the sanction period as incurred on the date the 
sanctions are lifted and amortize them over the period 
described in section 167(h)(1) or (h)(5), as the case may be. 
Taxpayers not making an election must continue to amortize 
those expenses over the ten year period. The provision 
terminates five years after the date of enactment.

Example 1

    Taxpayer A, a domestic corporation with a foreign parent, 
FP, incurs $5 million of G&G costs in Year 1 and begins 
amortizing the costs over seven years under section 167(h)(5). 
In Year 2, FP invests in Iran and sanctions under section 5(a) 
of the Iran Sanctions Act of 1996 would be imposed if Foreign 
Parent were a domestic company. As a result, Taxpayer A must 
amortize any remaining unamortized G&G costs that were incurred 
in Year 1 over a 10 year period beginning in Year 2 (applying 
the half-year convention rule of section 167(h)(2)).
    In Year 4, FP abandons its investment in Iran and is no 
longer subject to sanctions. Taxpayer A may either continue to 
amortize the costs over the remaining 10 years or treat the 
remaining costs as incurred in Year 4 and recover the costs 
over seven years under section 167(h)(5).

Example 2

    Assume the same facts as Example 1, except that instead of 
FP abandoning its investment in Iran, the sanctions are no 
longer in effect in Year 6 due to the termination of the Iran 
Counter-Proliferation Act of 2008. In this case, Taxpayer A may 
either continue to amortize the costs over the remaining 10 
years or treat the costs as incurred in Year 6 and recover the 
costs over seven years under section 167(h)(5).

Example 3

    Taxpayer B, a domestic corporation, and Taxpayer C, a 
foreign corporation, have a common foreign parent. In Year 1, 
Taxpayer C invests in Iran and sanctions under section 5(a) of 
the Iran Sanctions Act of 1996 would be imposed if Taxpayer C 
were a domestic company. In Year 3, Taxpayer B incurs $5 
million of G&G costs and absent this proposal would amortize 
the costs over two years under section 167(h)(1). Under the 
proposal, Taxpayer B must amortize the G&G costs over a 10 year 
period beginning in Year 3 (applying the half-year convention 
rule of section 167(h)(2)).
    In Year 4, Taxpayer C abandons its investment in Iran and 
is no longer subject to sanctions. Taxpayer B may either 
continue to amortize the costs over the remaining 10 years or 
treat the remaining costs as incurred in Year 4 and recover the 
costs over two years under section 167(h)(1).

                             EFFECTIVE DATE

    The proposal is effective for G&G costs paid or incurred on 
or after January 1, 2009.

Section 12. World Bank loans to Iran

    Section 12(a) requires the Secretary of Treasury to submit 
to the Senate Finance, Banking, and Foreign Relations 
Committees and House of Representatives Ways and Means, 
Financial Services and Foreign Affairs Committees 
(``appropriate congressional committees'') a report on (1) the 
number of loans provided by the World Bank to entities in Iran 
and for projects or activities in Iran; (2) the dollar amount 
of such loans; and (3) the voting record of each member of the 
World Bank on such loans.
    Section 12(b) requires the United States to reduce its 
contributions to the World Bank for loans made by the Bank to 
Iran after December 31, 2008. The United States must reduce its 
contribution by an amount that is proportional to the total 
amount of loans provided by the World Bank to Iran in the 
preceding year.

Section 13. Increased capacity for efforts to combat unlawful or 
        terrorist financing

    Section 13(a) finds that the Office of Terrorism and 
Financial Intelligence of the Department of Treasury, which 
includes the Office of Foreign Assets Control and the Financial 
Crime Enforcement Network, is critical to ensuring that the 
international financial system is not used to support terrorism 
or develop weapons of mass destruction.
    Section 13(b) authorizes $61,712,000 for fiscal year 
(``FY'') 2009, and whatever sums may be necessary for FY 2010 
and 2011 to the Secretary of Treasury for the Office of 
Terrorism and Financial Intelligence.
    Section 13(c) authorizes $91,335,000 for FY 2008, and such 
sums as may be necessary for FY 2010 and 2011 for the Financial 
Crimes Enforcement Network.

Section 14. Exchange programs with the people of Iran

    Section 14(a) expresses the sense of Congress that the 
United States should seek to enhance its friendship with the 
people of Iran, particularly by identifying young Iranian 
people to come to the United States to participate in exchange 
programs.
    Section 14(b) authorizes the President to carry out 
exchange programs with the people of Iran, particularly young 
people. Section 14(b) also states that such exchange programs 
should be carried out in a manner consistent with the 
requirements for eligibility specified in section 302(b) of the 
Iran Freedom Support Act.
    Section 14(c) authorizes $15,000,000 to be appropriated to 
the President from title IV of the Science, State, Justice, 
Commerce, and Related Agencies Appropriations Act, 2006 to 
carry out section 14.

Section 15. Sense of Congress on radio broadcasting to Iran

    Section 15 expresses the sense of Congress that the 
Broadcasting Board of Governors should devote a greater 
proportion of Radio Farda's programming to programs offering 
news and analysis.

Section 16. Sense of Congress regarding the international regime for 
        the assured supply of nuclear fuel for peaceful means

    Section 16(a) states that it is the policy of the United 
States to support the establishment of an international regime, 
under a multilateral authority, to assure the supply of nuclear 
fuel for peaceful means.
    Section 16(b) expresses the sense of Congress that: (1) the 
Concept for a Multilateral Mechanism for Reliable Access to 
Nuclear fuel is welcome and should be expanded upon; (2) the 
proposal by the Russian Government to bring one of its uranium 
enrichment facilities under international management and 
oversight is welcome and should be encouraged by the United 
States; (3) the offer by the Nuclear Threat Initiative to 
provide $50,000,000 to support the creation of a nuclear fuel 
bank by the IAEA is welcome, and the United States and other 
IAEA members should pledge an additional $100,000,000 to 
support the creation of a nuclear fuel bank; and (4) the Global 
Nuclear Energy Partnership is intended to provide reliable fuel 
supply throughout the fuel cycle and promote the 
nonproliferation goals of the United States.
    Section 16(c) expresses the sense of Congress that the 
President should contribute to IAEA to establish a nuclear fuel 
bank. Specifically, section 16(c) expresses the sense of 
Congress that: (1) the President should determine the 
appropriateness of making voluntary contributions to the IAEA 
for the creation of a nuclear fuel bank that would maintain 
backup supplies of low-enriched uranium for the production of 
reactor fuel; (2) the President should consider the following 
when determining whether to make voluntary contributions for 
the creation of a nuclear fuel bank: whether (a) the IAEA has 
received pledges of not less than $100,000,000 for other 
governments or entities for the creation of the nuclear fuel 
bank; (b) the IAEA or another multilateral authority will 
oversee the nuclear fuel bank; and (c) the nuclear fuel bank 
will provide nuclear reactor fuel to countries only if the 
country is in compliance with IAEA safeguards and the country 
does not operate uranium enrichment or spent-fuel reprocessing 
facilities of any scale. Section 16(c) also authorizes the 
appropriation of $50,000,000 for FY 2009 to carry out this 
section, and provides that amounts appropriated should remain 
available until September 30, 2011.

