Nearly two centuries later, the Great Lakes remain one of the most extraordinary spectacles in the world. The sheer size of the Great Lakes is impressed upon anyone who has stood on their shores, or who has seen the outline of the Michigan mitten, which the Great Lakes make one of the most distinctive shapes and recognizable shapes on maps or satellite photographs of the earth. Beyond their awe-inspiring appearance and enormity, the Great Lakes help fuel an economic engine that stretches from Minnesota to New York, producing some of our nations most celebrated and relied-upon goods and agricultural products.

This morning, my colleagues and I are introducing a joint resolution to ratify an historic agreement to manage Great Lakes water, the Great Lakes Water Resources Compact. While the existing Water Resources Development Act law provides protection and authority to prevent diversions, the Great Lakes Compact will provide an effective means for Great Lakes states jointly to safeguard water for future generations. The Compact will ban new diversions from the Basin with certain limited exceptions, and those exceptions would be regulated. Further, the Compact keeps the authority to govern our water in the hands of the Great Lakes states.

The Compact states that “the protection of the integrity of the Great Lakes Ecosystem shall be the overarching principle for reviewing proposals.” For the first time, water conservation goals will be developed to deal with any water diversion proposals.

Beyond that, the Compact would specifically address withdrawals and diversions of both ground and surface water. This would represent an improvement over existing law because there are differing opinions on whether the current law addresses ground water diversions.

Additionally, because the Compact would provide a scientific method for determining whether to allow a proposal to divert water from the Great Lakes, it makes our efforts to protect the lakes more clearly compliant with international trade agreements.

This agreement has been in the making for close to decade, following the mistaken issuance of a permit for bulk water diversion by the Province of Ontario. In the 2000 WRDA, Congress directed the governors to negotiate a water management policy, and in 2005, the eight Great Lakes Governors and two Canadian Premiers came to an agreement.

I have heard that some people believe that there is a water bottle “loophole.” The Compact prohibits water in a container larger than 5.7 gallons to be diverted outside the Great Lakes basin. Though the Compact would not prohibit water withdrawals in containers less than 5.7 gallons, individual states would retain their authority to regulate bottled water in any size container. Again current WRDA arguably has no constraints over groundwater diversions.

I believe that the Great Lakes Compact is beneficial and will provide greater protections for the Great Lakes than the status quo. However, as is explicitly stated in this joint resolution, the Great Lakes Water Compact does not imply that it is necessary for Congress to pass the Compact in order for the Lakes to be protected from diversions. WRDA gives each Great Lakes governor veto power over certain types of diversions of surface water by any Great Lakes state. While this authority is clear, additional safeguards and standards will be helpful in the years ahead to give us a solid defense against WTO challenges and a solid basis to regulate groundwater.

Tocqueville further observed during his journey in Lake Huron, “Nature has done everything here. A fertile soil, and outlets like to which there are no others in the world.” Nature has, indeed, given us so much in the Great Lakes. We need to take this important step to pass the Great Lakes Water Compact so as to make sure that we conserve this precious resource, ensuring sensible use now so that future generations can benefit from the Great Lakes as we do.

Thank you Mr. President, and I ask Unanimous Consent that the Joint Resolution be printed in the Record.

Today we will look at two banks that relied on secrecy and deception to hide, not just the tax avoidance schemes of their clients, but the actions they themselves took to facilitate U.S. tax evasion. First is LGT, a private bank owned by the royal family of Liechtenstein. Lichtenstein is a tiny alpine nation whose 35,000 citizens would fill one-third of the University of Michigan football stadium. It has no airport, but supports 15 banks that together boast of holding more than $200 billion in assets. Lichtenstein also boasts of secrecy laws that are more stringent than even those that have made Switzerland synonymous with hidden bank accounts.

The second bank is UBS, a Swiss bank. It is one of the world’s largest financial institutions, the world’s largest manager of private wealth, and a public company of international renown. Yet, as we will hear today, UBS has an estimated 19,000 so-called “undeclared accounts” for U.S. citizens with an estimated $18 billion in assets that have been kept secret from the IRS.

Both LGT and UBS operate behind a wall of secrecy that this hearing and our report will show needs to come down. The evidence we have been able to obtain breaks through some of that wall of secrecy to show how these two banks have employed banking practices that facilitate, and have resulted in, tax evasion by U.S. clients.

I initiated this investigation into tax haven banks in February 2008, as a global tax scandal erupted after a former employee of LGT provided tax authorities around the world with data on about 1,400 people with accounts at LGT Bank in Liechtenstein. On February 14, 2008, German tax authorities, having obtained the names of 600-700 German taxpayers with LGT accounts, executed multiple search warrants and arrested a prominent businessman for allegedly using LGT accounts to evade $1.5 million in taxes. Soon after, the IRS announced it had initiated enforcement action against 100 U.S. taxpayers in connection with accounts in Liechtenstein. The United Kingdom, Italy, France, Spain, and Australia made similar announcements on the same day. Altogether since February, nearly a dozen countries have announced plans to investigate taxpayers with Liechtenstein accounts, demonstrating not only the worldwide scope of the tax scandal, but also a newfound international determination to fight against tax evasion facilitated by tax haven banks.

The former LGT employee who exposed LGT’s dirty laundry had to go into hiding to avoid arrest by Liechtenstein which has listed him as its Number 1 target for arrest. A $10 million reward has been placed on his head by unknown parties on the Internet. The Subcommittee obtained about 12,000 pages of LGT documents related to U.S. clients from this former LGT employee. We also interviewed him, and took his statement by videoconference, a tape of which, with precautions taken to obscure identifying details, will be presented during this hearing. His revelations are explosive.

The documents and information he provided depict a bank that is a willing partner, and an aider and bettor, to clients trying to evade taxes, dodge creditors, or defy court orders. Internal LGT documents and other information show secrecy was a deeply embedded way of life at the bank. LGT used code names for its clients and directed its bankers to use pay phones when contacting them. A LGT document instructed bankers trying to contact a client as follows: “CAUTION: Calls may be made only from public phone booths, preferably not from a FL [Liechtenstein] phone booth !!!” LGT set up secret, shell transfer corporations which clients could use to route money into and out of their LGT accounts, in order to, in the words of LGT “cover the tracks.” LGT created elaborate, deceptive offshore structures, using foundations, trusts or corporations, to hide a client’s ownership of assets from tax authorities in other countries.

Our report presents seven case studies of U.S. clients using LGT services. Due to time constraints, we will discuss only four today. In preparation for this hearing, the Subcommittee served subpoenas on three of the four LGT clients seeking their personal appearance: Shannon Marsh, William Wu, and Steven Greenfield. Two of those individuals, Mr. Marsh and Mr. Wu are here today. The third, Mr. Greenfield, has refused to appear after a subpoena was served on him, and we will be seeking enforcement of our subpoena. The fourth, Peter Lowy, left the country despite our request that he appear today. The Subcommittee notified his legal counsel that he would be subpoenaed to appear, if necessary. He has now agreed to appear before the Subcommittee at a continuation of this hearing a week from tomorrow.

Later in the hearing, when these individuals are called to give testimony, I will describe in more detail what we’ve learned about their Liechtenstein accounts, but for now I will mention each case history only briefly.

Shannon Marsh. Shannon Marsh is a son of the late James Albright Marsh, a U.S. citizen from Florida in the construction business who formed four Liechtenstein foundations in the 1980s, and transferred substantial funds to them. Two of these foundations were formed for him by LGT. By 2007, the assets in the four foundations had a combined value of $49 million. LGT instructed the Marshes to use the code, “Friends of J.N.,” when they wished to “get in touch.” The Marsh accounts were never disclosed to the IRS by LGT.

William Wu. William Wu is a U.S. citizen who has lived for many years with his family in New York. LGT helped Mr. Wu hide ownership of his house in New York by helping him arrange a fake sale to an offshore company he secretly controlled. LGT also helped him withdraw substantial funds from his Liechtenstein account, ranging from $100,000 to $1.5 million at a time, in ways that made the funds difficult to trace.

Steven Greenfield. Harvey and Steven Greenfield, father and son, are New York businessmen who specialize in importing toys. In March 2001, in Liechtenstein, LGT held a five-hour meeting with the Greenfields attended by three LGT private bankers and Prince Philipp, Chairman of the LGT Board of Directors and brother to the sovereign of Liechtenstein. The meeting was primarily a sales pitch to convince the Greenfields to transfer to LGT about $30 million from a Hong Kong bank after “leaving behind as few traces as possible.” Again, Mr. Greenfield has refused to appear despite service of a subpoena, so we will be pursuing this matter.

Peter Lowy. Peter Lowy lives in California. His father, with his sons’ help, set up an LGT foundation in 1998, after telling the bank that he did not want Australian tax authorities to know about the assets. LGT took measures to hide the Lowys’ ownership of the assets, including by keeping their name off the formation documents for the new foundation, routing incoming assets through an offshore transfer corporation to prevent a direct link to the new foundation, and using a Delaware corporation headed by Peter Lowy to name the beneficiaries. In 2001, the Lowys dissolved the foundation and moved to Switzerland assets totalling about $68 million. Mr. Lowy will appear next week, on Friday, to answer questions about these matters.

The importance of these case studies is that they provide an inside look at what goes on behind the wall of secrecy that surrounds this Liechtenstein bank. And what does go on behind that wall? Banking practices that facilitate tax evasion – conduct that angers every honest American who pays taxes.

We have also managed to pierce some of the layers of Swiss secrecy that for too long have made Switzerland the place to bank for people with something to hide.

In late 2007, the Subcommittee took the deposition of Bradley Birkenfeld, who worked for more than 12 years as a private banker in Switzerland, including four years at the Geneva office of UBS. In 2008, Mr. Birkenfeld was charged and pled guilty to conspiring with a U.S. citizen, Igor Olenicoff, to defraud the IRS of $7.2 million in taxes owed on $200 million of assets hidden in secret accounts in Switzerland and Liechtenstein. In connection with this prosecution, the United States also detained as a material witness a senior UBS private banking official from Switzerland, Martin Liechti, then traveling on business in Florida. These enforcement actions appear to represent the first time that the United States has criminally prosecuted a Swiss banker for helping a U.S. taxpayer evade U.S. taxes. Mr. Liechti is here today, and I want to express my appreciation to the Justice Department and the U.S. Attorney for the Southern District of Florida for making him available.

Our report describes how Mr. Birkenfeld signed up Mr. Olenicoff as a client, in part by traveling to California from Switzerland to meet him, and opened UBS accounts for him in Switzerland in the name of offshore corporations Mr. Olenicoff controlled to hide his ownership of the assets. For a time, Mr. Olenicoff was Mr. Birkenfeld’s largest client.

