A resolution recognizing the 2004 Congressional Awards Gold Medal Recipients.

Thank you very much, Mr. President.

Amendment No. 2083

(Purpose: To improve the operation of energy markets)

On behalf of Senators Lugar, Levin, Harkin, Cantwell, Boxer, Leahy, Wyden, Durbin, and Hollings, I send an amendment to the desk.

I ask unanimous consent that reading of the amendment be dispensed with.

Mr. President, this amendment has to do with providing some regulatory oversight over energy trading. It has to do with closing the Enron loophole. It has to do with providing transparency. Energy trades today are not subject to the 2000-passed Commodity Modernization Act. Rather, these energy trades take place electronically, take place in secret, without transparency, with no records kept, with no audit trail available, and with no regulatory oversight to prevent fraud and manipulation in energy trading.

I would like, first of all, from the Derivatives Study Center, to indicate and read a couple of paragraphs from the letter they have sent, which I think defines the issue very well.

I quote:

This regulatory assistance comes at a critical time.

According to the Federal Energy Regulatory Commission's

Director of the Office of Market Oversight, ``energy markets

are in severe financial distress.'' Along with the decline in

credit quality in these markets, the loss of confidence and

trust has led to a ruin in the liquidity and depth of these

markets. This legislation will go a long way to address this

problem.

Then he defines what derivatives are. This is important for Members to know. It is complicated. We went through this once before. I would like to give you this definition because it is a good one:

Derivatives are highly leveraged financial transactions,

allowing investors to potentially take a large position in

the market without committing an equivalent amount of

capital. Moreover, derivatives traded in over-the-counter

markets are devoid of the transparency that characterizes

exchange-traded derivatives, such as futures, and this lack

of transparency introduces a greater potential for abuse

through fraud and manipulation.

That is exactly what happened. He goes on to say:

Derivatives are often combined into highly complex,

structured transactions that are difficult, even for the

seasoned securities trader and finance professionals, to

understand and price in the market. Enron used such over-the-

counter derivatives extensively in order to hide the nature

of their activities from investors. The failure of Enron and

the demise of other energy derivatives dealers has had a

devastating impact on the level of trust in energy markets.

That is a good definition of what we are trying to do, why we are trying to do it, and what we are trying to involve.

Now I would like to read into the Record a portion of a letter from Eliot Spitzer. Mr. Spitzer is the attorney general of the State of New York. That is the place where many of these cases are now coming to trial.

He says:

I firmly support your efforts to make energy markets

competitive and protect those markets from fraud and

manipulation. The bill sponsored by Senators Feinstein,

Levin, and Lugar, and under consideration as an amendment to

the proposed 2004 agricultural appropriations bill, is a

major step toward both goals.

He goes on to say:

The amendment makes a major contribution to competitive

energy markets by initiating an electronic information system

to be operated through the Federal Energy Regulatory

Commission. This system will provide open access to

comprehensive, timely, and reliable wholesale electricity and

transmission, price and supply data, greatly expanding the

choices of both buyers and sellers. In addition, the

reliability of market information would be markedly improved

by the amendment's general prohibition on manipulation of the

purchase or sale of electricity or the transmission services

needed to deliver electricity, and by specific prohibition of

the round-trip trading manipulation used so effectively to

inflate electricity prices to the public's injury.

This is a letter from the attorney general of the State of New York. As such, it places an imprimatur of correctness, of need, and of value on the amendment that we introduce today.

Now, what is in that amendment? Specifically, the amendment would improve price transparency in wholesale electricity markets. The amendment directs the Federal Energy Regulatory Commission to do just what Mr. Spitzer said it would do: to establish an electronic system to provide information about the price and availability of wholesale electricity to buyers, to sellers, and to the public. This provision is actually similar to the transparency provision offered by my colleague from New Mexico, Senator Domenici, in the Energy bill.

Secondly, this legislation would prohibit round-trip electricity trades. What is a round-trip trade? It is the simultaneous buying and selling of the same quantity of electricity at the same price, in the same location, with no financial gain or loss. In other words, no commodity ever changes hands. Again, this is similar to a provision that Senator Domenici offered during consideration of the Energy bill. Round-trip or wash trades are bogus trades. No electricity changes hands but the profits from the trades enrich the bottom line of a company's financial report.

