NSC MEETING ON SENATE BILL 812

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R000400500011-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 22, 2016
• Document Release Date: December 7, 2010
• Sequence Number: 11
• Publication Date: November 22, 1985
• Content Type: MEMO

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SECRET
The Director of Central Intelligence
Washington, D.C. 20505
National Intelligence Council
MEMORANDUM FOR: Acting Director of Central Intelligence
FROM:
?-?
NIC 05827-85
22 November 1985
Acting National In:elligence Officer for Economics
SUBJECT: NSC Meeting on Senate Bill 812
1. On Monday, 25 November, the President will chair an NSC meeting
(originally scheduled for 1 November) to determine the Administration's
position on S. 812, the Financial Export Control Act, which would give
the President powers to bar lending by US institutions to "controlled"
countri es.
2. Senators Garn and Proxmire proposed S. 812 (Attachment A) as a
way of preventing the Soviet Bloc from using funds borrowed in the United
States to finance the transfer of technology or to fund other activities
such as support for Nicaragua. The bill was introduced on 28 March as an
amendment to the Export Administration Act; hearings will be held on 3
December.
3. In terms of substance, it would, of course, be impossible to stop
US funds from flowing indirectly to the Bloc or convince countries in
Western Europe to halt additional credits in any "non-emergency"
situation. The Justice Department argues that provisions in the bill
would allow the President to avoid excessive use of the International
Emergency Economic Powers Act (IEEPA), invoked for the Nicaragua
sanctions. Others within the Administration say that the President ought
to have the power to take actions short of those under IEEPA if the
situation warrants. The Secretaries of Treasury, State, and Ommerce
oppose the controls contained in S. 812, arguing that they would be
ineffective, run counter to our aim of improving the dialogue with the
USSR, and are inherently against our interests. Defense and NSC are in
favor of some powers along the lines of S. 812, although not necessarily
in the form provided in the bill. OMB is opposed to the bill but
proposes that the Administration find ways of taking such actions short
of legislation.
This Memorandum Classified SECRET
When Removed from Attachments
SECRET
CL BY SIGNER
DECL OADR
n
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SUBJECT: NSC Meeting on Senate Bill 812
4. Setting aside the above objections, CIA can make the point that
this is an appropriate time to consider such powers because the Soviet
Union will suffer a substantial decline in hard currency earnings over
the next five years, and Western credits will be needed if Moscow is to
maintain its purchases of Western machinery, equipment and technology.
We might also want to question whether the bill should be targeted at
additional areas such as those states that support terrorism.
5. The meeting on Monday will focus on three options, according to a
7 October memorandum prepared by NSC.
1. Giving Administration support to the spirit and intent of
S. 812.
2. Having OMB inform the Senate that it will draft adminis-
trative procedures to achieve a comparable result.
3. Saying that the Administration is opposed to S. 812 but will
work to develop administrative procedures to achieve a comparable
result.
The DCI was given a copy of this draft memorandum (Attachment B) and sent
it, along with a supportive note, to Weinberger on 28 October.
Attachments:
A. Senate Bill 812
B. Memo and Attachment on Financial Export Control Act
C. Advanced Industrial Technologies in the USSR: Progress and Problems
D. USSR: The Role of Foreign Trade in the Economy
E. USSR: Implications of Reduced Oil Exports
F. Eastern Europe: Boom Market for Syndicated Lending
SECRET
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..
SUBJECT: NSC Meeting on Senate Bill 812
Acting NIO/Econ
Distribution:
Original - Addressee
1 - Executive Secretary
t_.-1---Executive Registry
1 - C/NIC
1 - VC/NIC
1 - Acting NIO/Econ
1 - A/NIO/Econ
2 - NIO/Econ Files
SECRET
22 November 1985 NIC 05827-85
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IIHI-1111t11 I A
CONGRESSIONAL RECORD ?SENATE March 28, 1985
against which we maintain nations) se-
curity export controls.