The details of their tax evasion scheme are sordid enough. But what Mr. Birkenfeld told the Subcommittee was that what he did as a private banker at UBS was ordinary practice. He told us about the thousands of Swiss accounts at UBS for U.S. clients holding billions in assets, all undeclared. He also described the pressure placed on the Swiss private bankers to bring new money into the bank from the United States, called “net new money.” His deposition and other documents show that each year, UBS assigns each private banker an annual net new money target. A January 2007 email sent out by Mr. Liechti to the Swiss bankers in the Americas division wished them a happy new year, recounted how, in 2002, they had brought in 4 million Swiss francs per banker, how that number had quadrupled in two years to 17 million Swiss francs per banker in 2006, and then urged them to quadruple their efforts again in 2007 to bring in 60 million Swiss francs per banker in net new money from the United States.

Mr. Birkenfeld told us that Swiss bankers regularly traveled to the United States to target U.S. citizens for net new money. He told us how these Swiss bankers maintained a low profile, using business cards that did not mention “wealth management,” sometimes declaring they were in the United States for non-business purposes, and carrying encrypted computers that, allegedly, even U.S. Customs agents couldn’t read. A Subcommittee analysis of travel records supplied by Customs corroborate his testimony. The travel records show that about 20 UBS Swiss bankers made about 300 trips to the United States since 2003, often traveling together to UBS-sponsored functions designed to attract wealthy potential clients. These travel records also showed that some UBS private banking officials made regular U.S. visits, including Mr. Liechti who traveled to the United States up to eight times in a year. He described one Swiss banker who saw 30 to 40 clients on each U.S. visit. All this to sell Swiss secrecy on U.S. soil.

He also described UBS Swiss bankers who presented their clients with securities products and helped execute securities transactions here in the United States, without a broker-dealer license from the Securities and Exchange Commission. In response to Subcommittee inquiries, UBS also admitted that, like LGT, its bankers had set up foreign corporations to disguise the ownership of accounts by U.S. clients.

The Subcommittee even obtained a document showing that UBS provided its Swiss private bankers with training on how to detect surveillance by U.S. customs agents and law enforcement officers while traveling here. Think about that – a major international bank is training its bankers to detect surveillance by U.S. authorities.

UBS efforts targeting U.S. clients to open Swiss accounts were, in the words of Mr. Birkenfeld, a “massive machine.” And the push to open Swiss accounts took place even though UBS had branch banking and securities operations in the United States that were large enough to accommodate all of its U.S. clients.

Which brings up a fundamental question. Why would a U.S. taxpayer open a UBS account in Switzerland, when it could bank with UBS right here in the United States? Why would 19,000 U.S. clients with nearly $18 billion in assets choose to open Swiss accounts? It seems plain that part of the answer is that they wanted to open undeclared accounts that the IRS didn’t know about. They wanted secrecy.

And UBS gave them secrecy. In November 2002, UBS sent a letter to all of its U.S. clients to reassure them that their secret Swiss accounts were still safely hidden, despite the Qualified Intermediary Program’s going into effect. Here’s what that letter said in part:

“Dear client: From our recent conversations we understand that you are concerned that UBS’ stance on keeping its U.S. customers’ information strictly confidential may have changed…. We are writing to reassure you that your fear is unjustified and wish to outline only some of the reasons why the protection of client data can not possibly be compromised ….”

We all know what is going on here. U.S. clients who don’t bank with UBS in the United States and instead bank with UBS in Switzerland are buying secrecy. And folks who buy secrecy have secrets they don’t want to reveal, such as evasion of taxes, the ducking of creditors, or defiance of court orders. But those clients aren’t the only ones relying on secrecy to cloak their actions. Banks in tax havens, including the two banks under examination today, are also covering up their own actions – actions they presumably didn’t want to see exposed by media around the world.

This chart summarizes the Tax Haven Bank Secrecy Tricks we’ve uncovered during this investigation. Banks using code names for clients to disguise their identities; telling their bankers to use pay phones instead of business phones so authorities can’t trace a call back to the bank; giving their bankers encrypted computers when they travel so tax authorities can’t read any client information; funnelling money through so-called transfer companies to cover the tracks of the funds and make audits difficult; opening accounts in the names of foreign shell companies to hide the real owners; setting up fake charitable trusts for the same reason; providing bankers with counter-surveillance training – the list goes on. These tricks are all about deception, all about making it impossible for the IRS to follow the money, bring tax cheats to justice, and bring back into the U.S. treasury the tens of billions of dollars owed to Uncle Sam. UBS has told the Subcommittee that it is changing its ways. It has banned travel by its Swiss bankers to the United States. It is encouraging U.S. clients to bank with UBS in the United States or at a subsidiary in Switzerland called Swiss Financial Advisors that requires all U.S. clients to disclose their accounts to the IRS. Liechtenstein tells us they are in negotiations with the United States to enter into a tax information exchange agreement and with its European neighbours to expand tax cooperation in connection with an anti-fraud agreement.

I hope it is true, but count me skeptical for a number of reasons. First, we haven’t heard anything from LGT about reforms; it is not even here today, in contrast to UBS. Second, evading U.S. taxes is a billion dollar industry; it’s gone on for decades; and the profits are huge, both for the tax cheats and for the banks holding their assets. The documents and testimony that we are releasing today disclose a culture of secrecy and deception that we are determined to end, despite its being strongly entrenched.

Tax evasion eats at the fabric of society, not only by starving health care, education, and other needed government services of resources, but also by undermining trust – making honest folks feel like they are being taken advantage of when they pay their fair share.

Our report outlines a number of ways we can fight back to end tax haven abuses. Here are a few.

First, we should support the recent innovative enforcement actions taken by the Justice Department and IRS to prosecute foreign bankers who help U.S. taxpayers cheat Uncle Sam and to compel foreign banks to disclose the names of their U.S. clients.

Second, we ought to enact new tools to penalize tax haven banks that impede U.S. tax enforcement. Congress should give the Treasury Department authority to bar U.S. financial institutions from doing business with those banks, and the IRS should remove those banks from the Qualified Intermediary program that allows them to avoid disclosing the names of their non-U.S. clients to U.S. authorities.

Third, Congress should create a rebuttable presumption in enforcement proceedings that U.S. taxpayers who form, send assets to, or receive assets from a legal entity in an offshore secrecy jurisdiction controls that entity and is liable for taxation on its assets and income.

Fourth, Congress ought to change the law to require banks who know U.S. clients are behind accounts opened in the name of offshore entities to treat those accounts as U.S. accounts that have to be disclosed to the IRS.

And we can do all that and more by enacting the Stop Tax Haven Abuse Act, a bill that I and Senator Coleman introduced last year.

Right now, tax haven banks and tax haven governments dress up their secrecy laws and banking practices with phrases like “financial privacy” and “wealth management.” But secrecy breeds tax evasion. And secrecy hides, not only the wrongdoers, but also those who aid and abet the wrongdoing. We are determined to tear down those secrecy walls in favor of transparency, cooperation, and tax compliance.

I want to thank my Ranking Member, Senator Coleman, and his staff for their support of this investigation and the legislation to stop tax haven abuses.

While I have some sympathy for their situation, I also have sympathy for innocent Americans who may have had their privacy rights violated as a result of illegal actions taken by telecommunications companies at the behest of an Administration that has all too frequently tried to place itself above the law. The bill before us makes no effort to reconcile these competing interests. Instead, it requires the dismissal of all civil suits against telecommunications companies who may have illegally disclosed confidential communications of their customers at the behest of U.S. government officials. Dismissal would also be required, even if the disclosure violated the constitutional rights of innocent U.S. citizens whose confidential communications were illegally disclosed.

The so-called judicial review authorized in this bill is totally unsatisfactory. Under title II of the bill, the FISA court would be permitted to review these cases only to determine whether the Attorney General or the head of an element of the intelligence community told telecommunications companies that the government request had been authorized by the President and “determined to be lawful” – presumably by anybody – even if nobody could reasonably have believed that the request actually was lawful. A judicial review that is limited to determining whether the Administration claimed that its actions were legal is a sham review that provides no justice at all. Of course the Administration claimed that its actions were legal. Indeed, the Intelligence Committee report on this bill specifically states that the Administration letters requesting assistance from telecommunications companies made the claim that these actions were legal. I do not believe that a congressional grant of retroactive immunity is fair, I do not believe that it is wise, and I do not believe that it is necessary.

Retroactive immunity is not fair, because it leaves innocent American citizens who may have been harmed by the unlawful or unconstitutional conduct of telecommunications companies at the behest of the Administration without any legal remedy at all. It is hard to understand how the Attorney General can claim, as he does in a letter dated July 7, 2008, that this is “the fair and just result.”

Those who have been harmed are not likely to have any recourse against the government officials who asked telecommunications companies to disclose the private information of their customers, because government officials enjoy qualified immunity for actions taken in their official capacity. These officials don’t even have a burden of demonstrating that their actions were legal and constitutional to be immune from suit.

Nor is retroactive immunity wise, because it sets a dangerous precedent of retroactively eliminating rights of U.S. citizens and precludes any judicial review of these claims. If we act here to immunize private parties who cooperated with executive branch officials in a program that appears to have been illegal on its face, our laws and their prohibitions will be less of a deterrent to illegal activities in the future. This would be a terrible precedent if a future Administration is as inclined as the current one to place itself above the law.

Finally, retroactive immunity is not necessary for the intelligence community to collect intelligence against terrorists using newly-available technology. Title I of the bill provides that the Attorney General and the Director of National Intelligence can direct telecommunications companies to assist in collection programs, and these directives are enforceable by court order, just as has been the case since the Protect America Act was adopted last August. We are collecting needed intelligence information today pursuant to that Act, without any retroactive immunity for telecommunications companies, and there is no reason why we can not continue to do so in the future under title I of the bill, without the retroactive immunity provided in title II.

The Administration argues that if we don’t provide retroactive immunity to telecommunications providers, “companies in the future may be less willing to assist the Government.” But let’s be clear what we are talking about here. Telecommunications companies have prospective immunity if they assist the government in a manner that is authorized by this bill. Moreover, they can be compelled to do so under this bill, as has also been the case since the enactment of the Protect America Act. What companies might be less willing to do is to assist the government in intelligence gathering efforts that are illegal. What’s wrong with that? Do we really want to encourage companies to assist a future Administration in unlawful intelligence gathering efforts?

Nor is retroactive immunity necessary to protect telecommunications companies who acted in good faith reliance on representations from Administration officials. There are other ways in which we could recognize their equity without insulating misconduct from judicial review and without denying any relief to innocent U.S. citizens who may have been harmed. For example, we could safeguard these interests by substituting the United States as the defendant in cases against telecommunications companies, or by requiring that the United States indemnify telecommunications companies for any damages in such cases. In either case, we could cap damages to ensure that the taxpayers are not required to bear an unreasonable burden as a result of unlawful actions by the Administration. We could also provide a measure of protection to American citizens whose rights have been violated by limiting the immunity provided to those cases where the telecommunications companies demonstrate that they had a reasonable basis for a good faith belief that the assistance they were providing was lawful – a requirement that is notably absent from the bill before us.