Section 17. Reporting requirements

    Section 17 sets forth several reporting requirements.
    Section 17(a) requires the Secretary of Treasury to submit 
to the appropriate congressional committees 180 days after 
enactment of this Act and every 180 days thereafter a report on 
(1) any foreign investments made in Iran's energy sector on or 
after January 1, 2008; and (2) the President's determination on 
whether such investments qualify as a sanctionable offense 
under section 5(a) of the Iran Sanctions Act of 1996.
    Section 17(b) requires the Secretary of Treasury to submit 
to the appropriate congressional committees 180 days after the 
enactment of this Act and annually thereafter the names of 
persons that have operations or conduct business in the United 
States that also have invested in Iran, and the dollar amount 
of such investment.
    Section 17(c) requires the President to submit to the 
Senate Foreign Relations and House of Representatives Foreign 
Affairs Committees not later than 180 days after the enactment 
of this Act a report on the activities of the United States to 
support the establishment of an international regime for the 
assured supply of nuclear fuel for peaceful means.
    Section 17(d) requires the Secretary of Treasury to report 
to the appropriate congressional committees not later than 90 
days after the date of enactment of this Act and every 90 days 
thereafter a report on the export credits granted by foreign 
banks to persons investing in Iran's energy sector, and any 
fines, restrictions, or other action taken by the President to 
discourage or prevent the issuance of such export credits.
    Section 17(e) expresses the sense of Congress that the 
Executive Director of the Federal Retirement Thrift Investment 
Board should report to the appropriate congressional committees 
not later than 180 days after the date of enactment of this Act 
and annually thereafter any investments in entities that invest 
in Iran.

Section 18. Waiver Authority

    Section 18 grants the President the authority to waive 
sanctions required pursuant to sections 8, 9, or 12 of this Act 
if the President (1) determines that such a waiver is in the 
national interest of the United States and (2) submits to the 
appropriate congressional committees a report describing the 
reasons for the President's determination to waive such 
sanctions.

Section 19. Termination

    Section 19 provides that except as provided in section 7, 
the provisions of and amendments made by this Act shall 
terminate on the earlier of (1) the date on which the President 
determines and certifies to the appropriate congressional 
committees that Iran has completely, verifiably, and 
irreversibly dismantled all uranium enrichment-related and 
reprocessing-related programs; or (2) the date that is 5 years 
after the date of enactment of this Act.

                              IV. Hearings

    The Finance Committee held a hearing on a substantially 
similar bill, S. 970, the Iran Counter-Proliferation Act of 
2007, on April 8, 2008. The hearing discussed international 
trade concerns raised by the bill, the role of the bill in a 
broader multilateral sanctions regime, and the humanitarian 
impact of the bill.

                                V. Votes

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning roll call votes in the Committee's consideration of 
the ``Iran Sanctions Act of 2008.''

                      A. MOTION TO REPORT THE BILL

    The original bill was ordered favorably reported, as 
amended by the Chairman's modification, by a roll call vote of 
19 ayes and 2 nays on June 18, 2008. The vote, with a quorum 
present, was as follows:
    Ayes--Baucus, Conrad, Kerry (proxy), Lincoln (proxy), 
Wyden, Schumer, Stabenow, Cantwell, Salazar, Grassley, Hatch 
(proxy), Snowe, Kyl, Smith, Bunning, Crapo, Roberts, Ensign 
(proxy), Sununu
    Nays--Rockefeller, Bingaman

                      B. VOTES ON OTHER AMENDMENTS

    (1) An amendment by Senator Bingaman to delete the section 
of the ``Iran Sanctions Act of 2008'' pertaining to Russia 
nuclear cooperation in its entirety failed by a roll call vote 
of 4 ayes and 15 nays.
    Ayes--Rockefeller, Bingaman, Lincoln (proxy), Cantwell
    Nays--Baucus, Wyden, Schumer, Stabenow, Salazar, Grassley, 
Hatch (proxy), Snowe, Kyl, Smith, Bunning, Crapo, Roberts, 
Ensign (proxy), Sununu
    (2) An amendment by Senator Bunning to amend the ``Iran 
Sanctions Act of 2008'' to require the President to initiate 
investigations into violations of section 5(a) of the Iran 
Sanctions Act of 1996 when the President receives credible 
information that such a violation has occurred passed by voice 
vote.

                    VI. Budgetary Impact of the Bill

Iran Sanctions Act of 2008

    Summary: The Iran Sanctions Act of 2008 would authorize 
appropriations for two programs within the Department of 
Treasury relating to financial crimes, an exchange program with 
Iran, and U.S. contributions to the International Atomic Energy 
Agency (IAEA). The bill also would limit trade with Iran and 
allow the President to impose sanctions on certain individuals. 
Finally, the bill would prohibit the United States from 
entering into a nuclear energy agreement with Russia and would 
prevent the transfer of certain nuclear materials, components, 
or technologies to Russia until it has suspended nuclear 
assistance to Iran.
    CBO estimates that implementing the bill would cost $173 
million in 2009 and $600 million over the 2009-2013 period, 
assuming appropriation of the specified and estimated amounts. 
In addition, CBO and the Joint Committee on Taxation (JCT) 
estimate that enacting the bill would increase revenues by 
about $1 million in 2009, $24 million over the 2009-2013 
period, and $45 million over the 2009-2018 period. Enacting the 
legislation also could increase direct spending as a result of 
additional civil and criminal penalties. CBO estimates this 
increase would not be significant because of the relatively 
small number of cases likely to be involved.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    The bill would impose private-sector mandates, as defined 
in UMRA, by prohibiting imports from and exports to Iran. It 
also could impose mandates by freezing the assets of certain 
family members and associates of Iranian government officials 
subject to sanctions as designated by the President; some of 
those individuals may reside in the United States. Finally, the 
bill would impose mandates by requiring any financial 
institution that holds funds and other assets of any designated 
person to report such information. The cost of complying with 
those mandates is uncertain because the number of people and 
the value of assets to be frozen are currently unknown and 
because CBO lacks information on the value of lost profits to 
importers and exporters. Therefore, CBO cannot determine 
whether the aggregate cost to comply with the mandates in the 
bill would exceed the annual threshold for private-sector 
mandates established in UMRA ($136 million in 2008, adjusted 
annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill is summarized in Table 1. The 
costs of this legislation fall within budget functions 150 
(international affairs), 750 (administration of justice), and 
800 (general government).

