Seizing on porous laws and lax enforcement of U.S. sanctions, American corporations have used foreign subsidiaries to openly conduct business with Cuba and Libya, according to documents and interviews.
The rules governing sanctions are so loosely drawn that law enforcement officials have had to abandon or back away from several investigations of U.S. companies suspected of doing illegal business abroad, an examination of some cases shows.
The most striking example involves Cargill Inc., one of the world's largest agricultural companies.
Three years ago, a team of government agents opened an investigation into charges that Cargill brokered ships loaded with sugar for the Cuban government, in apparent violation of the Trading with the Enemies Act.
In the ensuing months, investigators found hundreds of messages between Cargill and shippers overseas, evidence that executives at the company's headquarters in Minnetonka, Minn., had been involved.
And last year, senior Justice Department officials predicted in internal memorandums that an indictment of Cargill, which could cost it hundreds of millions of dollars in federal subsidies and contracts, was imminent.
Today, however, government officials acknowledge that Cargill may never be charged, even though internal company records leave no doubt that its U.S. executives helped arrange some of the financing.
The company had seized on a loophole in the law that has made it virtually impossible to enforce the U.S. sanctions against multinational corporations: It traded with Cuba through a foreign subsidiary beyond the reach of American law.
Cargill is one of numerous U.S. companies that have used foreign subsidiaries to trade with countries under U.S. sanctions, with the profits flowing back home, raising questions about the effectiveness of one of the most visible tools of U.S. foreign policy.
In January 1986, for example, when President Ronald Reagan ordered sweeping sanctions against Libya, Brown & Root Inc., a Houston engineering concern, pulled out of Libya's $20 billion Great Man-Made River project, which was intended to tap water beneath the desert and create an agricultural oasis.
But the company immediately shifted its work, which trade journals valued at an estimated $100 million, to its British subsidiary, Brown & Root Ltd.
Asked if this was done because of the sanctions, Duncan Guy, head of government operations for the British company, said, "Presumably, yes."
The Price Brothers Co., of Dayton, Ohio, a consulting and machinery company, also walked away from the river project when Mr. Reagan, citing evidence that Libya supported terrorism, announced sweeping sanctions.
But some of the work was picked up by Price Brothers (U.K.), the company's small British subsidiary.
Brad Evers, general counsel for Price Brothers, said the British operation got the work on its own and was working on the water project even before sanctions were imposed.
Still, he acknowledged, the enforcement on U.S. companies in Libya has been loose. "A lot of people created foreign subsidiaries in the one month between the time the Reagan administration declared sanctions and the time they went into effect."
Coastal Corp., a Houston oil exploration company, has used a subsidiary based in Bermuda to go into business with the Libyan government in an oil refinery in Germany.
Coastal has been under federal investigation for more than three years, according to law enforcement officials. But investigators have had trouble determining whether executives of the Houston parent are involved in the German project, which would be illegal.
Officials of these companies said they do not believe they are violating the spirit of sanctions by doing business with countries the United States sees as its enemies. But some said legal loopholes raised questions about the effectiveness of sanctions.
Law enforcement and intelligence officials around the country said they believe that many executives of U.S. companies control the work of subsidiaries. But they said murky federal rules make it tough to build cases. Is it illegal, for instance, for the top executive of a parent to give bonuses for successful work with Libya? Or to share new technology?
"We tell our people that if the subsidiary calls with a question about the Libya contract, just slam down the phone," said Edward Dyson, a Washington lawyer who has advised Price Brothers and other companies.