The Bingaman amendment is a very modest proposal which doesn’t decide the retroactive immunity question or remove the retroactivity immunity provision from the bill. It leaves the retroactive immunity provision in the bill, but postpones the effective date of that immunity until 90 days after Congress receives the comprehensive Inspector General report required by the bill. This amendment doesn’t have any affect at all on title I of the bill, which allows the intelligence community to collect information using newly-available technology. The Bingaman amendment allows title I to go into law without change and without delay.

The Inspector General report may give us important information that helps us understand the extent to which the Administration’s actions were illegal or unconstitutional and the extent to which innocent U.S. citizens may have been damaged by these actions. The delayed effective date in the Bingaman amendment would give us the opportunity to consider this information – not just the assurances of Administration officials – before retroactive immunity goes into effect and cases are dismissed. That information is surely relevant to this issue.

If we adopt the Bingaman amendment, we will have highly relevant information about the extent to which illegal or unconstitutional actions were taken against innocent American citizens and the extent to which those citizens were harmed by those actions. The Bingaman amendment gives us an opportunity to take this additional information into account before retroactive immunity takes effect, while at the same time preventing any harm to telecommunications companies by staying any litigation against them until the information becomes available.

Mr. President, we can pass this bill, and ensure that the intelligence community continues to have the authority to collect information on suspected terrorists, without surrendering the rights of Americans whose privacy may have been violated. I support the Bingaman amendment as a way to introduce a bit of balance into the process of protecting the privacy of innocent U.S. citizens while recognizing some equity in the position of the telecommunications companies.

Intelligence saves lives. Knowing where an insurgent has buried an IED can keep a vehicle carrying Marines in Iraq from being blown up. Knowing that an al Qaeda associate visited an internet café in Kabul could be the key piece of information that unravels a terrorist plot targeting our embassy. Intelligence saves lives.

But how do we get the people who know the information to share it with us? Does degrading them or treating them harshly increase the chances that they’ll be willing to help? Just a couple of weeks ago I visited our troops in Afghanistan. While I was there I spoke to a senior intelligence officer who told me that treating detainees harshly is actually an impediment – a “roadblock” to use that officer’s word – to getting intelligence from them.

Here’s why, he said – al Qaeda and Taliban terrorists are taught to expect Americans to abuse them. They’re recruited based on false propaganda that says the United States is out to destroy Islam. Treating detainees harshly only reinforces their distorted view and increases their resistance to cooperate. The abuse at Abu Ghraib was a potent recruiting tool for al Qaeda and handed al Qaeda a propaganda weapon they could use to peddle their violent ideology.

So, how did it come about that American military personnel stripped detainees naked, put them in stress positions, used dogs to scare them, put leashes around their necks to humiliate them, hooded them, deprived them of sleep, and blasted music at them. Were these actions the result of “a few bad apples” acting on their own? It would be a lot easier to accept if it were. But that’s not the case. The truth is that senior officials in the United States government sought information on aggressive techniques, twisted the law to create the appearance of their legality, and authorized their use against detainees. In the process, they damaged our ability to collect intelligence that could save lives.

Today’s hearing will explore part of the story: how it came about that techniques, called SERE resistance training techniques, which are used to teach American soldiers to resist abusive interrogations by enemies that refuse to follow the Geneva Conventions, were turned on their head and sanctioned by Department of Defense officials for use offensively against detainees. Those techniques included use of stress positions, keeping detainees naked, use of dogs, and hooding during interrogations.

Background on Survival Evasion Resistance and Escape (SERE) Training

Some brief background on SERE, which stands for Survival Evasion Resistance and Escape training. The U.S. military has five SERE schools to teach certain military personnel – whose missions create a high risk that they might be captured – the skills needed to survive in hostile enemy territory, evade capture, and escape should they be captured. The resistance portion of SERE training exposes students to physical and psychological pressures designed to simulate abusive conditions to which they might be subject if taken prisoner by enemies that may abuse them. The Joint Personnel Recovery Agency – JPRA – is the DoD agency that oversees SERE training. JPRA’s instructor guide states that a purpose of using physical pressures in the training is “stress inoculation,” building soldiers’ immunities so that should they be captured and subject to harsh treatment, they will be better prepared to resist. The techniques used in SERE resistance training can include things like stripping students of their clothing, placing them in stress positions, putting hoods over their heads, disrupting their sleep, treating them like animals, subjecting them to loud music and flashing lights, and exposing them to extreme temperatures. It can also include face and body slaps and until recently, for some sailors who attended the Navy’s SERE school, it included waterboarding – mock drowning.

The SERE schools obviously take extreme care to avoid injuring our own soldiers. Troops are medically screened to make sure they’re fit for the SERE course. Prior to the training, each student’s physical limitations are carefully documented to reduce the chance that the SERE training and the use of SERE techniques will cause injury. There are explicit limitations on the duration and intensity of physical pressures. For example, when waterboarding was permitted at the Navy SERE school, the instructor manual stated that a maximum of two pints of water could be used on a student who was being waterboarded and, if a cloth was used to cover a student’s face, it could stay in place a maximum of 20 seconds.

SERE resistance training techniques are legitimate and important training tools. They prepare our forces who might fall into the hands of an abusive enemy to survive by getting them ready for what might confront them.

Strict controls are also in place during SERE resistance training to reduce the risk of psychological harm to students. Psychologists are present throughout SERE training to intervene should the need arise and to talk to students during and after the training to help them cope with associated stress.

Those who play the part of interrogators in the SERE school drama are not real interrogators – nor are they qualified to be. As the Deputy Commander for the Joint Forces Command put it “the expertise of JPRA lies in training personnel how to respond and resist interrogations – not in how to conduct interrogations.” That distinction is a fundamental one.

Some might say that if our personnel go through it in SERE school, what’s wrong with doing it to detainees. Well, our personnel are students and can call off the training at any time. SERE techniques are based on abusive tactics used by our enemies. If we use those same techniques offensively against detainees, it says to the world that they have America’s stamp of approval. That puts our troops at greater risk of being abused if they’re captured. It also weakens our moral authority and harms our efforts to attract allies to our side in the fight against terrorism.

Department of Defense General Counsel’s Office Contacts JPRA

So, how did SERE techniques come to be considered by DoD for detainee interrogations. In July 2002, Richard Shiffrin, a Deputy General Counsel in the Department of Defense and a witness at today’s hearing, called Lieutenant Colonel Daniel Baumgartner, also a witness today and then the Chief of Staff at JPRA – the agency that oversees the SERE training – and asked for information on SERE techniques.

In response to Mr. Shiffrin’s request, Lt. Col. Baumgartner drafted a two-page memo, (TAB 1) and compiled several documents, including excerpts from SERE instructor lesson plans, that he attached to his memo saying JPRA would “continue to offer exploitation assistance to those government organizations charged with the mission of gleaning intelligence from enemy detainees.” The memo was hand delivered to the General Counsel’s office on July 25, 2002. Again, it is critical to remember here; these techniques are not used in SERE school to obtain intelligence, they are to prepare our soldiers to resist abusive interrogations.

The next day, Lt. Col. Baumgartner drafted a second memo (TAB 2), which included three attachments. One of those attachments (TAB 3) listed physical and psychological pressures used in SERE resistance training including sensory deprivation, sleep disruption, stress positions, waterboarding, and slapping. It also made reference to a section of the JPRA instructor manual that talks about “coercive pressures” like keeping the lights at all times, and treating a person like an animal. Another attachment (TAB 4), written by Dr. Ogrisseg, also a witness today, assessed the long-term psychological effects of SERE resistance training on students and the effects of the waterboard.

This morning, the Committee will have the chance to ask Mr. Shiffrin, Lt. Col. Baumgartner, and Dr. Ogrisseg about these matters.

Office of Legal Counsel (OLC) Issues Legal Guidance for Interrogations

On August 1, 2002, a week after Lt. Col. Baumgartner sent his memos to the DoD General Counsel, the Department of Justice’s Office of Legal Counsel (OLC) issued two legal opinions. One (TAB 5), commonly known as the first Bybee memo, was addressed to then-White House Counsel Alberto Gonzales and provided OLC’s opinion on standards of conduct in interrogation required under the federal torture statute. That memo concluded:

[F]or an act to constitute torture as defined in [the federal torture statute], it must inflict pain that is difficult to endure. Physical pain amounting to torture must be equivalent in intensity to the pain accompanying serious physical injury, such as organ failure, impairment of bodily function, or even death. For purely mental pain or suffering to amount to torture under [the federal torture statute], it must result in significant psychological harm of significant duration, e.g., lasting for months or even years.

The other OLC opinion, issued the same day and known commonly as the second Bybee memo, responded to a CIA request, and addressed the legality of specific interrogation tactics.

While the interrogation tactics reviewed by the OLC in the second Bybee memo remain classified, General Hayden, in public testimony before the Senate Intelligence Committee in February of this year, said that the waterboard was one of the techniques that the CIA used with detainees. Steven Bradbury, the current Assistant Attorney General of the OLC, testified before the House Judiciary Committee earlier this year that the “CIA’s use of the waterboarding procedure was adapted from the SERE training program.”

JPRA Conducts Training for Guantanamo Bay Personnel

During the time the DoD General Counsel’s office was seeking information from JPRA, JPRA staff, responding to a request from Guantanamo, were finalizing plans to conduct training for interrogation staff from U.S. Southern Command’s Joint Task Force 170 at GTMO. During the week of September 16, 2002, a group from GTMO, including interrogators and behavioral scientists, travelled to Fort Bragg, North Carolina, and attended training conducted by instructors from the JPRA SERE school. None of the three JPRA personnel who provided the training was a trained interrogator.

CIA Provides Advice to U.S. Southern Command’s JTF-170 on Interrogations

On September 25, 2002, just days after GTMO staff returned from that training, a delegation of senior Administration lawyers, including Jim Haynes, General Counsel to the Department of Defense, John Rizzo, acting CIA General Counsel, David Addington, Counsel to the Vice President, and Michael Chertoff head of the Criminal Division at the Department of Justice, visited GTMO. An after action report (TAB 6) produced by a military lawyer after the visit noted that one purpose of the trip was to receive briefings on “intel techniques.”

On October 2, 2002, a week after John Rizzo, the acting CIA General Counsel visited GTMO, a second senior CIA lawyer, Jonathan Fredman, who was chief counsel to the CIA’s CounterTerrorism Center, went to GTMO, attended a meeting of GTMO staff and discussed a memo proposing the use of aggressive interrogation techniques. That memo had been drafted by a psychologist and psychiatrist from GTMO who, a couple of weeks earlier, had attended the training given at Fort Bragg by instructors from the JPRA SERE school.

While the memo remains classified, minutes from the meeting where it was discussed are not. Those minutes (TAB 7) clearly show that the focus of the discussion was aggressive techniques for use against detainees.

When the GTMO Chief of Staff suggested at the meeting that GTMO “can’t do sleep deprivation,” LTC Beaver, GTMO’s senior lawyer, responded “Yes we can – with approval.” LTC Beaver added that GTMO “may need to curb the harsher operations while [International Committee of the Red Cross] is around.”

