The United States employs a broad range of tools in its efforts to combat domestic and international terrorism. One of these tools is the imposition of economic sanctions against states which sponsor terrorism. In accordance with the Export Administration Act of 1979, the Secretary of State compiles annually a listing of countries that support or participate in terrorist acts. Currently, the U.S. has designated seven state sponsors of terrorism: Iran, Iraq, Cuba, Libya, North Korea, Sudan and Syria.

Since 1979, a number of different laws have expanded the universe of sanctions against nations supporting terrorism. Federal agencies, primarily the Departments of State, Treasury, Commerce and Transportation, implement the sanctions which include import embargoes, export license controls, freezing assets, terminating new loans and credit extensions, restricting arms sales and foreign assistance, terminating air services and curtailing other activities between the U.S. and the nations designated as sponsors of terrorism.

Designated state sponsors of terrorism are prohibited from receiving U.S. government assistance, loans, or weapons and dual-use items. This designation does not trigger general trade restrictions. Apart from this sanctions regime, the Office of Foreign Assets Control (OFAC) of the Department of Treasury administers additional sanctions, including trade restrictions, against Iran, Iraq, Cuba, Libya and North Korea based on circumstances unique to each country.

Recent Legislation

On April 24, 1996, President Clinton signed into law the Antiterrorism and Effective Death Penalty Act of 1996, which makes it a criminal offense for U.S. persons to engage in financial transactions with the governments of countries designated as supporting international terrorism.

This legislation imposed a full trade embargo on countries designated as state sponsors of terrorism and more clearly defined the prohibition against engaging in financial transactions with terrorist nations. Other trade restrictions were already in place as a result of sanctions imposed on several states for separate reasons.

For example, following Libyan involvement in the December 1985 attacks on the Rome and Vienna airports, President Reagan authorized in January 1986 sanctions against Libya that froze Libyan assets in the U.S. and banned all trade and financial dealings with Libya.

Sanctions against Iran, first instituted following the November 1979 Iranian seizure of U.S. hostages at the American embassy in Teheran, have expanded as a result of numerous Iranian activities such as efforts to disrupt the flow of oil from the Persian Gulf in 1987, active pursuit of weapons of mass destruction, efforts to undermine the Arab-Israeli peace process, and sponsorship of international terrorism. President Clinton instituted a total trade embargo on Iran in May 1995.

Sanctions against Iran and Libya were further strengthened in August 1996 when the President signed into law the Iran-Libya Sanctions Act of 1996 which imposes a wide array of sanctions and penalties against foreign companies who make new investments of $40 million a year or more in Iran and Libya's oil and gas sectors.

In its regulations implementing the Antiterrorism Act, the Treasury Department excluded Sudan and Syria, countries which have never been subject to a trade embargo. Financial transactions with Sudan and Syria were barred only if "the U.S. person knows or has reasonable cause to believe that the financial transaction poses a risk of furthering terrorist acts in the United States."

Sudan was added to the terrorism list in August 1993 following a thorough U.S. intelligence review which concluded that Sudan's Islamic government was continuing to provide sanctuary, safe passage, military training, and office space in Khartoum, to officials of at least five groups involved in terrorist activities. The U.S. has also been active in strengthening diplomatic sanctions against Sudan imposed by the United Nations in the wake of the Sudanese refusal to extradite three men suspected of trying to assassinate Egyptian President Hosni Mubarak and general Sudanese support for international terrorism. Nevertheless, to date, the Administration has not provided any policy justification for permitting trade with Sudan.

Practically speaking, the civil war in Sudan precludes large-scale American trade with that country and U.S. exports to Sudan were $43 million in 1995 and $50 million in 1996. In contrast, more than 200 U.S. companies do business with Syria, with Damascus accounting for $226 million in U.S. sales in 1996.

