LETTER TO CASPAR W. WEINBERGER FROM WILLIAM J. CASEY
Document Type:
Collection:
Document Number (FOIA) /ESDN (CREST):
CIA-RDP88B00443R001804360011-1
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RIFPUB
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K
Document Page Count:
7
Document Creation Date:
December 23, 2016
Document Release Date:
June 20, 2011
Sequence Number:
11
Case Number:
Publication Date:
October 28, 1985
Content Type:
LETTER
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CIA-RDP88B00443R001804360011-1.pdf | 304.35 KB |
Body:
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The Director of Central Intelligence
Washington, D. C 20505
Dear Cap,
I understand that one of the things at the
NSC 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,
illiam 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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October 7, 1985
FROM: ROBERT C. McFARLANE-7
SUBJECT: Senate Bill S-812 - The Financial Export
Control Act
Whether the Administration should support legislation
expanding discretionary Executive authority to restrict
flows of financial capital to destinations to which U.S.
exports are restricted.
On Thursday, September 26, the Senate began hearings on S.
812, the "Financial Export Control Act" -- a proposed
amendment to the Export Administration Act (EAA) to author-
ize controls on the export of capital from the United States
to destinations to which U.S. commodity exports are re-
stricted (Tab A). The bill has seven co-sponsors (Senators
Proxmire, Garn, Symms, D'Amato, Hecht, Mattingly and Bump-
ers) and is designed primarily to provide the Executive
Branch with a mechanism, short of the International Emergen-
cy Economic Powers Act (IEEPA), with which to interdict
financial flows to Soviet Bloc countries when deemed appro-
priate to do so.
Treasury and State (Tab B) and Commerce all oppose the bill
on the grounds that (1) it will be ineffective when used;
(2) any "non-emergency" restrictions on international
capital flows are inherently against the national interest
and (3) it conflicts with your commitment to improve the
U.S.-Soviet dialogue -- particularly at this time. State and
Commerce are particularly concerned that the timing of
affirmative Administration action on S. 812 could send the
wrong signal to the Soviets. Defense (Tab C) supports the
bill as a measured response to the problem of bank lending
to the Soviet bloc when contrary to U.S. interests.
Discussion
The hearings on this issue should help to raise public
awareness of the potential for adverse impact on U.S.
interests of bank lending decisions -- particularly in the
East-West context. Beyond that, the policy question re-
volves around whether the President, acting through his
agent, the Secretary of the Treasury, should have the
authority to control capital flows to trade-controlled
countries in circumstances short of "national emergencies"
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as defined in IEEPA. Justice believes that over-reliance on
IEEPA could trivialize this critical Executive Branch
foreign policy tool and perhaps lead Congress to perversely
attempt to remove some of your authority under it. Some of
the measures available under IEEPA could be invoked under
S. 812. Thus, that authority could be used to invoke credit
controls against nations that support international
terrorism or that threaten regional instability. In addi-
tion, the bill would provide the potential, under appropri-
ate circumstances, to include financial flows within our
present policy of differentiation with respect to Eastern
Europe. Although this is an awkward time in the East-West
context for S.812 to be debated, the three principal
economic constituencies in your Cabinet would probably
always oppose it on their respective grounds
(State/diplomacy, Treasury/ economic orthodoxy and
Commerce/business and trade interests).
Senate and Defense concerns reflect a growing range of other
considerations. This matter surfaced on the Hill last
winter, when U.S. banks began actively participating in the
renewed flow of Western loans to the Soviet Bloc. In the
wake of the Polish insolvency, and in consideration of
subsequent commercial bank concerns over the ability of
other Soviet Bloc countries to repay the remaining portion
of the $80 billion in total outstanding hard currency loans,
it was generally believed that Western lending to those
countries would be curtailed as a matter of sound banking
practice. The U.S. banks were criticized by some for having
put at risk funds at low interest rates in totalitarian
economies where the availability of financial information on
which to base lending decisions is severely curtailed.
The issue has been further complicated by the following
factors:
o The growing body of evidence revealing the true extent
of Soviet dependency on Western technology and know-how
and the realization that the ability of the Soviet Bloc
to generate hard currency -- whether earned or through
loans -- is a key determinant of its ability to operate
effectively (both overtly and covertly) in Western
economic and commercial environments.
o The deepening conflict between U.S. and Soviet inter-
ests in Central America and the perceived (by some in
Congress and the Administration) cause and effect
relationship between U.S. bank lending to the Bloc and
its capability to underwrite policies in Central
America and elsewhere at the direct expense of the U.S.
national interest (e.g., loans to East Germany coincid-
ed roughly with announced East German and other Soviet
Bloc credit lines to Nicaragua).
o The growing perception that many bank lending decisions
are often subjective and not apolitically market-based,
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ana that they can adversely affect U.S. interests --
particularly when these activities signify broad-based
banking industry policy shifts. Thus, bank culpability
in poor lending decisions regarding Latin borrowers in
the past and cessation of voluntary lending to most of
Latin America at present have adversely affected U.S.
efforts to deal with the debt crisis in the region.