In fact, I think we had one company--I believe it was CMS--say that 80 percent of their balance sheet in a given year was from bogus trades. And there is nothing we can do about it? Does anyone believe that is right? I think not. I don't think the American people do, and that is one of the reasons these markets are so decimated.

Next we would increase penalties for violations of the Federal Power Act and the Natural Gas Act. Maximum fines for violations of the Federal Power Act would be increased from $5,000--that is nothing to a big company--to $1 million. And maximum sentences are increased from 2 to 5 years. Remember, these rip-offs were tremendous. Just look at the people plea-bargaining from Enron, look at what they did, look at the amounts of money they fraudulently compromised.

This language is identical to section 209 of the Senate-passed Energy bill. Current fines are extraordinarily low and, therefore, provide no deterrence to illegal activity.

We also amend the Natural Gas Act to do essentially the same thing. Senator Domenici, in his substitute electricity title to the Energy bill, increased the fines in the Gas Act but he did not do so in the Federal Power Act. We would do both in this amendment.

Next the amendment would prohibit manipulation in electricity markets. Manipulation is prohibited in the wholesale electricity markets, and FERC is given discretionary authority to revoke market- based rates for violators.

Strangely enough, manipulation of energy markets is not prohibited in current law. Can you believe that? Manipulation of energy markets is not prohibited in current law. This would add language to part 2 of the Federal Power Act to do just that.

Most importantly, this bill would repeal the Enron exemption and allow the Commodities Futures Trading Commission, which has oversight over virtually all other trading, to monitor the over-the-counter energy market.

This would repeal what happened in 2000 when Enron pushed the Commodities Futures Modernization Act exemption for large traders in energy commodities. And it would apply antimanipulation and antifraud provisions of the Commodities Exchange Act to all over-the-counter trades in energy commodities and derivatives.

In my view, when Congress exempted energy from the Commodities Futures Modernization Act of 2000, it created the playing field for the western energy crisis of 2000 and 2001. The western energy crisis cost millions of people millions of dollars in my home State of California. So this is a charge I am making. When this Congress permitted

the Enron loophole to exist in the Commodities Modernization Act, they created the loophole for the playing field that Enron and others used to manipulate the western energy markets.

Next, our bill would provide the Commodity Futures Trading Commission the tools to monitor over-the-counter energy markets. Over-the-counter energy trade in energy commodities and derivatives performs a significant price discovery function, including trade on electronic trading facilities. Our amendment requires large, sophisticated traders to keep records and report large trades to the Commodity Futures Trading Commission. This doesn't change the law. It only applies the law that exists for futures contracts to over-the-counter trades in energy markets.

We would limit the use of data. This requires the CFTC to seek the information that is necessary for the limited purpose of detecting and preventing manipulations in the futures and over-the-counter markets for energy, to keep proprietary business data confidential, except when used for law enforcement purposes. This does not require the real-time publication of proprietary data. It does not.

This would have no effect on nonenergy commodities or derivatives. The amendment would not alter or affect the regulation of futures markets, financial derivatives, or metals. We have specifically stated on page 20 the following:

The amendments by this title have no effect on the

regulation of excluded commodities under the Commodity

Exchange Act.

In addition, we state:

The amendments made by this title have no effect on the

regulation of metals under the Commodity Exchange Act.

Mr. President, my colleagues may be asking themselves why I continue to press this cause. Here I note that Senator Levin has come to the floor. I want the Senate to know how helpful the Senator from Michigan has been in working on this complicated issue. He has spent hours and hours of his time. His staff has worked with my staff in evolving this measure. We have carefully vetted it. I believe we really know what we are doing here.

The energy crisis in the West demonstrated that, without Federal oversight, a business becomes solely concerned with its bottom line and not with any sense of ethical behavior; and arrests and convictions to date have clearly documented this to be the case.

Californians are still paying the price of this unethical behavior. I make the point that we are not talking about one bad player in the California market. This goes way beyond Enron. It extends to others as well--to Reliant, Dynegy, Williams, AEP, CMS, El Paso Merchant Energy, Duke, Mirant, Coral, Sempra Energy Trading--unfortunately, in my own State--Aquila, the City of Redding, Morgan Stanley Capital Group, Pacificorps, and to the Puget Sound Energy.