                    TABLE 1. ESTIMATED BUDGETARY IMPACT OF THE IRAN SANCTIONS ACT OF 2008 \1\
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                    ------------------------------------------------------------
                                                       2009      2010      2011      2012      2013    2009-2013
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level......................       220       175       181        18        18        612
Estimated Outlays..................................       173       174       179        56        18        600

                                               CHANGES IN REVENUES

Estimated Revenues.................................         1         3         5         6         9        24
----------------------------------------------------------------------------------------------------------------
\1\ In addition to the amounts shown above, implementing the bill would increase revenues by $45 million over
  the 2009-2018 period (see Table 3).

    Basis of estimate: For the purposes of this estimate, CBO 
assumes that the bill will be enacted before the start of 
fiscal year 2009 and that spending will follow historical 
patterns for similar programs.

Spending subject to appropriation

    The bill would authorize appropriations for specific 
programs within both the Department of the Treasury and the 
Department of State. In total, CBO estimates that implementing 
those programs would cost $600 million over the 2009-2013 
period, assuming appropriation of the specified and estimated 
amounts (see Table 2).

 TABLE 2.--COMPONENTS OF THE ESTIMATED CHANGES IN SPENDING SUBJECT TO APPROPRIATION UNDER THE IRAN SANCTIONS ACT
                                                     OF 2008
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                    ------------------------------------------------------------
                                                       2009      2010      2011      2012      2013    2009-2013
----------------------------------------------------------------------------------------------------------------
Department of Treasury Programs:
    Estimated Authorization Level..................       153       158       163         0         0        474
    Estimated Outlays..............................       117       156       161        38         0        472
Exchange Programs:
    Estimated Authorization Level..................        15        15        16        16        16         78
    Estimated Outlays..............................         8        13        15        16        16         68
Contribution to the IAEA:
    Estimated Authorization Level..................        50         0         0         0         0         50
    Estimated Outlays..............................        46         3         1         0         0         50
Other Reports:
    Estimated Authorization Level..................         2         2         2         2         2         10
    Estimated Outlays..............................         2         2         2         2         2         10
    Total Changes:
        Estimated Authorization Level..............       220       175       181        18        18        612
        Estimated Outlays..........................       173       174       179        56        18       600
----------------------------------------------------------------------------------------------------------------
Note: IAEA = International Atomic Energy Agency.

    Department of Treasury Programs. In total, section 13 would 
authorize the appropriation of $153 million in 2009 and such 
sums as may be necessary for 2010 and 2011. (The 2009 
authorization consists of $62 million for the Office of 
Financial Terrorism and Financial Intelligence and $91 million 
for the Financial Crimes Enforcement Network, both of which are 
in the Department of Treasury.) Based on information from the 
Department of Treasury, CBO expects that $153 million, adjusted 
for inflation, would be sufficient for fiscal years 2010 and 
2011. Accordingly, CBO estimates that implementing section 13 
would cost $472 million over the 2009-2013 period.
    Exchange Programs. Section 14 would authorize the President 
to implement exchange programs with Iran, particularly for 
Iranian youth, and would authorize the appropriation of $15 
million in 2009 for those purposes. Because the exchange 
program has a permanent authorization, CBO estimates that the 
bill also would authorize funding for fiscal years 2010 through 
2013 equal to the $15 million authorized for 2009, adjusted for 
inflation. Thus, CBO estimates that implementing section 14 
would cost $68 million over the 2009-2013 period, assuming 
appropriation of the specified and estimated amounts.
    Contribution to the International Atomic Energy Agency 
(IAEA). Section 16 would authorize the appropriation of $50 
million in 2009 for a voluntary contribution to the IAEA. The 
funds would be used to establish an international nuclear fuel 
bank that could be used in the event of market disruptions in 
the supply of reactor fuel. CBO estimates that implementing 
section 16 would cost $50 million over the 2009-2013 period, 
assuming appropriation of the specified amount.
    Other Reports. Several sections would require the 
Department of Treasury and the President to provide the 
Congress with a variety of reports about Iran, including 
details of investments in Iran by the United States and other 
countries. The bill also would require a report on 
international efforts to promote the peaceful uses of nuclear 
fuel. Based on the costs to prepare similar reports, CBO 
estimates that those reports would cost about $2 million 
annually.

Revenues and direct spending

    Prohibition on Imports. Section 8 would prohibit the 
importation of any product from Iran. This prohibition would 
expire five years after enactment of the bill. CBO expects that 
the aggregate trade volume subject to customs duties would 
decrease, thus reducing revenues by an estimated $2 million 
over the 2009-2018 period.
    Modified Tax Treatment. Section 11 would modify the income 
tax treatment of geological and geophysical (G&G) costs for oil 
companies on which certain economic sanctions for investing in 
Iran have been imposed. Under the bill, any G&G costs incurred 
by such a company after 2008 in connection with the exploration 
and development of oil or gas supplies within the United States 
would be amortized over 10 years rather than the two- or seven-
year periods allowed under current law. This modified treatment 
would terminate after five years. JCT estimates that the 
provision would increase revenues by $47 million over the 2009-
2018 period.
    Civil and Criminal Penalties. The bill would impose civil 
and criminal penalties for violations of the new sanctions and 
could result in additional federal revenues. Collections of 
civil penalties are recorded in the budget as revenues. 
Collections of criminal penalties also are recorded in the 
budget as revenues, deposited in the Crime Victims Fund, and 
later spent without further appropriation. CBO estimates that 
any additional revenues and direct spending that would result 
from those penalties would not be significant because of the 
relatively small number of cases likely to be involved.

                                       TABLE 3. ESTIMATED CHANGES IN REVENUES UNDER THE IRAN SANCTIONS ACT OF 2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2009    2010    2011    2012    2013    2014    2015    2016    2017    2018   2009-2013  2009-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prohibition on Imports............................       *       *       *      -1      -1       0       0       0       0       0        -2         -2
Modified Tax Treatment............................       1       3       5       7      10      10      10       7       1      -7        26         47
    Total Changes.................................       1       3       5       6       9      10      10       7       1      -7        24        45
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: * = revenue loss of less than $500,000.