OMB argues that administrative action is preferable to
legislative action to accomplish the purposes of S. 812, and
that we should reject the Senate bill while promising to
develop an Executive Branch mechanism to deal with Senate
concerns. I suspect, however, that due to the opposition of
those in the Administration to S. 812, that this approach
probably would result in little or no action in this area
without persistent encouragement.
Thus, the issues for your consideration can be broken down
into two parts:
o Whether you support the spirit and intent of S 812,
which is to provide you with the legislative authority
in non-emergency situations to control financial flows
to destinations to which exports are restricted (pri-
marily the Soviet Bloc).
o If you do support the thrust of S. 812, whether you
should direct OMB to work with the Senate on developing
a mutually acceptable legislative solution or to reject
S. 812 and ask your Cabinet to craft administrative
procedures to achieve a comparable result.
Recommendations
That you agree with the spirit and
intent of S. 812, which would provide
you with authority to restrict U.S.
financial flows in non-emergencies to
destinations to which exports are
restricted.
That you instruct OMB to inform the
Senate of the Administration's
intention to craft administrative
procedures to achieve a comparable
result.
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That you ins eruct OMB to inform the
Senate that the Administration is
opposed to S. 812 (the need for legis-
lation) but will work to develop admin-
istrative procedures to achieve a
comparable result.
Attachments
Tab A Bill, S. 812
B Letter from the Department of the Treasury
C Letter from the Department of Defense
Prepared by:
David G. Wigg
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REFUTATION OF ARGUMENTS AGAINST S. 812
David Mulford's memo on the Financial Export Control Act (S. 812)
advances several arguments why the Administration should oppose
the bill. All of his objections can be disputed, and most are
not relevant to the upcoming NSC meeting. Below I have divided
the arguments into two categories--those which can be raised at
the NSC meeting when the issue is whether the president's
discretionary authority under the Export Administration Act
should be expanded to cover financial flows, and those which are
appropriate when an actual decision to impose credit controls
against a particular country is to be made.
NSC Meeting.
o IEEPA authority is sufficient; controls are appropriate
only in emergencies
(Justice will dispute this on grounds that IEEPA
authority is being degraded through overuse. DoD may
also wish to argue that President needs to be provided
greater EAA flexibility in use of foreign policy controls
to meet the terrorist challenge.)
Decision To Embargo Credit.
o controls damage U.S. economic and financial interests
(The issue is not whether commercial interests are harmed
by sanctions but whether the foreign policy/security
gains outweigh the losses. A judgement on this cannot be
made in the abstract but only when a specific foreign
policy crisis is met).
o unilateral controls have no impact; Soviet Bloc
countries are viewed as prime borrowers so other-banks
will quickly fill the gap left by a U.S. credit embargo;
Allies will not support capital controls against the
Bloc.
(U.S. unilateral controls can sometimes stimulate other
countries into adopting similar measures, as in the case
of the South Africa sanctions. The Commonwealth
sanctions against the RSA ban new loans to the
government, setting a precedent for the use of capital
controls. In the Bloc, only the USSR, East Germany and
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Hungary are viewed as prime borrowers.)
o capital controls against any Bloc country would be
ineffective; governments can forego non-essential imports
or borrow from non-U.S. sources to meet hard currency
needs.
(Generalizations about the impact of credit controls
against particular countries are not useful to
policymakers. In fact, even the USSR under certain
scenarios--more rapid economic growth, low energy and
grain production, and high energy demand from the
Bloc--could become greatly dependent on foreign
borrowing. U.S. policy and perceptions of Soviet
creditworthiness will have a significant impact on the
willingness of Western banks to make new credits
available.)
o Export control laws covering technology can be
adequately enforced without the new authority.
(The new authority could be used to encourage controlled
countries to abide by U.S. export control laws or risk
losing access to credit. Soviet-owned commercial
enterprises located in the west that routinely engage in
smuggling could find their access to credit cut off.)
o U.S. policy supporting non-srategic trade with the
USSR would be undermined.
(Our policy would be unchanged until the President makes
a decision to impose controls.)
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