Mr. Fredman, the senior CIA lawyer, suggested it’s “very effective to identify [detainee] phobias and use them” and described for the group the so-called “wet towel” technique, which we know as waterboarding. Mr. Fredman said “it can feel like you’re drowning. The lymphatic system will react as if you’re suffocating, but your body will not cease to function.”

And Mr. Fredman presented the following disturbing perspective of our legal obligations under anti-torture laws, saying “It is basically subject to perception. If the detainee dies you’re doing it wrong.”

If the detainee dies, you’re doing it wrong. How on earth did we get to the point where a senior United States Government lawyer would say that whether or not an interrogation technique is torture is “subject to perception” and that “if the detainee dies you’re doing it wrong.” What was GTMO’s senior JAG officer, LTC Beaver’s response? “We will need documentation to protect us.”

Nine days after that October 2, 2002, meeting, General Dunlavey, the Commander of Joint Task Force 170 at GTMO, sent a memo to U.S. Southern Command (TAB 8) requesting authority to use interrogation techniques which the memo divided into three categories of progressively more aggressive techniques. Category I was the least aggressive. Category II was more so and included the use of stress positions, exploitation of detainee fears (such as fear of dogs), removal of clothing, hooding, deprivation of light and sound. Category III techniques included techniques like the so-called wet towel treatment, or “waterboard,” that were the most aggressive. A legal analysis (TAB 8) by GTMO’s Staff Judge Advocate, LTC Diane Beaver justifying the legality of the techniques, was sent with the request.

On October 25, 2002, General James Hill, the SOUTHCOM Commander forwarded General Dunlavey’s request to the Chairman of the Joint Chiefs of Staff (TAB 9). Days later, the Joint Staff solicited the views of the military services on the GTMO request.

Military Lawyers Weigh in Against GTMO Request

The military services reacted strongly against using many of the techniques in the GTMO request. In early November 2002, in a series of memos, the services identified serious legal concerns with the techniques and they called urgently for additional analysis.

• The Air Force (TAB 10) cited “serious concerns regarding the legality of many of the proposed techniques” and stated that “the techniques described may be subject to challenge as failing to meet the requirements outlined in the military order to treat detainees humanely…” The Air Force also called for an in depth legal review of the request.
• The Chief Legal Advisor to the Criminal Investigative Task Force at GTMO wrote (TAB 11) that Category III techniques and certain Category II techniques “may subject service members to punitive articles of the UCMJ [Uniform Code of Military Justice],” called “the utility and legality of applying certain techniques” in the request “questionable,” and stated that he could not “advocate any action, interrogation or otherwise, that is predicated upon the principle that all is well if the ends justify the means and others are not aware of how we conduct our business.”
• The Chief of the Army’s International and Operational Law Division wrote (TAB 12) that techniques like stress positions, deprivation of light and auditory stimuli, and use of phobias to induce stress “crosses the line of ‘humane’ treatment,” would “likely be considered maltreatment” under the UCMJ, and “may violate the torture statute.” The Army labeled the request “legally insufficient” and called for additional review.
• The Navy response (TAB 13) recommended a “more detailed interagency legal and policy review” of the request.
• And the Marine Corps (TAB 14) expressed strong reservations, stating that “several of the Category II and III techniques arguably violate federal law, and would expose our service members to possible prosecution.” The Marine Corps said the request was not “legally sufficient,” and like the other services, called for “a more thorough legal and policy review.”

While it has been known for some time that military lawyers voiced strong objections to interrogation techniques in early 2003 during the DoD Detainee Working Group process, these November 2002 warnings from the military services – expressed before the Secretary of Defense authorized the use of aggressive techniques – were not publicly known before now.

When the Joint Staff received the military services’ concerns, RADM Jane Dalton, then-Legal Advisor to the Chairman of the Joint Chiefs of Staff, began her own legal review of the proposed interrogation techniques, but that review was never completed. Today we’ll have the opportunity to ask RADM Dalton about that.

Secretary of Defense Approves GTMO Request

Notwithstanding concerns raised by the military services, Department of Defense General Counsel Jim Haynes sent a memo (TAB 15) to Secretary of Defense Donald Rumsfeld on November 27, 2002, recommending that he approve all but three of the eighteen techniques in the GTMO request. Techniques like stress positions, removal of clothing, use of phobias (such as fear of dogs), and deprivation of light and auditory stimuli were all recommended for approval.

Five days later, on December 2, 2002, Secretary Rumsfeld signed Mr. Haynes’s recommendation, adding the handwritten note “I stand for 8-10 hours a day. Why is standing limited to 4 hours?” When Secretary Rumsfeld approved the use of the use of abusive techniques against detainees, he unleashed a virus which ultimately infected interrogation operations conducted by the U.S. military in Afghanistan and Iraq.

Heated Discussions at GTMO about SERE and Khatani Interrogation

Discussions about “reverse engineering” SERE techniques for use in interrogations at GTMO had already prompted strong objections by the Department of Defense’s Criminal Investigative Task Force (CITF) at GTMO. CITF Deputy Commander Mark Fallon said that SERE techniques were “developed to better prepare U.S. military personnel to resist interrogations and not as a means of obtaining reliable information” and that “CITF was troubled with the rationale that techniques used to harden resistance to interrogations would be the basis for the utilization of techniques to obtain information.”

The dispute over the use of aggressive techniques came to a head with the military’s plan for interrogating Mohammed al-Khatani. Both CITF and FBI strongly opposed the military’s plan and CITF took their concerns up the Army Chain of Command and even to the DoD General Counsel’s office; but over CITF’s objections, the military’s plan was approved. The Khatani interrogation began on November 23, 2002, just over a week before the Secretary signed the Haynes memo.

SOUTHCOM Commander General James Hill described the Khatani interrogation in a June 3, 2004 press briefing. He said: “The staff at Guantanamo working with behavioral scientists, having gone up to our SERE school and developed a list of techniques which our lawyers decided and looked at, said were OK.” General Hill said “we began to use a few of those techniques . . . on this individual . . .”

Key documents relating to Khatani’s interrogation remain classified. Published accounts, however, indicate that Khatani was deprived of adequate sleep for weeks on end, stripped naked, subjected to loud music, a dog was used to scare him, and a leash was placed around his neck as he was forced to perform dog tricks.

On May 13, 2008, the Pentagon announced in a written statement that the Convening Authority for military commissions had “dismissed without prejudice the sworn charges against Mohamed al Khatani.” The statement does not indicate the role his treatment played in that decision.

GTMO Develops SERE SOP – Navy SERE School Trainers Visit GTMO

In the week following the Secretary’s December 2, 2002, authorization, senior staff at GTMO set to work drafting a Standard Operating Procedure (SOP) specifically for the use of SERE techniques in interrogations. The first page of one draft of that SOP (TAB 16) stated that “The premise behind this is that the interrogation tactics used at U.S. military SERE schools are appropriate for use in real-world interrogations. These tactics and techniques are used at SERE school to ‘break’ SERE detainees. The same tactics and techniques can be used to break real detainees during interrogation.” The draft described how to slap, strip, and place detainees in stress positions. It also described “hooding,” “manhandling,” and “walling” detainees.

When they saw the draft SOP, CITF and FBI personnel again raised a red flag. A draft of their comments on the SOP (TAB 17) said the use of aggressive techniques only “ends up fueling hostility and strengthening a detainee’s will to resist.” But those objections did not stop GTMO from taking the next step – training interrogators on how to use the techniques offensively.

On December 30, 2002, two instructors from the Navy SERE school arrived at GTMO (TAB 19). The following day, in a session with approximately 24 interrogation personnel, the two demonstrated how to administer stress positions, and various slaps – just like they do it in SERE school.

Around this time, General Hill, the Commander of the U.S. Southern Command spoke to General Miller and discussed the fact that a debate was occurring over the Secretary’s approval of the techniques. In fact, CITF’s concerns had made their way up to then-Navy General Counsel Alberto Mora and a battle over interrogation techniques was being waged at senior levels in the Pentagon.

On January 3, 2003, three days after they conducted the training, the SERE instructors met with Major General Miller. According to some who attended, General Miller stated that he did not want his interrogators using the techniques that the Navy SERE instructors had demonstrated. That conversation took place after the training had already occurred and not all the interrogators who attended the training got the message.

U.S. Navy General Counsel Objects to Interrogation Techniques

Two weeks earlier, on December 20, 2002, Alberto Mora had met with DoD General Counsel Jim Haynes. In a memo describing the meeting (TAB 18), Mr. Mora says he told Mr. Haynes that he thought interrogation techniques that had been authorized by the Secretary of Defense on December 2, 2002 “could rise to the level of torture” and asked him, “What did ‘deprivation of light and auditory stimuli’ mean? Could a detainee be locked in a completely dark cell? And for how long? A month? Longer? What exactly did the authority to exploit phobias permit? Could a detainee be held in a coffin? Could phobias be applied until madness set in?”

On January 9, 2003, Alberto Mora met with Jim Haynes again. According to his memo, Mora expressed frustration that the Secretary’s authorization had not been revoked and told Haynes that the policies could threaten Secretary Rumsfeld’s tenure and even damage the presidency.

On January 15, 2003, having gotten no word that the Secretary’s authority would be withdrawn, Mora delivered a draft memo to Haynes’s office stating that “the majority of the proposed category II and all of the category III techniques were violative of domestic and international legal norms in that they constituted, at the minimum, cruel and unusual treatment and, at worst, torture.” In a phone call, Mora told Haynes he would be signing his memo later that day unless he heard definitively that the use of the techniques was being suspended. In a meeting that same day, Haynes returned the draft memo and told Mora that the Secretary would rescind the techniques.

Working Group Report on Detainee Interrogations

On January 15, 2003, the Secretary rescinded his December 2, 2002, authorization (TAB 20). At the same time, he directed the establishment of a “Working Group” to review interrogation techniques. What happened next has already become well known. For the next few months the judgments of senior military and civilian lawyers critical of legal arguments supporting aggressive interrogation techniques were rejected in favor of a legal opinion from Office of Legal Counsel’s (OLC) John Yoo. The Yoo opinion (TAB 21), the final version of which was dated March 14, 2003, was requested by Jim Haynes, and repeated much of what the first Bybee memo had said six months earlier.

Mr. Mora, who was one of the Working Group participants, said that soon after the Working Group was established, it became evident the group’s report “would contain profound mistakes in its legal analysis, in large measure because of its reliance on the flawed [Office of Legal Counsel] OLC memo.” In a meeting with Yoo, Mora asked whether the law allowed the President to go so far as to order torture. Yoo responded “Yes.”

The August 1, 2002, Bybee memo, again, had said that to violate the federal anti-torture statute, physical pain that resulted from an act would have to be “equivalent in intensity to the pain accompanying serious physical injury, such as organ failure, impairment of bodily function, or even death.” John Yoo’s March 14, 2003 memo stated that criminal laws, such as the federal anti-torture statute, would not even apply to certain military interrogations and that interrogators could not be prosecuted by the Justice Department for using interrogation methods that would otherwise violate the law. One CIA lawyer reportedly called the Bybee memo of August 2002 a “golden shield.” Combining it with the Yoo memo of March 2003, the Justice Department had attempted to create a shield to make it difficult or impossible to hold anyone accountable for their conduct.