    Estimated impact on state, local, and tribal governments: 
The bill contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: The bill contains 
private-sector mandates, as defined in UMRA. However, CBO 
cannot determine whether the aggregate cost to comply with 
those mandates would exceed the annual threshold for private-
sector mandates established in UMRA ($136 million in 2008, 
adjusted annually for inflation).
    The bill would impose mandates on certain businesses by 
banning all imports from and exports to Iran, with the 
exception of agricultural commodities, medicine, medical 
devices, certain informational materials, and other 
humanitarian assistance. According to the Department of 
Commerce, in 2007 the United States imported from Iran 
approximately $173 million in goods, mostly carpets and 
foodstuffs, and exported $146 million in goods, mostly items 
that would be excluded from the export ban. The cost of the ban 
is uncertain because CBO lacks information on the value of lost 
profits to importers and exporters.
    The bill also could impose private-sector mandates by 
directing the President to freeze the funds and other assets of 
certain Iranian government officials, and the assets of their 
family members and associates to whom such officials have 
transferred assets on or after January 1, 2008. Some of those 
individuals may reside in the United States. Because the 
Iranian government officials who would be subject to sanctions 
have not been named, the cost of that mandate also is 
uncertain. Finally, the bill also would impose a mandate on 
financial institutions that hold funds and other assets of 
persons subject to sanctions by requiring them to report such 
information. CBO expects the cost to comply with this reporting 
requirement would be small.
    Previous CBO estimates: On July 11, 2007, CBO transmitted a 
cost estimate for a similar bill, H.R. 1400, the Iran Counter-
Proliferation Act of 2007, as ordered reported by the House 
Committee on Foreign Affairs on June 26, 2007. Both bills 
contain provisions for the exchange programs and Department of 
Treasury programs discussed above. H.R. 1400, however, would 
have authorized lower appropriations for those programs. In 
addition, the earlier bill did not include an authorization for 
the U.S. contribution to IAEA that is authorized in the Iran 
Sanctions Act of 2008. H.R. 1400 also contained private-sector 
mandates by requiring sanctions on certain imports and exports 
with Iran, but CBO expected that the direct cost of complying 
with those mandates would fall below UMRA's annual threshold. 
The differences in CBO's estimate of the costs of the two bills 
reflect differences in the legislative language.
    On February 27, 2007, CBO transmitted a cost estimate for 
H.R. 957, a bill to amend the Iran Sanctions Act of 1996 to 
expand and clarify the entities against which sanctions may be 
imposed, as ordered reported by the House Committee on Foreign 
Affairs on February 15, 2007. That bill is similar to sections 
6 and 9 of this legislation and the estimated costs for those 
sections are the same. CBO determined that H.R. 957 contained 
no new mandates as defined in UMRA.
    Estimate prepared by: Federal spending: International 
Affairs--Neil Hood; Exchange Programs and IAEA Contribution--
Sunita D'Monte; Department of Treasury Programs and Reports--
Matthew Pickford; Federal revenues: Zachary Epstein; Impact on 
state, local, and tribal governments: Neil Hood; Impact on the 
private sector: MarDestinee Perez.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis; G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                VII. Regulatory Impact and Other Matters

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee states 
that the bill will not significantly regulate any individuals 
or businesses, will not affect the personal privacy of 
individuals, and will result in no significant additional 
paperwork.
    The following information is provided in accordance with 
section 423 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
(Pub. L. No. 104-04). The Committee has reviewed the provisions 
the ``Iran Sanctions Act of 2008'' as approved by the Committee 
on June 18, 2008. In accordance with the requirements of Pub. 
L. No. 104-04, the Committee has determined that the bill 
contains no intergovernmental mandates, as defined in the UMRA, 
and will not affect the budgets of State, local, or tribal 
governments. The bill contains private-sector mandates, as 
defined in UMRA, by (1) banning all imports from and exports to 
Iran, with the exception of agricultural commodities, medicine, 
medical devices, certain informational materials, and other 
humanitarian assistance; (2) directing the President to freeze 
the funds and other assets of certain Iranian government 
officials, and the assets of their family members and 
associates to whom such officials have transferred assets on or 
after January 1, 2008; and (3) requiring financial institutions 
that hold funds and other assets of persons subject to 
sanctions to report such information. The Committee cannot 
determine whether the aggregate cost to comply with those 
mandates would exceed the annual threshold for private-sector 
mandates established in UMRA ($136 million in 2008, adjusted 
annually for inflation).
            VIII. Changes in Existing Law Made by the Bill,
                              as Reported

     Pursuant to the requirements of paragraph 12 of rule XXVI 
of the Standing Rules of the Senate, changes in existing law 
made by the bill, as reported, are shown as follows (existing 
law proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

IRAN SANCTIONS ACT OF 1996

           *       *       *       *       *       *       *

SEC. 4. MULTILATERAL REGIME.

    (a) * * *

           *       *       *       *       *       *       *

    (f) Investigations.--
          (1) In general.--The President [should] shall 
        initiate an investigation into the possible imposition 
        of sanctions under section 5(a) against a person upon 
        receipt by the United States of credible information 
        indicating that such person is engaged in investment 
        activity in Iran as described in such section.
          (2) Determination and notification.--Not later than 
        180 days after an investigation is initiated in 
        accordance with paragraph (1), the President [should] 
        shall determine, pursuant to section 5(a), if a person 
        has engaged in investment activity in Iran as described 
        in such section and shall notify the appropriate 
        congressional committees of the basis for any such 
        determination.
          (3) Extension of time for investigations.--The 
        President may extend the time period for making a 
        determination under paragraph (2) by not more than an 
        additional 180 days if the President determines that 
        the President will be unable to make a determination 
        during the time period required under paragraph (2).

           *       *       *       *       *       *       *

SEC. 14. DEFINITIONS.

    As used in this Act:
          (1) * * *

           *       *       *       *       *       *       *

          (13) Person.--The term ``person'' means--
                  (A) a natural person;
                  [(B) a corporation, business association, 
                partnership, society, trust, any other 
                nongovernmental entity, organization, or group, 
                and any governmental entity operating as a 
                business enterprise; and]
                  (B)(i)(I) a corporation, business 
                association, partnership, society, trust, 
                financial institution, insurer, underwriter, 
                guarantor, or any other business organization, 
                including any foreign subsidiary, parent, or 
                affiliate of one of the foregoing; or
                          (II) any other nongovernmental 
                        entity, organization, or group; and
                  (ii) any governmental entity operating as a 
                business enterprise, including an export credit 
                agency; and

           *       *       *       *       *       *       *

                              ----------                              

TITLE 31, UNITED STATES CODE

           *       *       *       *       *       *       *

Subtitle I--General

           *       *       *       *       *       *       *

CHAPTER 3--DEPARTMENT OF THE TREASURY

           *       *       *       *       *       *       *

SUBCHAPTER I--ORGANIZATION

           *       *       *       *       *       *       *

Sec. 310. Financial Crimes Enforcement Network
    (a) * * *

           *       *       *       *       *       *       *

    (d) Authorization of Appropriations.--
          (1) In general.--There are authorized to be 
        appropriated for FinCEN [such sums as may be necessary 
        for fiscal years 2002, 2003, 2004, and 2005] 
        $91,335,000 for fiscal year 2009 and such sums as may 
        be necessary for each of the fiscal years 2010 and 
        2011.