Por the past $ years the Congress
has been revirwing the Export Admin-
istration Act in an effort to improve
our abWty to prevent the transfer of
sensitive goods and technology to our
adversaries. The Defense Department
recently commlogioned a private study
of the impact of technology transfer
on our defense spending. That study.
which will soon be released, confirms
what we have long feared, that tech-
nology transfer to the Soviet bloc
costs us tens of billions of dollars an-
nually in increased defense costs.
Mr. President. although a bargain in
? comparison with our development
costs. the Soviets have to pay for the
technology they obtain. It is unfortu-
nate but true that the Soviets are suc-
cessful in gathering Western technolo-
87 with the help of people living in
the Westerr democracies. But that
help has to be bought. In fact. the
Western high technology smuggler de-
mands a premium price for everything
he delivers, and be will not take pay-
ment in rubles. This means. Mr. Presi-
dent, that the Soviet ability to obtain
the sensitive goods and technology
from the West that are turned against
us to Soviet weapon systems is directly
related to their ability to obtain hard
currency. Western currencies.
There are only a few ways that the
Soviets can obtain hard currency.
They can export to the West. but the
quality of Soviet products is so low
that export sales have been limited to
exports of raw materials, such as gold
-.mar
and natural gas. and to arms exports.
The other way that the Soviets have
la the past obtained what is for them
very scarce Western currency is
through loans from Western banks.
This source largely dried up. however.
over the inability of Poland and sever-
al other Soviet allies to pay their debts
and the furor caused by the 'realiza-
tion that Western banks were so
deeply livolved in lending to the
Soviet bloc at the same time that
these countries were brutally repress-
ing their own citizens.
Lately..hoyiever, Western European
banks have resumed their lending to
the Soviet bloc. The level of lending
reached 113 billion last year. ? three-
fold increase over 1982. The only
bright spot in this gloomy picture was
the fact that U.S. banks were staying
out. Now that. too. Is ending. Ameri-
can banks are now falling over each
other to get back Into lending to the
Warsaw Pact, and at terms far more
favorable than what the Western Eu-
ropeans were offering. IAst year. while
West German banks were snaking
largely short-term loans to East Ger-
many at rates 3 or 4 percentage lanints.
over the London Interbank offered
rate (LIBOR). First Chicago Bank
Cave the East Germans a 875 million
loan at only 1 point above LIBOR.
The Western Europeans have since
begun matching those terms.
By Mr. GARN (for himself and
Mr. Paorcurax):
S. 1112. A bill to amend the Export
Administration Act of 1979 to author-
; be controls of the export of capital
from the United States; to the Com-
mittee on Banking. Sousing. and
Urban Affairs.
1111:1WRCIAL 11220111T COINTIOL ACT
? Mr. (URN. Mr. President. today I
am introducing the Financial Export
Control Act, a bill authorizing the
President to control the transfer of
money and other finandal resources
from the United States to oountrtes
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March a 1.98.5 CONGRESSIONAL RECORD ? SENATE S 3685
sot to be outdone. however, New are contributing so direcUy to $oviet million largely due to US. banks' demand
Tort's Citibank is currently syndicat- bloc military advances. The loan hasn't any political strfney at-
m/ a loan to East Ciermany in the I am offering this bill today for con- taelsed. and its terms are the best East Ger-
a/mount of $500 million, at seven- sideration by my colleagues in hopes
eighths of a point above LIBOR or that it will lead to an end to the prac- gill"
717?tigkgsgrefeeleennsintageteRapt:th!en4 JP?ovieris)rhth7L1=
or an
one-half point above the U.S. prime tice of lending to our adversaries. This int
for K ntage point over the U.S prime
"ie. This loan started out at a mere bill authorizes, but does not direct, the
irate. Ills to be repaid over seven years with
$150 million. but there was such en- President to control transfers of cap- a three year grace. ?