Ultimately the Working Group report, finalized in April 2003, included a number of aggressive techniques that were legal according to John Yoo’s analysis. The full story of where the Working Group got those techniques remains classified. However, the list itself reflects the influence of SERE. Removal of clothing, prolonged standing, sleep deprivation, dietary manipulation, hooding, increasing anxiety through the use of a detainee’s aversions like dogs, and face and stomach slaps were all recommended. Top military lawyers and service General Counsels had objected to these techniques as the report was being drafted. Those who had objected, like Navy General Counsel Alberto Mora, were simply excluded from the process and not even told that a final report had been issued.

On April 16, 2003, less than two weeks after the Working Group completed its report, the Secretary of Defense authorized the use of 24 specific interrogation techniques for use at GTMO (TAB 23). While the authorization included such techniques as dietary manipulation, environmental manipulation, and sleep adjustment, it was silent on most of the techniques in the Working Group report.

However, the Secretary’s memo said that “If, in your view, you require additional interrogation techniques for a particular detainee, you should provide me, via the Chairman of the Joint Chiefs of Staff, a written request describing the proposed technique, recommended safeguards, and the rationale for applying it with an identified detainee.”

Just a few months later, one such request arrived at the Pentagon. The detainee was Mohamedou Ould Slahi. While several documents relating to the Slahi interrogation plan remain classified, the recent report from the Department of Justice Inspector General includes newly declassified information suggesting the plan included hooding Slahi and subjecting him to sensory deprivation and “sleep adjustment.” The Inspector General’s report says that an FBI agent who saw a draft of the interrogation plan said it was similar to Khatani’s interrogation plan. Secretary Rumsfeld approved the Slahi plan on August 13, 2003.

Influence in Afghanistan

How did SERE techniques make their way to Afghanistan and Iraq? Shortly after the Secretary approved Jim Haynes’s recommendation on December 2, 2002, the techniques – and the fact the Secretary had authorized them – became known to interrogators in Afghanistan. A copy of the Secretary’s memo was sent from GTMO to Afghanistan. The Officer in Charge of the Intelligence Section at Bagram Airfield, in Afghanistan has said that in January 2003 she saw – in Afghanistan – a power point presentation listing the aggressive techniques authorized by the Secretary on December 2, 2002.

Documents and interviews also indicate that the influence of the Secretary’s approval of aggressive interrogation techniques survived their January 15, 2003 rescis

On January 24, 2003 – nine days after Rumsfeld’s rescission – the Staff Judge Advocate for CJTF-180, CENTCOM’s conventional forces in Afghanistan, produced an “Interrogation techniques” memo. While that memo remains classified, the unclassified version of a report by Major General George Fay stated that the CJTF-180 memo “recommended removal of clothing – a technique that had been in the Secretary’s December 2 authorization” and discussed “exploiting the Arab fear of dogs” another technique approved by the Secretary on December 2, 2002.

From Afghanistan, the techniques made their way to Iraq. According to the Department of Defense Inspector General, at the beginning of the Iraq war, the special mission unit forces in Iraq “used a January 2003 Standard Operating Procedure (SOP) which had been developed for operations in Afghanistan.” According to the DoD IG, the Afghanistan SOP had been:

“influenced by the counterresistance memorandum that the Secretary of Defense approved on December 2, 2002 and incorporated techniques designed for detainees who were identified as unlawful combatants. Subsequent battlefield interrogation SOPs included techniques such as yelling, loud music, and light control, environmental manipulation, sleep deprivation/adjustment, stress positions, 20-hour interrogations, and controlled fear (muzzled dogs) . . .”

Special mission unit techniques eventually made their way into Standard Operating Procedures issued for all U.S. forces in Iraq. The Interrogation Officer in Charge at Abu Ghraib obtained a copy of the special mission unit interrogation policy and submitted it, virtually unchanged, to her chain of command as proposed policy for the conventional forces in Iraq, led at the time by Lieutenant General Ricardo Sanchez.

On September 14, 2003, Lieutenant General Sanchez issued the first Combined Joint Task Force 7 interrogation SOP. That SOP authorized interrogators in Iraq to use stress positions, environmental manipulation, sleep management, and military working dogs to exploit detainees’ fears in interrogations.

In the report of his investigation into Abu Ghraib, Major General George Fay said that interrogation techniques developed for GTMO became “confused” and were implemented at Abu Ghraib. Major General Fay said that removal of clothing, while not included in CJTF-7’s SOP, was “imported” to Abu Ghraib, could be “traced through Afghanistan and GTMO,” and contributed to an environment at Abu Ghraib that appeared “to condone depravity and degradation rather than humane treatment of detainees.” Following a September 9, 2004 Committee hearing on his report, I asked Major General Fay whether the policy approved by the Secretary of Defense on December 2, 2002 contributed to the use of aggressive interrogation techniques at Abu Ghraib, and he responded “Yes.”

JPRA Support to the Special Mission Unit Task Force In Iraq

Not only did SERE resistance training techniques make their way to Iraq, but instructors from the JPRA SERE school followed. The Department of Defense Inspector General reported that in September 2003, at the request of the Commander of the Special Mission Unit Task Force, JPRA deployed a team to Iraq to provide assistance to interrogation operations. During that trip, SERE instructors were authorized to participate in the interrogation of detainees in U.S. military custody. Accounts of that trip will be explored at a later time.

I will be sending a letter to the Department of Defense asking that those accounts and other documents relating to JPRA’s interrogation-related activities be declassified.

JFCOM Statement on JPRA Roles and Responsibilities

Major General James Soligan, the Chief of Staff of the U.S. Joint Forces Command (JFCOM), which is the Joint Personnel Recovery Agency’s higher headquarters (TAB 24), issued a memorandum referencing JPRA’s support to interrogation operations. Soligan wrote that:

“Recent requests from OSD and the Combatant Commands have solicited JPRA support based on knowledge and information gained through the debriefing of former U.S. POWs and detainees and their application to U.S. Strategic debriefing and interrogation techniques. These requests, which can be characterized as ‘offensive’ support, go beyond the chartered responsibilities of JPRA… The use of resistance to interrogation knowledge for ‘offensive’ purposes lies outside the roles and responsibilities of JPRA.”

Lieutenant General Robert Wagner, the Deputy Commander of JFCOM, has likewise said that (TAB 25) “Relative to interrogation capability, the expertise of JPRA lies in training personnel how to respond and resist interrogations – not in how to conduct interrogations… requests for JPRA ‘interrogation support’ were both inconsistent with the unit’s charter and might create conditions which tasked JPRA to engage in offensive operational activities outside of JPRA’s defensive mission.”

The Department of Defense Inspector General report completed in August 2006 said techniques in Iraq and Afghanistan had derived, in part from JPRA and SERE.

Closing

Many have questioned why we should care about the rights of detainees. On May 10, 2007, General David Petraeus answered that question in a letter to his troops. General Petraeus wrote:

“Our values and the laws governing warfare teach us to respect human dignity, maintain our integrity, and do what is right. Adherence to our values distinguishes us from our enemy. This fight depends on securing the population, which must understand that we – not our enemies – occupy the moral high ground.

I fully appreciate the emotions that one experiences in Iraq. I also know firsthand the bonds between members of the ‘brotherhood of the close fight.’ Seeing a fellow trooper killed by a barbaric enemy can spark frustration, anger, and a desire for immediate revenge. As hard as it might be, however, we must not let these emotions lead us – or our comrades in arms – to commit hasty, illegal actions. In the event that we witness or hear of such actions, we must not let our bonds prevent us from speaking up. Some may argue that we would be more effective if we sanctioned torture or other expedient methods to obtain information from the enemy. They would be wrong. Beyond the basic fact that such actions are illegal, history shows that they also arc frequently neither useful nor necessary.

We are, indeed, warriors. We train to kill our enemies. We are engaged in combat, we must pursue the enemy relentlessly, and we must be violent at times. What sets us apart from our enemies in this fight, however, is how we behave. In everything we do, we must observe the standards and values that dictate that we treat noncombatants and detainees with dignity and respect. While we are warriors, we are also all human beings.”

Here is an excerpt: “As historians write today’s history, one name that should forever be remembered as playing a significant role in this community’s growth is that of U.S. Sen. Carl Levin. While Levin is elected to represent constituents across Michigan, it could well be argued he holds a special affinity to the constituents of Northeast Michigan.

To say Levin has been good to Alpena is not even fair and doesn’t begin to justify the senator’s contributions. Levin hasn’t been good — he’s been fantastic to and for Alpena.”

To read the full article, visit: http://www.thealpenanews.com/page/content.detail/id/501868.html

My Senate Permanent Subcommittee on Investigations has conducted four separate investigations into how our energy markets can be made to work better. Most recently, last December, we had a joint hearing with the Senate Energy Subcommittee on the role of speculation in rising energy prices. As a result of these investigations and hearings, I have been advocating a variety of measures to address the rampant speculation and lack of regulation of energy markets which have contributed to sky high energy prices:

• back on the beat in the energy markets to prevent excessive speculation and manipulation. That includes closing the Enron loophole and the London loophole, and taking other steps to strengthen market oversight.
• Second, develop alternatives to fossil fuels to reduce our dependence on oil.
• Third, impose a windfall profits tax on oil companies that have profited from the massive price run-up and use the money to help consumers, boost domestic energy supplies, improve energy technologies, and strengthen our energy markets.

One of the major causes of our energy crisis is the failed policies of the current Administration. The chickens have come home to roost on seven years of a business-as-usual energy policy, paired with fiscal and foreign policies that have pushed our growing energy problem close to a breaking point. Because the Administration has proved itself unable and unwilling to take the necessary steps to provide affordable energy supplies to the American people, it is up to the Congress to try to jumpstart a comprehensive solution to skyrocketing energy prices. Congress already has taken two important steps this year – we have closed the Enron loophole and we have stopped the Administration’s misguided program to keep on filling the SPR despite record-high prices – but more can and should be done. That’s why I support enactment of the Consumer-First Energy Act now before us and will be voting for cloture on this bill.

Last week the price of crude oil reached a record high price of about $139 per barrel. Sky-high crude oil prices have led to record highs in the price of other fuels produced from crude oil, including gasoline, heating oil, diesel fuel, and jet fuel. The national average price of gasoline is at a record high of just over $4 per gallon The price of diesel fuel, which is normally less expensive than gasoline, has soared to a record high of nearly $4.60 per gallon.

Rising energy prices increase the cost of getting to work and taking our children to school, traveling by car, truck, air and rail, and growing the food we eat and transporting it to market. Rising energy prices increase the cost of producing the medicines we need for our health, heating our homes and offices, generating electricity, and manufacturing countless industrial and consumer products. The relentless increase in jet fuel prices, which have added nearly $75 billion to our airlines’ annual fuel costs, has contributed to airline bankruptcies, mergers, fare increases, and service cuts. “If fuel continues to go up, this industry cannot survive in current form,” the president of the Air Transport Association said recently. Rising diesel prices have placed a crushing burden upon our nation’s truckers, farmers, manufacturers, and other industries. To make matters worse, our energy costs are rising much more quickly than energy costs in other countries, directly threatening our global competitiveness.