We believe California was duped out of $9 billion. The Federal Energy Regulatory Commission has illustrated its inability to refund California the money it is owed by recently recommending settlements that in no way, shape, or form reflect the damage that was caused to both consumers and the economy of the largest State in the Union. In fact, FERC settled with Reliant on August 29, allowed them not to admit wrongdoing, and fined them $836,000. That was $836,000 for rules of conduct that cost the State $13 million--hardly fair.

This disproportionately low fine gives credibility to the fact that the price one would have to pay in penalties, if caught manipulating the market, is worth the risk since the benefits of not getting caught far outweigh any penalty that may be levied upon a company.

I think it is pretty clear that this disproportionately low fine gives credibility to the fact that the price one would have to pay in penalties, if caught manipulating in the market today, is worth the risk. There is no deterrence, since the benefits of not getting caught far outweigh any penalties that may be levied on a company. That is what we are trying to change.

If I left any doubt in my colleagues' minds about the widespread manipulation that took place during the western energy crisis, let me point out some recent examples of a case that was brought by the Securities and Exchange Commission against David Delaney, a former chief executive with two of the most prominent divisions of Enron.

On October 30, 2002, Delaney pled guilty to insider trading. The SEC brought charges against him for selling millions of dollars in Enron stock at a time he knew it was being manipulated. While these charges appear to be financial in nature, the underlying facts of the case were that Enron was engaged in manipulative business practices, especially in California.

In March of 2003, the FERC staff report on price manipulation in western markets: Investigators said they suspected Enron was using price information obtained in regulated deals to manipulate trades in unregulated energy derivative markets.

In one instance, Enron manipulated the price of physical gas, upward, then downward. Although the price change in the physical markets was only 10 cents per million Btus, Enron profited due to the effect that this small change in the physical price had on its large financial position. Enron earned more than $3 million in the unregulated over- the-counter markets, while losing only $86,000 on the physical sale of natural gas.

I think it is important to note that the FERC report also states:

Enron's corporate culture fostered a disregard for the

American energy customer. The success of the company's

trading strategies, while temporary, demonstrates the need

for explicit prohibitions on harmful and fraudulent market

behavior and for aggressive market monitoring and

enforcement.

That is what we are trying to provide in this amendment. That is what FERC says is missing.

Our amendment would provide greater oversight over these markets so that fraudulent and manipulative behavior could be prevented. It would increase the penalties if, in fact, a company engaged in fraudulent or manipulative behavior, and it would outlaw all types of manipulation including round-trip trading, wash trades, false reporting, churning, and deliberately withholding generation. All of the Enron trading strategies, such as Ricochet, Death Star, Get Shorty, Fat Boy, Non-Firm Export, Load Shift, Wheel Out, Black Widow, Red Congo, and Cuddly Bear: these are euphemisms for fraud and manipulation and our amendment would cover them all.

It is not clear to me why energy derivatives are not regulated while the Federal Government oversees some physical energy transactions. In other words, if I buy natural gas, and it is delivered to me, then that transaction is overseen by FERC, which has the authority to ensure that this transaction is both transparent and reasonably priced.

But a giant loophole is opened where there is no Government oversight, when transactions are carried out in electronic exchanges. As a result, if I sell natural gas to you, and you sell it to someone else who sells it to another person who then sells it again, none of these transactions are covered by FERC or the CFTC. Because of that, what we saw in the western energy crisis is that this particular loophole allowed energy companies to manipulate prices and to escape any investigation or prosecution by any regulatory agency.

Our amendment will close the loophole, as Senator Levin said, created in 2000 when Congress passed the Commodities Futures Modernization Act.

The loophole exempted energy trading from regulatory oversight, and it excluded it completely if the trade was done electronically. At the time, Enron was the main force behind getting this exemption in this act. By closing this loophole, the amendment will prohibit fraud and price manipulation in all over-the-counter energy commodity transactions and provide the CFTC the authority it needs to investigate and prosecute allegations of fraud and manipulation.