'indium for it from US. banks that ital to countries against which we -Ira all a political business.- wan Wow
the East 'Germans were persuaded to maintain national security export con- gang Seiftdrt, eeonomic adviser to the East
increase the amount. Moreover, this trols. the Soviet bloc countries. The German government until mil and now a
on is for 7 years, with a built-in 3- President would be given full discre- professor in teL West Germany. The at.
year grace period. Uonary authority so as to apply such tempt of East Germany to get money from
Mr. President, the prime rate is cur- controls in the manner most in keep- American and other banks is an effort to get
rently at 10.5 percent. so the Citibank int with our national interests. western finances without liberahlation
measures. The money will give East Berlin a
loan to East Germany. In today's The bill in its CUrrent form is a dis- stronger hand for its political games with
terms, would be for a rate of 11 per- cussion draft. My colleagues may have West Germany because it doesn't need
cent. I wonder whether any of my col- some other ideas, and some changes Bonn's money as much anymore."
lealgueS have any constituents that may need to be made. Perhaps the West German bankers also complain that
would like to borrow money at 11 per- problem can be solved without legida. the Americans have been driving prices
cent. Do they have anyone who would Lion. but I believe that the time has down in their effort to get back into the
lace to buy a home at 11 percent, or arrived to addresi this situation direct- East Germany lending market that the)
obtain credit for farm Improvements ly. abandoned in 1981. when Poland cast a
at percent'. Perhaps they have some Mr. President. I would also like to shadow over all of Eastern Europe
Until last year West German banks were
constituent that would like to start or mention to my colleagues that I do not extending the East Germans primarily corn-
.
expand a business with an 11-percent intend to add this bill to current pro- mercial loans. usually to be repaid after one
loan, or make an export sale. They nasals to amend the Export Adminis- year at a rate three to four percentage
very vit'll may have such people, but tration Act that are being considered Points above Libor. However, East Germany
they are unlikely to find those kinds here and in the House of Represents. extracted far better conditions from First
of loans being offered. Apparently, a fives in connection with the reauthor- National Bank of Chicago when It worked
family trying to buy a home, a farmer, hation of the Export Administration its way back Into the market last yeas. First
a businessman in the United States act. This is a separate item of koala. Chicago offered a $75 million club loan at
cannot easily get such a rate. but the lion. ' only one percentage point above Libor. a
East Germans can. rate that European banks thereafter were
Mr. President. I ask that the text of forced to match despite a feeling by many
What are the East Germans going to an article from the March 19. 1985, lending officers that the margin wasn't Gui-
do with such a loan? Are they going to edition fhJournal [intent.
expand human freedoms, increase in- that details the recent Citibank lomt. ens GROWING GAP _
ditidual opportunity? No. Instead, the along with the test of the hill and a U.S. banns are injecting money into the
East Germans are going to use the section-by-section analysis of the bill. East German economy at a mitiad time.
money to buy Western high technolo- be included in the lisCORD at this East Germany considerably reduced imports
gy. They are concerned by the fact point. over the past three years to achieve hard
that their Communist economy is fall- There being no objection, the mate- Comm_ ,3 "aid_ e surpluses and '4) service
ing farther and farther behind the rho was ordered to be printed in the amts. ut RIND dangerously reduced IN-
economy of West Germany?and it is RgeORD, as follows: vestment. The result was that the technolo-
worth adding that the East GErmans 'From the Wall Street Journal, Mar. 19, negriggaPbboetbegeetwer. it and it's Welt E
u
r
o
p
e
an
_.
.
esune to Citibank because the West 19851
Western economists expect the next East
Gertnall banks were requiring bum= EAST Gammas Smarm Film U.S. Ba German five-year plan. from 1986-1990 to
rights concessions for the granting of Ourines Tas
their loans. FOR MAN' include an ambitious investment program
Mears Cosecessiows particularly emphasizing purchases of West-
The East Germans are also eager for (By Frederick Hempel ern technology
Western technology because their Ites-r Beatnt.?American bankers* eager This is partially a response to a Soviet ul?
Soviet masters are demanding more resumption of credits to East Germany is Onset= that Moscow is to get Western.
high technology imports from the helping the country avoid human-rights quality goods in exchange for the rwr mate.