In January 2001, when President Bush took office, the price of oil was about $30 per barrel. The average price for a gallon of gasoline was about $1.50. Since President Bush took office, crude oil prices have more than quadrupled, natural gas prices to heat our homes have almost doubled, gasoline prices have nearly tripled, and diesel fuel prices have more than tripled.

It doesn’t have to be this way. Just seven years ago, at the end of the Clinton Administration, energy supplies were plentiful, and gasoline and other forms of energy were affordable. Once the Bush Administration took office, however, it didn’t take them long to eliminate the budget surplus by cutting taxes mainly for the wealthiest among us, creating a huge annual budget deficit, and driving up the national debt. This fiscal mismanagement has contributed significantly to a steep decline in the value of the dollar and soaring commodity prices. Because American currency is worth less, it takes more of them to buy the same barrel of oil. American consumers and businesses are forced to spend more and more of their hard-earned dollars to buy the same amount of energy. During the last years of the Clinton Administration, the U.S. ran a budget surplus, totaling nearly $560 billion. But over the past six years of the Bush Administration the annual deficits have totaled nearly $1.7 trillion, not counting the amount by which the Bush Administration has been draining the Social Security and Medicare trust funds. When this is counted, under this Administration the total outstanding debt has increased by a whopping $3.2 trillion.

When President Clinton left office, the dollar was worth more than the euro. In January 2001, it took only about 90 cents to buy one euro. Today, it takes about $1.60 to buy one euro — a record low for the dollar. The fall in the value of the dollar is a result of a weakened U.S. economy, a high trade deficit and a world-wide lack of confidence in the Bush Administration’s ability to manage our nation’s economy and foreign policy. As long as this Administration continues to insist on irresponsible fiscal practices – including tax cuts for people with the highest income and an open-ended conflict in Iraq that is costing $12 billion a month – the dollar will likely continue to decline in value. The marketplace has rendered a clear “no confidence” in this Administration’s fiscal competence.

Besides the weak dollar, there are other factors at work that account for soaring energy prices. Some are beyond our control; others we can do something about. In global markets, for example, the combination of increasing demand from developing countries, coupled with a variety of political problems in supplier countries, has contributed to price increases. Growing demand for oil and gas in China, India, and other developing countries is contributing to an overall increase in global demand for crude oil. On the supply side, many oil producing countries are politically unstable, and have not been fully reliable suppliers. For example, in Nigeria, which is a major oil producing country, for several years tribal gangs have been sabotaging production and pipelines.

While we can’t do much about growing demand in China and India, other causes of high prices can be addressed. For example, one key factor in energy price spikes is rampant speculation in the energy markets. Traders are trading contracts for future delivery of oil in record amounts, creating a paper demand that is driving up prices and increasing price volatility solely to take a profit. Overall, the amount of trading of futures and options in oil on the New York Mercantile Exchange has risen six-fold in recent years, from 500,000 outstanding contracts in 2001, to about 3 million contracts now.

Much of this increase in trading of futures has been due to speculation. Speculators in the oil market do not intend to use crude oil; instead they buy and sell contracts for crude oil just to make a profit from the changing prices. The number of futures and options contracts held by speculators has gone from around 100,000 contracts in 2001, which was 20% of the total number of outstanding contracts, to 1.2 million contracts currently held by speculators, which represents almost 40% of the outstanding futures and options contracts in oil on NYMEX.

There are now 12 times as many speculative holdings as there was in 2001, while holdings of non-speculative futures and options are up but 3 times.

Not surprisingly, this massive speculation that the price of oil will increase has, in fact, helped fuel the actual increase in the price of oil to a level far above the price that is justified by the traditional forces of supply and demand.

The President and CEO of Marathon Oil recently said, “$100 oil isn’t justified by the physical demand in the market. It has to be speculation on the futures market that is fueling this.” Mr. Fadel Gheit, oil analyst for Oppenheimer and Company describes the oil market as “a farce.” “The speculators have seized control and it’s basically a free-for-all, a global gambling hall, and it won’t shut down unless and until responsible governments step in.” In January of this year, as oil hit $100 barrel, Mr. Tim Evans, oil analyst for Citigroup, wrote “the larger supply and demand fundamentals do not support a further rise and are, in fact, more consistent with lower price levels.” At the joint hearing on the effects of speculation held by my Subcommittee last December, Dr. Edward Krapels, a financial market analyst, testified, “Of course financial trading, speculation affects the price of oil because it affects the price of everything we trade. . . It would be amazing if oil somehow escaped this effect.” Dr. Krapels added that as a result of this speculation, “There is a bubble in oil prices.”

A fair price for a commodity is a price that accurately reflects the forces of supply and demand for the commodity, not the trading strategies of speculators who only are in the market to make a profit by the buying and selling of paper contracts with no intent to actually purchase, deliver, or transfer the commodity. As we have all too often seen in recent years, when speculation grows so large that it has a major impact on the market, prices get distorted and stop reflecting true supply and demand.

Last month, Senator Jack Reed and I wrote a letter asking President Bush to appoint a high-level task force to evaluate how speculators are driving up prices through manipulative or deceptive devices. The task force should also evaluate whether there are adequate regulatory tools to control market speculation and prevent manipulation. Hopefully the President will act quickly to convene this task force.

Excessive market speculation is a factor that we can and should do a better job of controlling. There are other long overdue actions as well that, if taken as part of a comprehensive plan, can combat rising energy prices.

Putting a Cop on the Beat in Energy Markets

As to reining in speculation, the first step to take is to put a cop back on the beat in all our energy markets to prevent excessive speculation, price manipulation, and trading abuses. In 2001, my Senate Permanent Subcommittee on Investigations began investigating our energy markets. At the time, the price of a gallon of gasoline had spiked upwards by about 25 cents over the course of the Memorial Day holiday. We subpoenaed records from major oil companies and interviewed oil industry experts, gas station dealers, antitrust experts, gasoline wholesalers and distributors, and oil company executives. We examined thousands of prices at gas stations in Michigan, Ohio, California, and other states. In the spring of 2002, I released a 400-page report and held two days of hearings on the results of the investigation.

The investigation found that increasing concentration in the gasoline refining industry, due to a large number of recent mergers and acquisitions, was one of the causes of the increasing number of gasoline price spikes. Another factor causing price spikes was the increasing tendency of refiners to keep lower inventories of gasoline. We also found a number of instances in which the increasing concentration in the refining industry was also leading to higher prices in general. Limitations on the pipeline that brings gasoline into my home state of Michigan were another cause of price increases and spikes in Michigan. The report recommended that the Federal Trade Commission carefully investigate proposed mergers, particularly with respect to the effect of mergers on inventories of gasoline.

The investigation discovered one instance in which a major oil company was considering ways to prevent other refiners from supplying gasoline to the Midwest so that supply would be constricted and prices would increase.

In March 2003, my Subcommittee released a second report detailing how the operation of crude oil markets affects the price of not only gasoline, but also key commodities like home heating oil, jet fuel, and diesel fuel. The report warned that U.S. energy markets were vulnerable to price manipulation due to a lack of comprehensive regulation and market oversight.

Following this report, I worked with Senator Feinstein on legislation to put the cop back on the beat in those energy markets that had been exempted from regulation pursuant to an “Enron loophole” that was snuck into other legislation in December 2000. For two years we attempted to close the Enron loophole, but efforts to put the cop back on the beat in these markets were unsuccessful, due to opposition from the Bush Administration, large energy companies, and large financial institutions that trade energy commodities.

In June 2006, I released another Subcommittee report, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put a Cop on the Beat. This report found that the traditional forces of supply and demand no longer accounted for sustained price increases and price volatility in the oil and gasoline markets. The report determined that, in 2006, that a growing number of energy trades occurred without regulatory oversight and that market speculation had contributed to rising oil and gasoline prices, perhaps accounting for $20 out of a then-priced $70 barrel of oil.

The Subcommittee report I released in June 2006 again recommended new laws to increase market oversight and stop market manipulation and excessive speculation. I again co-authored legislation with Senator Feinstein to improve oversight of the unregulated energy markets. Once again, opposition from the Bush Administration, large energy traders, and the financial industry prevented the full Senate from considering this legislation.

In 2007, my Permanent Subcommittee on Investigations addressed the sharp rise in natural gas prices over the previous year and released a fourth report, entitled Excessive Speculation in the Natural Gas Market. Our investigation showed that speculation by a single hedge fund named Amaranth had distorted natural gas prices during the summer of 2006, and drove up prices for average consumers. The report also demonstrated how Amaranth had traded in unregulated markets to avoid the restrictions and oversight in the regulated markets, and how the price increases caused by Amaranth could have been prevented if there had been the same type of oversight in the unregulated markets as in the regulated markets.

Following this investigation, I introduced a new bill, S. 2058, to close the Enron loophole and regulate the un-regulated electronic energy markets. Working again with Senators Feinstein and Snowe, and with the members of the Agriculture Committee in a bipartisan effort, we finally managed to include an amendment to close the Enron loophole in the farm bill that was then being considered by the Senate. The Senate unanimously passed this amendment to close the Enron loophole last December. The final Farm Bill that was passed by the House and Senate last month included language nearly identical to what the Senate had passed. Although President Bush vetoed the entire Farm Bill, both the House and Senate have overridden his veto. Our five-year quest to close the Enron Loophole has finally been successful.

The CFTC is now in the process of implementing the close-the-Enron-loophole law. Among other steps, it is charged with reviewing the contracts on previously unregulated energy markets, like the Intercontinental Exchange or ICE, to determine which contracts have a significant effect on energy prices and must undergo daily oversight. Once that process is complete, the cop will be back on the beat in those markets for the first time since 2000.

Closing the Enron loophole is vitally important for energy market oversight as a whole, and for our natural gas markets in particular, but it is not enough. Because over the last two years, energy traders have moved a significant amount of U.S. crude oil and gasoline trading to the United Kingdom, beyond the direct reach of U.S. regulators, we have to address that second loophole too. I call it closing the London loophole.

There are currently two key energy commodity markets for U.S. crude oil and gasoline trading. The first is the New York Mercantile Exchange or NYMEX, located in New York City. The second is the ICE Futures Europe exchange, located in London and regulated by the British agency called the Financial Services Authority.

The British regulators, however, do not oversee their energy markets the same way we do; they don’t place limits on speculation like we do, and they don’t make public the same type of trading data that we do. That means that traders can avoid the limits on speculation in crude oil imposed on the New York exchange by trading on the London exchange. It also makes the London exchange less transparent than the New York exchange. My original legislation to close the Enron loophole would have required U.S. traders on the London exchange to provide U.S. regulators with the same type of trading information that they are already required to provide when they trade on the New York Mercantile Exchange. Unfortunately, this provision was dropped from the close-the-Enron-loophole legislation in the farm bill.