           *       *       *       *       *       *       *

                              ----------                              

SECTION 167, INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *

                        Subtitle A--Income Taxes

                  Chapter 1--Normal Taxes and Surtaxes

               Subchapter B--Computation of Taxable Income

 PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *

SEC. 167. DEPRECIATION.

    (a) * * *

           *       *       *       *       *       *       *

    (h) Amortization of geological and geophysical 
expenditures.
    (a) * * *

           *       *       *       *       *       *       *

          (6) Longer amortization period when iran sanctions in 
        effect.--
                  (A) In general.--In the case of geological 
                and geophysical expenses paid or incurred 
                during any taxable year ending during a 
                sanction period with respect to the taxpayer--
                          (i) paragraphs (1) and (4) shall be 
                        applied by substituting ``10-year'' for 
                        ``24-month'', and
                          (ii) paragraph (5)(A) shall be 
                        applied by substituting ``10-year'' for 
                        ``7-year''.
                  (B) Special rule for unamortized expenses as 
                of beginning of sanction period.--In the case 
                of geological and geophysical expenses paid or 
                incurred after December 31, 2008, and remaining 
                unamortized as of the beginning of the first 
                taxable year ending during a sanction period 
                with respect to the taxpayer, such unamortized 
                expenses shall be treated as having been paid 
                or incurred during such first taxable year for 
                purposes of applying subparagraph (A).
                  (C) Special rule for unamortized expenses as 
                of end of sanction period.--In the case of 
                geological and geophysical expenses paid or 
                incurred after December 31, 2008, and remaining 
                unamortized as of the beginning of the first 
                taxable year ending after the last day of a 
                sanction period, the taxpayer may elect to 
                treat such unamortized expenses as having been 
                paid or incurred during such first taxable year 
                for purposes of applying this subsection.
                  (D) Sanction period.--For purposes of this 
                paragraph, the term ``sanction period'' means, 
                with respect to any taxpayer, any period during 
                which sanctions under section 5(a) of the Iran 
                Sanctions Act of 1996 or section 8 of the Iran 
                Sanctions Act of 2008 (relating to sanctions 
                with respect to the development of petroleum 
                resources of Iran)--
                          (i) are imposed on the taxpayer, or
                          (ii) are imposed on any other member 
                        of the expanded affiliated group which 
                        includes the taxpayer, or would be so 
                        imposed if such other member were a 
                        domestic corporation.
                  (E) Expanded affiliated group.--For purposes 
                of this paragraph--
                          (i) In general.--The term ``expanded 
                        affiliated group'' means an affiliated 
                        group as defined in section 1504(a), 
                        determined--
                                  (I) by substituting ``more 
                                than 50 percent'' for ``at 
                                least 80 percent'' each place 
                                it appears, and
                                  (II) without regard to 
                                paragraphs (2), (3), and (4) of 
                                section 1504(b).
                          (ii) Other affiliated entities.--
                        Under regulations prescribed by the 
                        Secretary, the term ``expanded 
                        affiliated group'' shall include 
                        entities other than corporations which, 
                        based on principles similar to the 
                        principles which apply in the case of 
                        clause (i), are members of the same 
                        affiliated group.