The Administration has repeatedly asserted that Syria harbors terrorist organizations and has reaffirmed that it will remain on the terrorism list until that is no longer the case. At the same time, in recognition of Syrian participation in the Arab-Israeli peace process, U.S. officials have been reticent to aggressively increase U.S. pressure on Syria and have emphasized that, contrary to other state sponsors, Syria does not itself engage in terrorism.

To close this loophole regarding trade with Sudan and Syria, Representatives Charles Schumer (D-NY) and Bill McCollum (R-FL) introduced the "Prohibition in Financial Transactions with Countries Supporting Terrorism Act of 1997" which removes the discretionary authority of the Treasury Department to exempt any terrorist state and thus imposes the same total trade embargo on Sudan and Syria as on the other five countries. At this writing, the legislation is still pending. (Despite the total trade embargo on the other five nations, there are indirect U.S. assistance and goods flowing to these countries through other loopholes.)

Effectiveness of Sanctions

In general, debate exists as to whether U.S. sanctions against terrorist nations have proven effective in either weakening the economy of the terrorist nation or in deterring terrorist activity. The debate primarily centers around Iran, whose oil projects provide real revenue for American and international business.

Opponents of sanctions, primarily the business sector and its advocates, argue that the sanctions have only pushed Iran into the arms of Russia and other non-Western suppliers and that American pressure has not been effective in deterring other countries from investing in Iran. They further contend that American sanctions alone are ineffective and that only global embargoes, such as the worldwide embargo on Iraq after its invasion of Kuwait, and the global boycott of South Africa to protest apartheid, actually produced desired results.

In contrast, UN sanctions against Libya for their refusal to surrender individuals suspected of two airline bombings in 1988 and 1989, the first global coalition against a country accused of international terrorism, have been fruitless.

Advocates of sanctions point to a crippled Iranian economy resulting from the U.S. trade embargo and recently strengthened by the Iran-Libya Sanctions Act of 1996. They contend that Teheran is unable to obtain the long-term capital it has been seeking to expand its oil and natural gas industry and is having difficulties attracting foreign investment in its oil sector.

They further assert that although America's allies did not join the U.S. ban on trade with Iran and were furious over the legislation imposing penalties on foreign companies, the threat of U.S. retaliation and the desire to stay in the good graces of the U.S. have in fact discouraged foreign investment. Companies in France, Japan and Australia have recently canceled specific projects in Iran's energy sector. Discussions have emerged within European countries questioning the wisdom of Europe's policy of "critical dialogue" with Iran.

Iranian officials themselves have recently admitted to the debilitating effects of sanctions. According to Mohsen Yahyavi, deputy of the Iranian Parliament's Oil Committee, U.S. sanctions against Iran have slowed foreign investment in the country's oil industry. Quoted in the Iran News in January 1997, he said, "Despite widespread arrangements by the oil ministry, foreign contractors are not much interested in engaging in petroleum projects in Iran." He said the U.S. sanctions law was partly to blame. Trade publications have also pointed to a dwindling interest in Iranian energy projects.

To date, no foreign company has been sanctioned under the Iran-Libya Sanctions Act since none has made an investment in Iran that has clearly crossed the $40 million threshold. At this writing, the U.S. is examining whether a recently awarded Turkish contract to build part of a natural gas pipeline link with Iran is in violation of the new law.

A state-owned German bank, Westdeutsche Landesbank, recently agreed to finance the development of Iran's Soroush oilfield in the Persian Gulf, one of 11 major oil and gas projects Iran has had up for international bids since late 1995 and which have generated no takers. The German regional bank has already agreed to lend $90 million and is considering an additional package worth $70 million.

The bank's financing of investment does not technically violate U.S. sanctions which ban actual investing. Sanctions against financing investment were dropped from a House bill sponsored by Rep. Benjamin Gilman (R-NY) in response to fierce opposition from the banking industry which feared loss of international business. In addition, European and Japanese government-backed loan guarantees of $5 billion obtained by Iran also do not technically violate U.S. sanctions because they are in the form of government-to-government commitments rather than direct foreign investment by companies. Nevertheless, the U.S. opposes these countries' engagement with Iran.

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