Opponents of this amendment have questioned why we need to explicitly give the CFTC this authority. The answer is we need to give the Commodities Futures Trading Commission this authority because we learned during the western energy crisis that there was, in fact, pervasive manipulation and fraud in energy markets, and that FERC and the CFTC were either unable or unwilling to use the authority they

had to intervene. I think Mr. Delaney's plea bargain is eloquent testimony to that.

We need to give the CFTC this authority because we need regulators to protect consumers and make sure they are not taken advantage of. We need to give the CFTC this authority because, when there are inadequate regulations, consumers are ripped off. Let me be clear. Our amendment will provide the same protections to consumers in energy markets as these same consumers have in all other commodity markets such as the New York Merchantile Exchange or the Chicago Merchantile Exchange. Our amendment does not provide more regulation or greater oversight than what currently exists for other commodity markets, merely the same protections: Protections which are currently lacking.

In fact, in an effort to avoid onerous or complicated requirements, Senator Levin, Senator Lugar, and I have worked together to make sure the recordkeeping and reporting requirements are very clear. Our amendment only requires traders to keep records of over-the-counter trades in energy commodities and derivatives that perform a significant price discovery function. In other words, these are the trades that affect the pricing for everyone. These are the big trades, and these are the trades where there needs to be transparency because they affect the market.

If I am a large company and I sell you 1,000 decatherms of natural gas in a typical transaction on the spot market, this is a price discovery transaction because the prices of these transactions are usually covered and reported by the press and will affect prices of subsequent transactions. Trades on electronic markets serve, by their very nature, as price discovery functions. They should be available for everyone to see because they will very likely influence what price the next trader will buy or sell at in an open and transparent fashion.

Our amendment would require traders to keep records of their trades and to maintain an audit trail. This requirement would simply regulate energy trading in the same way other finite commodities are handled. Why should pork bellies or frozen concentrated orange juice have more protection for consumers than electricity?

There is nothing in this amendment that should be burdensome for traders in any way. I would think responsible traders would already be keeping records and maintaining an audit trail for their own protection in this world. In fact, the amendment only allows the CFTC to seek information to investigate allegations of wrongdoing.

We have worked for almost 3 years to craft this provision. It has had hearings in the committee. It has been discussed on the floor. We have met with dozens of people. We understand there are those who do not want to support it. But in not supporting it, what they are doing is condoning a marketplace that has practiced deep fraud and deep manipulation and for the most part gotten away with it.

I don't think we do our job as Senators if we can't protect an unsuspecting public. As the Derivative Center pointed out, these markets are in disarray now. Why are these markets in disarray? They are in disarray because people do not have confidence in them. They are in disarray because there is no transparency because there are hidden markets, and when they explode, they explode big time.

Why should Mrs. Smith from Texas or Mr. Jones from Pennsylvania or Mr. Cornyn from Texas invest in these markets? Why should he? He wouldn't have confidence in them. He would have no transparency. He would have no ability to know what is going on.

What we are trying to do is put that confidence back in the marketplace by providing some prudent, commonsense, antifraud, antimanipulation oversight by saying: If you trade this way, you must keep a record of the trade. You must keep an audit trail. And these trades must be transparent so that the Smiths, the Jones, and the Cornyns, if they so desire, can find out what in fact is going on.

Let me stress that this does not impact financial derivatives in any way whatsoever. We have clarified that. Our opponents persist in using the argument that financial derivatives are affected. They are not. Look at page 20, lines 17 to 20, if you want to see it in black and white. Nothing in this provision affects the authority of the Federal Energy Regulatory Commission. We don't change it in any way.

To respond to concerns about trading platforms that only match buyers and sellers, there is no capital requirement. Let me repeat that because people are going around saying there is. To respond to concerns about trading platforms that only match buyers and sellers, there is no capital requirement.

Bottom line: Our amendment merely gives back to the CFTC most of the authority it had before Congress passed the Commodity Futures Exchange Act.

I note that Senator Levin is in the Chamber. I wonder if it would be appropriate for him, if other Members would agree, to make some comments at this time.

If I might respond, I believe Senator Levin will speak, Senator Lugar wishes to speak, and Senator Cantwell wishes to speak. So on our side of this issue, I believe it will be at least an hour and a half.

It may not be. I will try to move it rapidly along. These Senators have indicated they wish to come to the floor.

