Two U.S. Senate Democrats have introduced legislation that would close a loophole in U.S. sanctions law. The measure would deny federal contracts to U.S. companies that do business - through foreign subsidiaries - with countries that the United States has designated state sponsors of terrorism. VOA's Deborah Tate reports from Capitol Hill.

U.S. law prohibits American companies from trading directly with Iran and other countries designated by the State Department as state sponsors of terrorism.

But foreign subsidiaries of U.S. firms can operate there, as long as they are run separately from their American operations and do not hire U.S. citizens as managers, directors or employees.

However, critics say foreign subsidiaries offer a convenient way for U.S. companies to circumvent sanctions.

"It undermines the very function of the sanctions that we have established as a country," said Senator Byron Dorgan, a North Dakota Democrat.

"Part of our public policy is to try to impose these economic sanctions on countries like Iran, and yet we now see in this country that we have corporations that have very substantial contracts with our federal government. They benefit from having substantial contracts from our federal government," he added.

Echoing Dorgan's comments is Senator Sherrod Brown, an Ohio Democrat, who notes that among those U.S. companies that have foreign subsidiaries operating in Iran is the oil-field service giant, Halliburton, which is the Pentagon's largest contractor in Iraq.

"The current administration gives billions of dollars in government contracts to companies that do business with state sponsors of terrorism," he said. "The most immediate example, of course, is Halliburton, which received more than $20 billion in government contracts, despite the fact that a subsidiary company engaged in business dealings with Iran."

At a news conference Wednesday, Brown announced that he and Dorgan have introduced legislation that would bar foreign subsidiaries of U.S. firms that trade with state sponsors of terrorism from getting federal contracts.

"This legislation will stop the current practice of rewarding expatriate corporations and companies that do business with state sponsors of terrorism from profiting through government contracts," said Brown. "It will help restore integrity within our government contracting process and encourage good corporate citizenship."

Similar legislation has been introduced in the House of Representatives.