East Germans in exchange for Soviet concessions in its financial tebitionabio with Maki It provides Eastern Europe. or Moscow
energy supplies. That is to say, al- West Germany' will reduce the amounts provided.' The Sort-
East Germany avoided a Polish like ftrian
though the loan is going to the East . ets warn that Soviet oil can simply be sold
Mal crisis ID 1982 and 1983 through two -on Western markets and the proceeds used
Germans its benefits are going to the anite asmia negotiated and guaranteed by to buy more advanced Western products
Soviets..
Bonn and extended by sem Germany ?The East Germans are the largest East
Mr. President. I am not sure how we banks. In return. East Germany Peened re- Ensolliean technology sluice and supplier for
can best deal with this problem. but I strictions on West Germany visits to the the Soviets.** says Klaus Schroeder of the
do know that we are making our East, and ft also last year allowed 40.000 West German government-sponsored 1nsti-
export control task all the More diffi- Zoo Germans to emigrate to West Germs- tote for Science and Policy near Munich
cult by lending our adversaries the ny. -Soviet demands have put a large amount of
money with which to obtain our tech- Western experts now believe that East premature on the East Germans to modernize
Germany yielded the short-term human- their industry."
11010gy. This is a practice that must rights concessions to pursue significant
stop. Our banks may make some prof- longer-term aims that would ware it from OOOD PERPORMANCR
its from the loans, although their such a vulnerable political position again. It U.S. bankers argue that they have good
troubled East European loan portfolio combined the West German credits with a reams to be wooing the East Germans.
casts some doubt on that. But what- strict snateritY program and dramatic 1Pirst. they asy Fast Germany's economic
performance Ss the best In Eastern Europe.
ever profit they may obtain is far iinMet reduction' to ciwni4era?17 Improve Produced nations/ income (basically. cross
short of the expense that it causes us its economic performance and its image national product minus Invoices) in 1964
among internatkuial creditors, who now are
to make up for Soviet bloc military ad- competing to give the count:TY money. rose by $.5%. compared to 4.4% the year
vances made possible by Western tech- before. Net industrial production rose 9.5%
nology. What would interest rates be amino. 4.1% in 1983. Industrial labor pro-
ems= OF ODOUR
for our people if we could safely de- Bank of America. Manufacturers Hanover ductivity increased 1.7% against 5.9% in
and Citicorp. who were ft:fuming least Ger- 1983.
Crease defense spending by tens of bp: many new credits a little more than a year The bankers also cite a radical Improve-
lions Of dollars annually? We cannot ago. are managing with the bank of Tokyo ? anent to East Germany's external position.
make such cuts, however, as long as we ilia million credit that has grown to $SW While East Germany's debt to Western
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S 3686
CONGRESSIONAL RECORD ? SENATE Mardi 28, 1983
banks of $10 billion once was worrying to
the banks, they now place more emphasis
en East Germany's buildup of deposits in
Western banks to aome 64.3 billion.
Some also argue that a double umbrella
exists over UN Germany. They my the So-
viets wouldn't ayes their most important
economic ally to enter into repayment diffi-
culties and hence would ball the Lest Ger-
mans out. The bankers are even more confi-
dent about a West German umbrella. fol-
lowing llonn's financial intercession during
Eon Germany's recent problems.
"The proof is in the pudding.- one U.S.
banker says. "East Germany is a solid bet.
We have been aggressively adding to our ex-
posure."
However. many Western experts believe
the banks are making the sorts of errors
they did when more than 400 lending Insti-
tutions scrambled In the 1970s to do Polish
business. They are competing to give East
Germany even more cash than it is asking
for. yet Esst German economic reporting re-
mains imprecise. The bankers haven't any
specific idea what East Germany intends to
do with all the money, nor whether it can
eventually earn the bard currency to repay
the loans.
"Bankers: learn very slowly and forget
very quickly.- mys Kr. Schroeder. a former
bank CCOCANDISL.