The Consumer-First Energy Act (S. 3044), which the Majority Leader and others introduced recently to address high prices and reduce speculation, includes at my request a provision to curb rampant speculation, increase our access to foreign exchange trading data, and strengthen oversight of the trading of U.S. energy commodities no matter where that trading occurs. This provision would require the Commodity Futures Trading Commission (CFTC), prior to allowing a foreign exchange to establish direct trading terminals located in this country, to obtain an agreement from the that foreign exchange, such as the London exchange, to impose speculative limits and reporting requirements on traders of U.S. energy commodities that are comparable to the requirements imposed by the CFTC on U.S. exchanges. I believe this issue is so important that I have introduced this section of the package as a separate bill, which is numbered S. 2995. Senator Feinstein is a cosponsor of that bill.

Following the introduction of our legislation, the CFTC finally moved to address some of the gaps in its ability to oversee foreign exchanges operating in the United States. Specifically, the CFTC, working with the United Kingdom Financial Services Authority and the ICE Futures Europe exchange, announced that it will now obtain the following information about the trading of U.S. crude oil contracts on the London exchange:

• Daily large trader reports on positions in West Texas Intermediate or WTI contracts traded on the London exchange;
• Information on those large trader positions for all futures contracts, not just a limited set of contracts due to expire in the near future;
• Enhanced trader information to permit more detailed identification of end users;
• Improved data formatting to facilitate integration of the data with other CFTC data systems; and
• Notification to the CFTC of when a trader on ICE Futures Europe exceeds the position accountability levels established by NYMEX for the trading of WTI crude oil contracts.

These new steps will strengthen the CFTC’s ability to detect and prevent manipulation and excessive speculation in the oil and gasoline markets. It will ensure that the CFTC has the same type of information it receives from U.S. exchanges in order to detect and prevent manipulation and excessive speculation.

However, in order to fully close the London loophole, better information is not enough. The CFTC must also have clear authority to act upon this information to stop manipulation and excessive speculation.

That is why I have been working with the sponsors of the Consumer-First Energy Act to include additional language to ensure that the CFTC has the authority to act upon the information it will obtain from the London exchange, in order to prevent price manipulation and excessive speculation. This new provision, which I helped author, would make it clear that the CFTC has the authority to prosecute and punish manipulation of the price of a commodity, regardless of whether the trader within the United States is trading on a U.S. or on a foreign exchange. It would also make it clear that the CFTC has the authority to require traders in the United States to reduce their positions, no matter where the trading occurs – on a U.S. or foreign exchange – to prevent price manipulation or excessive speculation. Finally, it would clarify that the CFTC has the authority to require all U.S. traders to keep records of their trades, regardless of which exchange the trader is using.

It is my understanding that this new provision will be included in a substitute amendment that will be offered today or in a future debate on this bill, if cloture is not invoked today. I thank the bill sponsors for accepting this language to ensure that the CFTC has full enforcement authority over traders within the United States who are trading on a foreign exchange, just as the CFTC has over traders who are trading on a U.S. exchange. This clarification of the CFTC’s enforcement authority over traders in the United States, together with the earlier provision setting standards for Foreign Boards of Trade wishing to place trading terminals in the United States, will fully close the London loophole.

Postpone Filling the Strategic Petroleum Reserve

There is another problem with our energy markets that Congress has finally acted on. In 2003, a report issued by my Subcommittee staff found that the Bush Administration’s large deposits of oil into the Strategic Petroleum Reserve (SPR) were increasing crude oil prices without improving overall U.S. energy security. We found that in 2002, the Bush Administration, over the repeated objections of its own experts in the Department of Energy, had changed its policy and decided to put oil into the SPR regardless of the price of oil or market conditions. By placing oil into the SPR while oil prices were high and oil supplies were tight, the Administration’s deposits into the SPR were reducing market supplies and boosting prices, with almost no benefit to national security, given the fact that the SPR is more than 95% filled. The DOE experts believed that in a tight market, we are better off with keeping the oil on the market rather than putting it into the ground where it cannot be used.

Following the issuance of this report, in early 2003, I asked the Department of Energy to suspend its filling of the SPR until prices had abated and supplies were more plentiful. DOE refused to change course, and continued the SPR fill without regard to market supplies or prices.

After DOE denied my request, I offered a bipartisan amendment with Senator Collins to the Interior Appropriations bill, which provides funding for the Strategic Petroleum Reserve program, to require DOE to minimize the costs to the taxpayers and market impacts when placing oil into the SPR. The Senate unanimously adopted our amendment, but it was dropped from the conference report due to the Bush Administration’s continued opposition.

The next spring, I offered another amendment, also with Senator Collins, to the budget resolution, expressing the sense of the Senate that the Administration should postpone deliveries into the SPR and use the savings from the postponement to increase funding for national security programs. The amendment passed the Senate by a vote of 52-43. That fall, we attempted to attach a similar amendment to the homeland security appropriations bill that would have postponed the SPR fill and used the savings for homeland security programs, but the amendment was defeated by a procedural vote, even though the majority of Senators voted in favor of the amendment, 48-47.

The next year, the Senate passed the Levin-Collins amendment to the Energy Policy Act of 2005 to require the DOE to consider price impacts and minimize the costs to the taxpayers and market impacts when placing oil into the SPR. The Levin-Collins amendment was agreed to by the conferees and is now law.

Unfortunately, passage of this provision has had no effect upon DOE’s actions. DOE continued to fill the SPR regardless of the market effects of buying oil, thereby taking oil off the market and reducing supply by placing it into the SPR. In the past year, no matter what the price of oil or market conditions, DOE consistently found that the market effects are negligible and no reason to delay filling the SPR.

Most recently, at the same time the President was urging OPEC to put more oil on the market to reduce supplies, the Administration was continuing to take oil off the market and place it into the SPR. Until recently, the DOE was depositing about 70,000 barrels of crude oil per day into the SPR, much of it high-quality crude oil ideal for refining into gasoline. It defies common sense for the U.S. government to be acquiring oil at $120 or $130 per barrel, in a time of tight supply, taking that oil off the market, and putting it in the SPR. That is why I co-sponsored Senator Dorgan’s bill to suspend the SPR fill, as well as a similar provision in the Consumer-First Energy Act.

Finally, Congress had had enough of this senseless policy. The provision to stop the continuous filing of the SPR was pulled from the Consumer-First Energy Act and offered in the House and Senate as a standalone bill. Congress enacted into law by an overwhelming vote. In response, the President finally called a halt to his policy and stopped filling the SPR. It’s about time.

The SPR fill policy, by the way, exacerbated yet another problem in our oil markets – the fact that the standard NYMEX futures contract that sets the benchmark price for U.S. crude oil requires a particular type of high quality crude oil known as West Texas Intermediate (WTI) to be delivered at a particular location, Cushing, Oklahoma. The standard NYMEX contract price, in turn, has a major influence on the price of fuels refined from crude oil such as gasoline, heating oil, and diesel.

Because the price of the standard contract depends upon the supply of WTI at Cushing, Oklahoma, the supply and demand conditions in Oklahoma have a disproportionate influence on the price of NYMEX futures contracts. That means when the WTI price is no longer representative of the price of U.S. crude oil in general, the prices of other energy commodities are also thrown out of whack. In other words, we have an oil futures market that reflects the supply and demand conditions in Cushing, Oklahoma, but not necessarily the overall supply and demand situation in the United States as a whole.

I have long called for reform of this outdated feature of the standard NYMEX crude oil contract. In 2003, the PSI report recommended the CFTC and NYMEX to work together to revise the standard NYMEX crude oil futures contract to reduce its susceptibility to local imbalances in the market for WTI crude oil. The Subcommittee report suggested that allowing for delivery at other locations could reduce the volatility of the contract. It is truly disappointing that since our report was issued no progress has been made for allowing for delivery at other places than Cushing, Oklahoma. As the price of oil has increased, the distortions and imbalances caused by the atypical nature of the standard contract have gotten worse. It is essential NYMEX repair its crude oil contract.

Developing Alternatives to Fossil Fuels

Putting the cop on the beat in our energy markets, strengthening oversight of U.S. energy commodities traded on foreign exchanges, stopping the SPR fill, and fixing the NYMEX crude oil contract all focus on problems caused by rising energy prices. These consistently rising gas prices also underscore the need to develop advanced vehicle technologies and alternative energy sources that will significantly reduce our dependence on foreign oil.

I have long advocated advanced automotive technologies such as hybrid electric, advanced batteries, hydrogen and fuel cells and promoted development of these technologies through federal research and development and through joint government-industry partnerships. We need a significant infusion of federal dollars into these efforts to make revolutionary breakthroughs in automotive technologies. Such an investment will make technologies such as plug-in hybrid vehicles affordable to the American public, and reduce our dependence on oil and reduce prices at the pump.

We need an equally strong investment in development of alternative fuels that can replace gasoline. I have strongly supported efforts to increase our production of renewable fuels and to do that in a way that will also reduce our greenhouse gas emissions. We need a strong push toward biofuels produced from cellulosic materials, which requires a significantly greater federal investment in biofuels technologies. Cellulosic ethanol has enormous potential for significant reductions in greenhouse gas emissions but additional federal support is required to make this technology financially viable. We need expanded federal research and development grants as well as increased tax incentives and federal loan guarantees to make cellulosic ethanol a viable replacement for gasoline. The federal government must do its part first to develop these technologies so that they will then in turn be within reach of the American public.

Windfall Profits Tax

One more point. The burden of higher energy prices is not being shared equally. To the contrary, it is falling hardest upon those who can least afford it. Large oil companies are reaping record profits at the expense of the average American who ultimately bears the full burden of these price increases. At the same time that average Americans are having to devote a greater and greater portion of their income to pay for basic necessities, such as gasoline, household utilities, and food, the major oil companies are reporting record profits, and their executives are taking home annual paychecks of hundreds of millions of dollars. Many of these profits have been generated without any additional investments into energy production. Rather, these companies have seen their profits rise with the flood of speculation. What is a high tide of profits for the oil companies, though, is a tsunami that is overwhelming millions of Americans.

And what are these oil companies doing with these record profits? Are they investing in new technologies? The answer is that the oil companies are not increasing their exploration and development investments by nearly as much as their profits are increasing. Instead, they are devoting large amounts of their profits to acquiring other companies and buying back their own shares. On May 1 of this year, the Wall Street Journal reported that in the first quarter of 2008 ExxonMobil spent $8 billion to buy back company shares, which “boosted per-share earnings to stratospheric levels,” whereas it spent less on exploration and actually reduced oil production.

For these reasons, we need to institute a windfall profits tax on the oil companies. We should incentivize big oil companies to invest their windfall profits into things that will increase our own domestic energy production by reducing the amount of the tax for such investments. If they don’t make these investments, a portion of that profit should be recouped by the public to help offset the outrageous prices they are facing at the pump.