           *       *       *       *       *       *       *

                          IX. Additional Views

                              ----------                              

         ADDITIONAL VIEWS OF SENATORS BINGAMAN AND ROCKEFELLER

    We respectfully submit these additional views to express 
our strong opposition to Section 7 of the Iran Sanctions Act of 
2008. This section would prohibit the United States from 
entering into a civilian nuclear energy cooperation agreement--
known as a ``Section 123'' agreement, after the provision of 
the Atomic Energy Act that authorizes civilian nuclear 
cooperation agreements--with the Russian Federation. Passing 
this legislation with the present language of Section 7 would 
be contrary to our national interest.
    On May 6, 2008, the United States signed a Section 123 
agreement with Russia. This agreement would bring about a 
significant deepening of the cooperative nuclear relationship 
between the United States and Russia that began with the Nunn-
Lugar Cooperative Threat Reduction program, which aimed to 
dismantle weapons of mass destruction and their associated 
infrastructure in the former Soviet Union. Section 7 of the 
Iran Sanctions Act would, in its present form, halt civilian 
nuclear cooperation with Russia. It makes no sense to backslide 
on the Nunn-Lugar program at the moment when we are poised to 
enter into a long-term agreement that will consolidate the 
counterproliferation gains that we have made since the collapse 
of the Soviet Union.
    We oppose the present Section 7 language for three 
fundamental reasons. First, it undermines our efforts at 
containing Iran's nuclear program, lessens our leverage with 
Russia on counterproliferation matters, and effectively gives 
Iran control over American civilian nuclear cooperation with 
Russia. Second, the Finance Committee is voting on this 
legislation hastily, without having considered crucial 
intelligence as to how the Section 123 agreement provides 
useful leverage with Russia in our counterproliferation efforts 
vis-a-vis Iran. Third, the Finance Committee has marked up 
Section 7 without consulting the Foreign Relations Committee, 
which--by virtue of its jurisdiction over civilian nuclear 
cooperation agreements--has the technical expertise necessary 
to evaluate the Section 123 agreement properly.
    We will elaborate on each of these points in turn.
I. Section 7 undermines our efforts at containing Iran's nuclear 
        program, lessens our leverage with Russia on 
        counterproliferation matters, and effectively gives Iran 
        control over American civilian nuclear cooperation with Russia
    Russia is an important, even indispensable, partner in our 
global counterproliferation efforts, and U.S. nuclear 
cooperation with Russia has produced tangible and substantive 
results in the effort to stop Iran from developing nuclear 
weapons. To halt these efforts categorically, as Section 7 
would do, would thwart, rather than advance, our 
counterproliferation goals with respect to Iran, to the 
detriment of our national interests, as well as to the 
interests of Russia, Israel, and moderate Arab states.
    We harbor no illusions that the interests of the U.S. and 
Russia are perfectly aligned. We have grave concerns about 
Russia's energy diplomacy in Europe, and we believe that 
Russia's state oil and gas companies are too often 
instrumentalities of Russian foreign policy. But these facts 
should not stop our nation from cooperating with Russia when it 
is in our national interest to do so.
    Russia certainly has not been as helpful as it could be on 
Iran. Most notably, in the 1990s, when Germany stopped work on 
the Bushehr reactor in Iran because of counterproliferation 
concerns, Russia completed its construction, and it shipped 
nuclear fuel there. It does not follow, however, that Russia 
has been entirely unhelpful. And in our opinion, Russia has 
contributed to our counterproliferation goals in at least four 
ways.
    First, Russia now has an agreement in perpetuity to take 
back all spent fuel from Bushehr, so that it cannot be 
weaponized.
    Second, Russia has proposed the creation of an 
international enrichment facility at Angarsk, where countries 
can enrich uranium for civilian purposes, on Russian territory 
and under International Atomic Energy Agency (IAEA) 
supervision. This facility would rob Iran and other 
proliferators of any pretext that they must enrich to develop a 
domestic civilian nuclear energy industry.
    Third, the U.S. and Russia have also proposed the creation 
of an international spent fuel storage facility. This facility 
could accept spent nuclear fuel from both the U.S. and other 
countries, which reduces incentives for countries like Iran to 
have their own nuclear reprocessing facilities. At Sochi on 
April 8, 2008, the United States and Russia agreed to proceed 
with this international fuel bank program. Last year, the 
Congress even appropriated $50 million to establish the 
international fuel bank program, a fact recognized in the Iran 
Sanctions Act.
    The United States needs the Section 123 agreement to 
continue with the international enrichment facility, the spent 
fuel bank, and collaboration in the development of 
proliferation resistant nuclear tchnologies--as well as R&D in 
areas such as fast neutron reactors and advanced fuel cycle 
technologies.
    Fourth, Russia has supported four resolutions in the United 
Nations Security Council aimed squarely at stopping Iran's 
nuclear ambitions. These are Resolution 1696 of 2006, 
Resolution 1737 of 2006, Resolution 1747 of 2007, and 
Resolution 1803 of 2008.
    These resolutions impose progressively tougher sanctions on 
Iran--and Russia is a part of those sanctions. Under these 
resolutions, Iran must suspend all enrichment-related and 
reprocessing activities, and states must take necessary 
measures to prevent the sale or transfer of all goods and 
technology that could contribute to Iran's enrichment 
activities. This is not advisory language. It is a mandate from 
the international community, including Russia, to place broad-
based sanctions on Iran.
    If Congress now repudiates the Section 123 agreement with 
Russia, Russia will be far less likely to cooperate with the 
United States on counterproliferation matters, whether in the 
United Nations Security Council, bilaterally with Iran, or in 
the context of the Nunn-Lugar Cooperative Threat Reduction 
program. That would be a grave setback for the United States 
and contrary to its national security interests.
    The United States needs Russia as a partner to contain 
Iran's nuclear weapons ambitions. The Section 123 agreement is 
an effective way to secure a partnership with Russia, to 
provide incentives for Russian cooperation on Iran, and to 
discourage bad behavior on the part of Russia. The agreement 
allows the U.S. to maintain flexibility in its relations with 
Russia. Although it provides a roadmap for future cooperation 
on civilian nuclear energy, the agreement does not open the 
floodgates to untrammeled technology transfer. Instead, it 
regulates how such cooperation will proceed. For instance, the 
executive branch must issue a license for each and every 
shipment of civilian nuclear technology to Russia pursuant to 
the Section 123 agreement. Therefore, it is incorrect to 
suggest, as some of our colleagues have, that the agreement 
would force the U.S. to ship sensitive nuclear technology to 
Russia were our relations with Moscow to deteriorate.
    Because the Section 123 agreement memorializes the nuclear 
non-proliferation commitments that Russia has made, it provides 
a mechanism for monitoring Russia's counterproliferation 
behavior--including in Iran. Conversely, repudiating the 
agreement would remove Russia's incentives to cooperate with 
the United States on counterproliferation matters.
    Furthermore, Section 7 effectively makes continued civilian 
nuclear cooperation with Russia contingent on Iranian, rather 
than Russian, behavior. Section 7(c) would allow civilian 
nuclear cooperation with Russia only if the President certifies 
that (1) Russia has suspended all nuclear assistance to Iran 
and all transfers of advanced conventional weapons and missiles 
to Iran, or (2) Iran has completely, verifiably, and 
irreversibly dismantled all of its nuclear enrichment and 
reprocessing programs.
    Because intelligence concerning nuclear assistance and arms 
transfers between two large countries can never be perfect or 
complete, it is unrealistic to expect that the President could 
ever make an unequivocal certification based on the first prong 
of Section 7( c). Therefore, for practical purposes, the second 
prong--the complete, verifiable, and irreversible dismantling 
by Iran of its nuclear enrichment and reprocessing programs--is 
the criterion for any presidential certification. This language 
effectively makes civilian nuclear cooperation with Russia 
contingent on the actions of our adversary, Iran. This 
situation is unacceptable.
    Finally, Iran has not procured its enrichment technology 
from Russia--most of it has come from Pakistan. It is misguided 
to link Russia's Section 123 agreement to Iranian enrichment 
behavior when Russia has nothing to do with Iran's enrichment 
program.
II. The Finance Committee is voting on this legislation hastily, 
        without having considered crucial intelligence as to how the 
        Section 123 agreement provides useful leverage with Russia in 
        our counterproliferation efforts vis-a-vis Iran.
    The Finance Committee has reported the Iran Sanctions Act 
without having considered crucial intelligence as to how the 
Section 123 agreement is helpful in our counterproliferation 
efforts vis-a-vis Iran. The classified annex of the agreement 
contains discussion detailing the positive effects the Section 
123 negotiations appear to have had on Russia's role in 
nonproliferation issues in general, and on its influence on 
Iran's nuclear program in particular. We urge every member of 
the Senate to seek out a classified briefing before voting to 
stop this accord with Russia.
    In 2003, the Senate voted to give the President authority 
to go to war in Iraq without a full understanding of all 
aspects of the relevant intelligence. This experience should 
remind all senators that when considering critical matters of 
national security, it is imperative that we be fully briefed on 
the relevant intelligence before votes take place. The Finance 
Committee has not been fully briefed on Russia's 
counterproliferation efforts vis-a-vis Iran; thus, it is 
inappropriate that the Committee should legislate on the 
subject at this point.
III. The Finance Committee has marked up Section 7 without consulting 
        the Foreign Relations Committee, which--by virtue of its 
        jurisdiction over civilian nuclear cooperation agreements--has 
        the technical expertise necessary to evaluate the Section 123 
        agreement properly.
    The Finance Committee is not the place to have a debate 
over U.S. policy on international civilian nuclear cooperation. 
Section 123 of the Atomic Energy Act of 1954 gives the Foreign 
Relations Committee jurisdiction over Section 123 agreements in 
the Senate.
    The Foreign Relations Committee staff has deep expertise on 
Section 123 agreements. To date, Congress has approved civilian 
nuclear cooperation agreements with every major civilian 
nuclear power other than the Russian Federation. These 
agreements are highly complex and involve lengthy hearings by 
members and staff steeped in the details and processes of such 
agreements. The Finance Committee, while highly competent in 
matters of its jurisdiction, such as trade sanctions, is the 
wrong venue in which to consider language barring a civilian 
nuclear cooperation agreement with Russia.
    Before pronouncing judgment on the Section 123 agreement, 
we urge senators to avail themselves of the technical expertise 
necessary to understand the agreement.
    In conclusion, Senators Nunn and Lugar, two of the most 
highly respected figures in the non-proliferation community, 
recently wrote an op-ed article in the New York Times in which 
they stated, ``One goal of [the Section 123] agreement is to 
prevent more countries from following Iran's path to becoming a 
nuclear power. We should not sacrifice our most promising long-
term nonproliferation strategy in pursuit of short-term 
leverage that is likely to backfire.'' The Bush administration, 
as well as Senators Biden and Lugar in their capacity as 
chairman and ranking member of the Foreign Relations Committee, 
have also written in opposition to Section 7 of the Iran 
Sanctions Act for this reason.
    We heartily endorse their words. For this reason, Senator 
Bingaman offered an amendment to strike the harmful Section 7 
and replace it with a resolution expressing the sense of the 
Senate that the Section 123 agreement should be reviewed 
carefully in light of Russia's past and present actions with 
respect to Iran and as a mechanism by which the U.S. and Russia 
can work on preventing proliferation to countries such as Iran. 
This amendment would have highlighted the need for the 
Committee of jurisdiction, and eventually the whole Senate, to 
take a close look at this important agreement. This is a 
critical matter of national security, one that we must not get 
wrong.
    For these reasons, we must oppose the Iran Sanctions Act in 
its present form.
                                   Jeff Bingaman.
                                   John D. Rockefeller IV.