Bars Hr. &Wert. The OCODODIle situa-
tion in East Germany has Improved, and OD
no one should have great worries about
giving the country credits. but the U.S.
banks currently aren't being Prudent
enough and should only extend credits
when linking them to specific projects or in-
vestment Nam-
IIRCTION-11Y4NCTIOSI ANALYSIS 01 =I
P'insircus. Exmosy Cannot Ace
Section 1 gives the title of the legislation
as the Financial Export Control Act.
Section 2 adds to the Export Administra-
tion Act of 1979 (LAA) ? finding that loans
and transfers of capital to the Soviet Sloe
add to their ability to acquire senslUve
goods and (ethnology.
Section 3 adds to the EAA a statement of
policy to restrict transfers of capital to eon-
boned countries in order to further nation-
a) security export control policies.
Section 4 adds to the MAIL a new section
IA. authorizing the President. through the
Secretary of the Treasury, to control trans-
fers of capital to controlled countries, and
directing the Secretary of the 71reasury to
conduct negotlaUons with other countries to
obtain cooperation on any such controls ha-
Section Its a conforming amendment, des-
ignates* the Treasury Secretary as nepotist-
bk for issuing licenses that may be required
for capital transfers to controlled countries.
Section 5 authorises the Secretary of the
Treasury to enforce the controls OD trans-
fers of capital to controlled countries.
Section 7 is a conforming amendment to
the reporting provisions of the FAA, requir-
ing the Treasury Secretary to issue a report
on capital controls. as part of the annual
report on export controls submitted to the
Congress by the Commerce Secretary.
Section $ gives the Treasury Secretary the
authority to Imre regulations.
Section 9 contains definitions.
S. 413
Be t t enacted by the Senate and Nouse of
itepresealarioes of the United States of
America 111 CORNICSI assembled. That this
Act may be cited as the -74nandal Export
Control Act".
Sic 2. Section 2 of the Export Adminis-
tration Act of 1979 is amended by adding at
Use end thereof the following:
'110) Loans and other transfers of eanital
to the Soviet Union and its allies froco
public arid commercial sources significentir
Increase the ability of those countries to
obtain sensitive goods and technology,
thereby damaging the security interests of
the United States and Its allies.".
Sm. 3. Section 3 of the Export Adminis-
Uation Act of 1979 is amended?
(1) in paragraph (3 XII). by striking out
'end- after the semicolon:
(2) in paragraph (2X Ci. by striking out
the period and Inserting in lieu thereof ":
and -; and
(3) by adding at the end of paragraph (2)
the following:
'D) to restrict the export of capital, the
extension of credit. the making of loans, or
the transfer of financial resources to desti-
nations to which exports are restricted in
order to carry out the policy described in
subparagraph A1 of this paragraph.".
Sec. 4. The Export Administration Act of
1979 is amended by inserting after section
the following new section:
?CAPITAL CONTROLS
"Sac. IA. (a) Anrioarrr.?ln order to
carry out the policy set forth in section
$(2XD) of this Act. the President may pro-
hibit. curtail, monitor, or otherwise regulate
the export or transfer, or participation in
the export or transfer, of money or other fi-
nancial wets. Including the making of a
loan or the extension of credit, to the gov-
ernment of any controlled country, or to
any political subthision thereof or any or-
ganisation or aasociation owned by or acting
for or on behalf of such government or po-
Utica) subdivision thereof. The authority
contained to this subsection shall be exer-
cised by the Secretary of the Treasury. In
consultation with the Secretary of Defense.
the Secretary of Commerce, and such other
departments and agencies as the Secretary
of the Treasury shall consider appropriate.
? "(b) alsoonenows Wzre Ornza Cow-
xams.?Tbe Secretary of the Treasury, in
oonsultaUon with the Secretaries of State.
Detente. and Commerce, and the beads of
other appropriate departments and agen-
cies. shall be responsible for conducting ne-
gotiations with other countries regarding
their cooperation with controls imposed
pursuant to subsection(a)."