I have supported a windfall profits tax numerous times when we have voted on it in the Senate. “The Consumer-First Energy Act,” imposes a 25% tax on windfall profits of the major oil companies. Windfall profits invested to boost domestic energy supplies would be exempt from the tax, which would encourage investments in renewable facilities and the production of renewable fuels such as ethanol and biodiesel. It would also encourage oil companies to increase their domestic refinery capacity. Proceeds from the tax would be put toward measures to reduce the burdens of rising energy costs and increase our energy independence and security.

Sky-high energy prices are causing immense financial pain to working families and businesses throughout this country and tying our already weak economy in knots. Congress cannot just stand by; we must act now to stop the pain. Immediate steps include putting the cop on the beat in all of our energy markets to prevent price manipulation and excessive speculation, strengthening oversight of U.S. energy commodities traded in London, fixing the key NYMEX crude oil contract, investing in advanced vehicle technologies and alternative energy sources, and imposing a windfall profits tax on the oil companies. Longer range steps include fixing the fiscal policies undermining the strength of the U.S. dollar, including by eliminating tax cuts for the wealthiest among us, reducing the $12 billion a month spending bill in Iraq, and closing outrageous tax loopholes than enable tax dodgers to use offshore tax havens to avoid payment of taxes in the range of $100 billion each year.

We can fight back against exorbitantly high energy prices. But it will take all our energy – and determination – to do it.

SOUTHFIELD - Senator Carl Levin filed for re-election to the U.S. Senate today by submitting 30,000 signatures from all 83 Michigan counties to the Bureau of Elections in Lansing. Michigan law requires all U.S. Senate candidates from the two major parties to file a minimum of 15,000 signatures, and a maximum of 30,000 signatures, from registered Michigan voters in order for the candidate’s name to appear on the ballot.

“I am proud that these signatures were collected with a grassroots, all-volunteer effort in every county in Michigan,” said Senator Levin. “The people of Michigan have given me the wonderful privilege of serving our state and our country, and I appreciate the work of thousands of volunteers throughout the state to collect signatures and give me the opportunity to continue that service.”

Highlights of Senator Levin’s nominating petition gathering effort:

• Legal maximum of 30,000 signatures were submitted.
• Signatures from all 83 of Michigan’s counties.
• Grassroots, all-volunteer effort.
• Over 2,500 volunteers circulated petitions on behalf of Senator Levin.

“Michigan and the nation face enormous challenges, and the 2008 election will be important in setting our course to meet those challenges,” Levin said. “Creating jobs, fighting for manufacturing, making affordable health care available to all Americans, ending the speculation and gouging which have helped drive up gas prices, ending the war in Iraq and restoring America’s image in the world are some of the major ones.”

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Paid for by Friends of Senator Carl Levin

My Senate Permanent Subcommittee on Investigations has conducted four separate investigations into how our energy markets can be made to work better. Most recently, last December, we had a joint hearing with the Senate Energy Subcommittee on the role of speculation in rising energy prices. As a result of these investigations and hearings, I have been advocating a variety of measures to address the rampant speculation and lack of regulation of energy markets which have contributed to sky high energy prices:

• Put a cop – a regulatory agency – back on the beat in the energy markets to ensure these markets are free from excessive speculation and manipulation;
• Stop filling the Strategic Petroleum Reserve until prices are lower;
• Develop alternatives to fossil fuels to lessen our dependence on oil;
• Impose a windfall profits tax on oil companies that have profited from the massive price increases.

One of the major causes of our energy crisis is the failed policies of the current Administration. The chickens have come home to roost on seven years of a business-as-usual energy policy, paired with fiscal and foreign policies that have pushed our growing energy problem close to a breaking point. Because the Administration has proved itself unable and unwilling to take the necessary steps to provide affordable energy supplies to the American people, it is up to the Congress to try to jumpstart a comprehensive solution to skyrocketing energy prices.
The price of crude oil recently reached a record high price of about $126 per barrel. Sky-high crude oil prices have led to record highs in the price of other fuels produced from crude oil, including gasoline, heating oil, diesel fuel, and jet fuel. The national average price of gasoline is at a record high of about $3.70 per gallon. Jet fuel costs nearly $3.40 per gallon. The price of diesel fuel, which is normally less expensive than gasoline, has soared to a record high of nearly $4.25 per gallon.
Rising energy prices increase the cost of getting to work and taking our children to school, traveling by car, truck, air and rail, and growing the food we eat and transporting it to market. Rising energy prices increase the cost of producing the medicines we need for our health, heating our homes and offices, generating electricity, and manufacturing countless industrial and consumer products. The relentless increase in jet fuel prices has contributed to airline bankruptcies, mergers, fare increases, and service cuts. “If fuel continues to go up, this industry cannot survive in current form,” the president of the Air Transport Association said recently. Rising diesel prices have placed a crushing burden upon our nation’s truckers, farmers, manufacturers, and other industries. To make matters worse, our energy costs are rising much more quickly than energy costs in other countries, directly threatening our global competitiveness.
In January 2001, when President Bush took office, the price of oil was about $30 per barrel. The average price for a gallon of gasoline was about $1.50. Since President Bush took office, crude oil prices have nearly quadrupled, natural gas prices to heat our homes have almost doubled, gasoline prices have more than doubled, and diesel fuel prices have nearly tripled.
It doesn’t have to be this way. Just seven years ago, at the end of the Clinton Administration, energy supplies were plentiful, and gasoline and other forms of energy were affordable. Once the Bush Administration took office, however, it didn’t take them long to eliminate the budget surplus by cutting taxes mainly for the wealthiest among us, creating a huge annual budget deficit, and driving up the national debt. This fiscal mismanagement has contributed significantly to a steep decline in the value of the dollar and soaring commodity prices. Because American currency is worth less, it takes more of them to buy the same barrel of oil. American consumers and businesses are forced to spend more and more of their hard-earned dollars to buy the same amount of energy. During the last years of the Clinton Administration, the U.S. ran a budget surplus, totaling nearly $560 billion. But over the past six years of the Bush Administration the annual deficits have totaled nearly $1.7 trillion, not counting the amount by which the Bush Administration has been draining the Social Security and Medicare trust funds. When this is counted, under this Administration the total outstanding debt has increased by a whopping $3.2 trillion.

When President Clinton left office, the dollar was worth more than the euro. In January 2001, it took only about 90 cents to buy one euro. Today, it takes about $1.60 to buy one euro — a record low for the dollar. The fall in the value of the dollar is a result of a weakened U.S. economy, a high trade deficit and a world-wide lack of confidence in the Bush Administration’s ability to manage our nation’s economy and foreign policy. As long as this Administration continues to insist on irresponsible fiscal practices – including tax cuts for people with the highest income and an open-ended conflict in Iraq that is costing $12 billion a month – the dollar will likely continue to decline in value. The marketplace has rendered a clear “no confidence” in this Administration’s fiscal competence.

Besides the weak dollar, there are other factors at work that account for soaring energy prices. Some are beyond our control; others we can do something about. In global markets, for example, the combination of increasing demand from developing countries, coupled with a variety of political problems in supplier countries, has contributed to price increases. Growing demand for oil and gas in China, India, and other developing countries is contributing to an overall increase in global demand for crude oil. On the supply side, many oil producing countries are politically unstable, and have not been fully reliable suppliers. For example, in Nigeria, which is a major oil producing country, for several years tribal gangs have been sabotaging production and pipelines.

While we can’t do much about some causes of sky high gas prices, a number of causes can be addressed. Another key factor in price spikes of energy is rampant speculation in the energy markets. Traders are trading contracts for future delivery of oil in record amounts, creating a paper demand that is driving up prices and increasing price volatility solely to take a profit. Overall, the amount of trading of futures and options in oil on the New York Mercantile Exchange has risen six-fold in recent years, from 500,000 outstanding contracts in 2001, to about 3 million contracts now.

Much of this increase in trading of futures has been due to speculation. Speculators in the oil market do not intend to use crude oil; instead they buy and sell contracts for crude oil just to make a profit from the changing prices. The number of futures and options contracts held by speculators has gone from around 100,000 contracts in 2001, which was 20% of the total number of outstanding contracts, to 1.2 million contracts currently held by speculators, which represents almost 40% of the outstanding futures and options contracts in oil on NYMEX .There is now 12 times as many speculative holdings as there was in 2001, while holdings of non-speculative futures and options is up but 3 times.

Not surprisingly, this massive speculation that the price of oil will increase has, in fact, helped increase the price of oil to a level far above the price that is justified by the traditional forces of supply and demand.

The President and CEO of Marathon Oil recently said, “$100 oil isn’t justified by the physical demand in the market. It has to be speculation on the futures market that is fueling this.” Mr. Fadel Gheit, oil analyst for Oppenheimer and Company describes the oil market as “a farce.” “The speculators have seized control and it’s basically a free-for-all, a global gambling hall, and it won’t shut down unless and until responsible governments step in.” In January of this year, as oil hit $100 barrel, Mr. Tim Evans, oil analyst for Citigroup, wrote “the larger supply and demand fundamentals do not support a further rise and are, in fact, more consistent with lower price levels.” At the joint hearing on the effects of speculation we held last December, Dr. Edward Krapels, a financial market analyst, testified, “Of course financial trading, speculation affects the price of oil because it affects the price of everything we trade. . . It would be amazing if oil somehow escaped this effect.” Dr. Krapels added that as a result of this speculation, “There is a bubble in oil prices.”

A fair price for a commodity is a price that accurately reflects the forces of supply and demand for the commodity, not the trading strategies of speculators who only are in the market to make a profit by the buying and selling of paper contracts with no intent to actually purchase, deliver, or transfer the commodity. As we have all too often seen in recent years, when speculation grows so large that it has a major impact on the market, prices get distorted and stop reflecting true supply and demand.

Last week, Senator Jack Reed and I wrote a letter asking President Bush to appoint a high-level task force to evaluate how speculators are driving up prices through manipulative or deceptive devices. The task force should also evaluate whether there are adequate regulatory tools to control market speculation and prevent manipulation. Hopefully the President will act quickly to convene this task force. I ask unanimous consent that a copy of this letter be included in the Record at the end of this statement.

Excessive market speculation is a factor that we can and should do a better job of controlling. There are other long overdue actions as well that, if taken as part of a comprehensive plan, can combat rising energy prices.

Putting a Cop on the Beat in Energy Markets

As to reining in speculation, the first step to take is to put a cop back on the beat in all our energy markets to prevent excessive speculation, price manipulation, and trading abuses. In 2001, my Senate Permanent Subcommittee on Investigations began investigating our energy markets. At the time, the price of a gallon of gasoline had spiked upwards by about 25 cents over the course of the Memorial Day holiday. We subpoenaed records from major oil companies and interviewed oil industry experts, gas station dealers, antitrust experts, gasoline wholesalers and distributors, and oil company executives. We examined thousands of prices at gas stations in Michigan, Ohio, California, and other states. In the spring of 2002, I released a 400-page report and held two days of hearings on the results of the investigation.

The investigation found that increasing concentration in the gasoline refining industry, due to a larg