                  ADDITIONAL VIEWS OF SENATOR CANTWELL

    I am concerned about the impact of Section 7 on the ability 
of U.S. aviation companies to obtain ``safety of flight'' 
licenses from the Treasury Department's Office of Foreign 
Assets Control. Safety of flight licenses can cover domestic or 
foreign fleet (if the foreign fleet incorporates U.S. parts) 
repairs that are mandated by a Federal Aviation Administration 
Airworthiness Directive, airplane-on-the-ground situations, 
other urgent parts replacement or repair needs, or airplane 
crash investigations.
    Under current law (the Iran-Iraq Sanctions Act of 1992) and 
regulation (the Iran Transactions Regulations), safety of 
flight activity that did not require a license prior to 1992 
does not require a Presidential waiver. Activity that did 
require a license prior to 1992 does require a Presidential 
waiver and S. 970 would not change the treatment of these 
licenses--a waiver from the President would still be required. 
But for activities that do not currently require a Presidential 
waiver, the bill would now require one.
    The reason for this current bifurcated treatment lies in 
the differences in the level of significance of a particular 
request for export approval for a safety of flight activity. 
Requests for export approvals related to safety of flight may 
require no transfer of information/technology to Iran, and the 
parts involved may be insignificant, i.e., the export does not 
rise to a level that would pose either a national security or 
foreign policy concern.
    For example, a license to export the data map of an Iran 
Air 747 flight data recorder in support of a third country 
investigation of a nose wheel collapse which the plane 
experienced while landing outside of Iran in 2004 did not 
require a presidential waiver. On the other hand, the export of 
wing strut modification kits for 747 aircraft operated by Iran 
Air required a presidential waiver because that could improve 
the airworthiness of the aircraft. It should be noted that, in 
this case, the parts and related technology were exported to 
Germany and that Lufthansa performed the repairs, not Iran.
    This concern may be addressed by simply allowing the 
President to delegate his waiver authority for activities that 
do not currently require a waiver to the Secretary of the 
Treasury and/or to the Secretary of State.
                                                    Maria Cantwell.