Sic. 5. Section 10 of the Export Adminis-
tration Act of 1979 is amended?
(1) in subsection (OW, by striking out
"All export license applications- and libert-
ine in lieu thereof "Except as provided in
subsection (k), all export license applica-
tions";
(2) in subsection (PO). by inserting before
the period ". except in the case of any li-
cense that may be required pursuant to sec-
tion IRA of this Act, in which ease the Secre-
tary of the Treasury shall establish such
procedures"; and
(3) by adding at the end thereof the fol-
lowing new subsection:
-their Any export license &pennants= re-
quired pursuant to section IA of this Act
shall be submitted by the aimUcant to the
Secretary of the Treasury. All determina-
tions with respect to any such application
shall be made by the Seal:tan of the Treas-
ury.
-(2) To the =tent Decessary. the Bone-
tan of the Treasury shall seek information
and reconunendations from the Govern-
ment departments and agencies concerned
with upsets of the United States domestic
and foreign Policies and operations having
an important bearing on the 0011C7 set forth
io section 342XD of this Act.".
Sec. 6. Section 12 of the Export Adminis-
Lennon Act of 19/9 is amended?
(1) in the second sentence of subsection
(ext). by inserting before the Period the to)-
inf: or in Use ease of information oh-
with moped to section SA of this Act,
selem the Secretary of the Treseury so de-
terudnes-: and
(SI In subsection (O. by striking' out "The
Secretary" and inerting in lieu thereof
-Except with regard to the authority pro.
tided under section *Afa). the Seceetary".
Sec. 7, Section 14(a) of the Export Admin-
istration Act of 1979 is amended? ?
(1) by striking out "and" at the end of
paragraph (19);
(2) by striking out the period at the end of
paragraph (SO) and Inserting in lieu thereof
*'; and"; and
(3) by adding at the end thereof the fol-
lowing
'121) actions taken by the President and
the Secretary of the Treasury to carry out
the policies set forth in section 3(2 XD) of
this Act, as described by the Secretary of
the Treasury in a report submitted for in-
deafen as a part of the Secretary's annual
report required by this section-.
Sac. IL Section 15 of the Export Adrninis-
traUon Act of 1979 is amended by inserting
"and the Secretary of the Treasury"; after
-SecretarY-.
Sac. I. Section 15 of the Export Adminis-
tration Act of 1979 is amended?
(1)In paragraph (4) by striking out "and"
after the semicolon:
(2) br paragraph (5) by striking out the
period'and inserting in lieu thereof a semi-
colon; and
(3) by adding at the end thereof the fol-
losing:
'14) the term 'extension of credit' includes
loans, credit sales, the supplying of funds
through the underwrithre.' distribution, or
acquisition of securities, the making or as-
sisting in the making of a direct placement.
or otherwise participating in the offering.
distribution, or acquisition of securities: and
'17) the term 'loan' includes any type of
audit. Including credit extended in connec-
tion with a credit sale.-.?
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rk.r.h..v..n .)1141%
1.:.?:4114;.:44"
28 October 1985
Dear Cap,
7 sty-
I
85-. 4263/1
....?1.14nders.tand that One.0 the -things 4t.the.
MSC meeting this week deals with a proposal to
authorize the President to restrict financial
flows. I gather that the Attorney General and
the NSC and Defense have bought this to give the
President additional authority to restrict
financial flows to countries whose policies we
disapprove of who are stealing our technology,
etc.
I will not be at the meeting but will ask
John McMahon to attend. Here are some pieces
of information and arguments on the issue which
you may find useful.
Yours,
lliam J. Casey
The Honorable Caspar W. Weinberger
Secretary of Defense
Washington, D.C. 20301
Enclosures:
Memorandum for the President
dated 7 October 1985
Memorandum-Refutation of
Arguments against S. 812
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Emma, Registry
TIM V. it: I... !
'I% A' ???.
MEMORANDUM FOR THE PRESIDENT
FROM:
SUBJECT:
8-5-4,