                    ADDITIONAL VIEWS OF SENATOR KYL

    It is critical that the United States strengthen and focus 
our diplomatic and economic resources to persuade Iran to 
comply with U.N. Security Council Resolutions. This bill is 
vitally important to our nation's effort to increase pressure 
on the Iranian regime.
    I support Section 7 of this bill. While the committee's 15 
to 4 vote in favor of this section and the House of 
Representatives' 397 to 16 vote in favor of legislation--the 
Senate companion of which has 72 cosponsors--containing a 
nearly identical provision clearly indicate the broad consensus 
behind efforts to promote a sensible policy toward Russia, the 
merits of this section warrant thorough review.
    Open and classified intelligence documents Russia's history 
of cooperation and assistance to Iran.
    In support of Iran's effort to master nuclear technology, 
Moscow has provided critical aid in the construction and 
operation of the Bushehr nuclear reactor; Iran has paid about 
$800 million for these services. Russia has also made at least 
seven shipments of nuclear fuel to Iran and trained at least 
700 Iranian nuclear engineers. I am aware of no limitation as 
to what these Iranian engineers will do with that training.
    Since the 1990s, Russia has sold Iran billions in military 
equipment, such as submarines, aircraft, tanks, helicopters, 
and advanced air defense systems, which, according to open 
source reporting, likely includes the capable SA-20 missile 
system, modeled after the U.S. Patriot system.
    Additionally, a March 1, 2007 letter from the Office of the 
Director of National Intelligence stated, ``We assess that 
Russian entities continue to provide assistance to Iran's 
ballistic missile programs. We judge that Russian-entity 
assistance, along with assistance from entities in China and 
North Korea, has helped move toward self-sufficiency in the 
production of ballistic missiles.''
    It is, therefore, clear that, in addition to preventing 
meaningful action with regard to Iran in the United Nations 
Security Council, Russia has provided Iran with nuclear 
assistance, and sold and delivered to Iran advanced 
conventional weapons and ballistic missile material. Entering 
into a close nuclear technology partnership with Russia would 
signal U.S. approval of these activities and does not promote 
U.S. objectives with regard to Iran.
    Section 7 of this bill prevents the United States from 
entering into a nuclear cooperation agreement or undertaking 
transactions pursuant to such an agreement with Russia unless 
the President has certified that Russia has suspended all 
nuclear, conventional weapon, and ballistic missile assistance 
to Iran; or, that Iran has verifiably dismantled all nuclear 
programs. This is an appropriate response to Russia's 
cooperation with Iran.
    In addition to the overwhelming disapproval of the nuclear 
cooperation plan expressed in the House of Representatives and 
Senate Finance Committee, Congresswoman Ileana Ros-Lehtinen, 
the ranking member of the House Foreign Affairs Committee, 
along with several other House members, recently sent a letter 
to President Bush asking him to withdraw the 123 Agreement, 
citing Russian assistance to rogue states and ``Russia's 
continuing sale of advanced conventional weapons to Iran.'' The 
letter further suggests a contradiction in the Administration's 
request for a waiver of sanctions required under the Iran, 
North Korea, Syria Sanctions Act. Pursuant to the provision of 
the Act, the President is required to certify to Congress that 
the Russian government has acted sufficiently to prevent the 
proliferation of weapons of mass destruction and the enabling 
technology. Such a certification has never been made since the 
Act's passage in 2000.
    Congressman John Dingell, Chairman of the House Energy and 
Commerce Committee, and Congressman Stupak have also requested 
that the GAO investigate whether the Administration's 
classified and unclassified assessment--known as an NPAS--that 
a 123 Agreement with Russia would be consistent with the non-
proliferation program, policies, and objectives of the United 
States is fully supported in light of Russia's nuclear 
cooperation and weapons proliferation to Iran.
    Several arguments have been put forward in an effort to 
prop up the 123 Agreement. Proponents of the 123 Agreement 
assert that withholding approval of the proposed cooperation 
plan will undercut the disarmament and non-proliferation plans 
and objectives of the United States, by interfering with the 
Nunn-Lugar Cooperative Threat Reduction program. But, programs 
funded by ``Nunn-Lugar'' are not dependent in any way on the 
approval of the Russia 123 Agreement. Those programs are 
functioning today, without the Agreement, and will continue to 
function, regardless of the 123 Agreement's fate.
    Nor will withholding U.S. approval of the 123 Agreement 
endanger independent Russian proposals, such as the creation of 
an International Enrichment Center to provide nuclear fuel to 
developing nations. This project is completely unrelated to the 
approval of the 123 Agreement.
    Some also argue that Russia is our partner in addressing 
Iran's threatening behavior and that withholding support for 
the 123 Agreement will make Russia less likely to support U.S. 
objectives with regard to Iran. However, the documented 
cooperation between Russia and Iran clearly does not represent 
the actions and commitment of a strong partner. A nuclear-armed 
Iran is not in Russia's interest, and the U.S. should not act 
as if compelled to make a ``down payment'' on Russia's will 
good by approving a nuclear agreement that country very much 
desires.
    It is incumbent upon Russia to join the rest of the 
international community and use its close ties with Tehran to 
foster meaningful dialogue and bring Iran within compliance of 
the U.N. Security Council's resolutions. A nuclear-armed Iran 
is not in Russia's interest. It is illogical to suggest--as 
some proponents of the 123 Agreement do--that Russia would 
expand its cooperation with Iran simply due to a foreign policy 
disagreement with the United States.
    The U.S. should not accept partial cooperation as 
sufficient, especially cooperation that does not rise above the 
level of demarches and diplomatic niceties. Rather, we should 
reserve our assets and accolades for those nations that 
sincerely avail themselves in pursuit of a more peaceful world. 
While Russia has supported some efforts to restrain and 
penalize Iran's destabilizing behavior, it has also profited 
from it. The United States should work with Russia to end 
military assistance to Iran before entering into a nuclear 
cooperation deal. Section 7 merely codifies that commonsense 
policy.

                                                           Jon Kyl.

                   ADDITIONAL VIEWS OF SENATOR SMITH

    The Chairman's mark, which builds on legislation (S. 970) 
that Senator Durbin and I wrote, is an important step in the 
advancement of a diplomatic solution to prevent Iran's 
development of a closed nuclear cycle.
    The United States, in conjunction with our European 
partners, is solidly committed to preventing nuclear 
proliferation. In the Middle East, our success in achieving 
this goal is critical.
    If Iran is allowed to perfect a closed nuclear cycle and 
build nuclear armaments, it will not be long before other 
regional powers follow suit. In addition, Iran's hostility to 
Israel's existence and bellicose rhetoric make the long-term 
destabilizing influence of a nuclear Iran intolerable. The 
world urgently needs intensified diplomacy, consisting of 
carrots and targeted sticks, to encourage Iran to abandon its 
nuclear ambitions.
    I am confident that this legislation will be an important 
part of that diplomacy, complimenting efforts already underway 
to apply pressure to enablers and abettors of the regime. These 
steps, which include the sanctioning of major Iranian banks and 
senior officials involved with the nuclear program and 
terrorism, have significantly increased the cost of nuclear 
enrichment for Iran, without disproportionately harming the 
Iranian people.
    We have no grievance with the Iranian people, who live in 
an autocracy and are isolated from much of the decision-making 
by their leaders. Indeed, to help build ties with the Iranian 
people, this legislation will authorize educational and 
cultural exchange programs in the United States. These programs 
will help counter the Iranian regime's propaganda and help 
eventually draw a peaceful, democratic Iran into partnership 
with the United States and the rest of the free world.
    Iran is not building its nuclear program in a vacuum, and 
the international community must be an integral part of the 
sanctions process. Unfortunately, certain nations like Russia 
are continuing to assist in Iranian nuclear and weapons 
programs, while paying lip service to the need for 
nonproliferation. In light of this fact, a key provision of 
this legislation would ban Russia from obtaining a so-called 
123 nuclear agreement with the United States until it halts 
cooperation with Iran's nuclear, advanced weapons, and missile 
programs, or until Iran dismantles its enrichment facilities. 
We must make clear to Russia that it cannot continue to deal 
lethal technologies to Iran and still reap the benefits of 
civilian nuclear cooperation with the United States.
    Key to the success of the diplomatic process is bold action 
by the United Nations Security Council (UNSC), which to date 
has adopted three sanctions resolutions in response to Iran's 
continuing enrichment of uranium. I am pleased with the steps 
taken so far, but much more needs to be done. To this end, the 
UNSC should continue to take the lead in negotiating an end to 
Iran's nuclear program.
    I do support unilateral sanctions lightly. However, the 
case before us in Iran is pressing and distinctive enough that 
unilateral sanctions can be very useful. They can help buttress 
UNSC sanctions resolutions, while choking off Iranian 
activities in international banking and high technology. These 
steps are critical to an engaged, international diplomatic 
effort, and vital to a peaceful resolution of the current 
impasse.
                                                   Gordon H. Smith.

                                  
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