I thank the Senator from Michigan. More than just thank him, I thank him for his brilliance and for his willingness to be part of this effort. I think Senator Levin is really one of the fine minds in this Senate. It has been a great delight for me to have the opportunity to work with him. I think he has helped us make this a much better bill. I thank him so much.

Mr. President, at this point I would like to read into the Record a colloquy between the two leaders, Senators Frist and Daschle, which makes clear the parameters of this and why we are on the floor on this bill. If I may:

Senator Daschle: Mr. President, Senator Feinstein has a

market manipulation amendment that she was seeking a vote on.

It is my understanding that the agricultural appropriations

bill would be the appropriate bill for that amendment. I

would inquire of the majority leader, should she offer her

amendment to that bill, would she be assured of a vote on or

in relation to her amendment with no second-degree

amendments, prior to such vote?

The majority leader responds:

The Democratic leader is correct. If Senator Feinstein

offers her amendment to that bill, she will get a vote on or

in relation to it.

I just offer that to clarify the present legal situation.

Mr. President, I thank the Senator from Indiana. He has taken a position based on extraordinary knowledge, having served on that committee for 27 years, having been its chair, having seen what happened with the Commodity Futures Oversight Act.

In resisting, as he termed it, the movement just to have anything go, let anything go, if they are not regulated, let it go that way, he realizes the American people are not well served and the investment community is not well served when every day you pick up a newspaper and someone else is being arrested for fraud or manipulation. Our laws can prevent that from happening.

I thank the Senator very much. You have been terrific. Your support is very meaningful to us.

I have stated in the Senate numerous times it is the duty of this Congress to make sure our regulators have all the authority they need to prevent fraud and manipulation in the energy markets. Simply put, this is what our amendment does.

Enron remains the perfect example of how the systems were so easily gamed. After Enron successfully lobbied for an exemption to the Commodity Futures Modernization Act in 2000, they and others in the energy sector quickly took advantage of this new freedom by trading energy derivatives absent any transparency and regulatory oversight. In other words, in secret. Thus, after the 2000 legislation was enacted, Enron began to trade energy derivatives literally without being subject to proper regulatory oversight. That is how all these schemes came about. Some hot-shot trader, sitting in front of his computer, found a way to evolve a strategy for the fraudulent and manipulative action of the marketplace. They let these various strategies play out.

Unlike the NASDAQ, from which timely electronic trade reports are available to the public, even prior to its transparency-enhanced reforms in 1997--in 1997, the NASDAQ reformed itself to make their traders more transparent--EnronOnline did not offer timely reporting of executions. This means EnronOnline provided no data regarding recently executed transactions. Consequently, even after the trades, basic market information was not provided to market participants.

It should not surprise anyone that without basic transparency, without the ability to see what is happening, prices would soar. What interests me is they did and yet there is still resistance to this legislation.

In 2 years, Enron's derivatives business had been a stand-alone company. It would have been the 256th largest company in America. That year, according to author Robert Bryce, Enron claimed it made more money from its derivatives business, $7.23 billion, than Tyson made from selling chickens. That is huge, if you think about it. Think what that means. This segment of the market in one year made $7 billion and nobody knew how. No one knew what the trades were. They were all in secret. Nothing was registered. There was no audit trail. There was no antifraud, antimanipulation oversight. Boom. It happened.

EnronOnline rapidly became the biggest platform for electronic energy trading. But unlike the regulated exchanges, such as the New York Mercantile Exchange, the Chicago Mercantile Exchange, and the Chicago Board of Trade, EnronOnline was not registered with the CFTC. So Enron set its own standards. In other words, it had a very secure, quiet, protected niche on the market.

Others have tried to replicate that. The banks, for example, Senator Levin said, devised something called the IntercontinentalExchange so they could do the same thing Enron has done. It is wrong.

Traders and others in the energy sector came to rely on EnronOnline for pricing information. Yet the company's control over this information and its ability to manipulate it was tremendous. As author Robert Bryce went on to describe--and this is very colorful and true-- Enron did not just own the casino. On any given deal, Enron could be the house, the dealer, the oddsmaker, and the guy across the table you are trying to beat in diesel fuel futures, gas futures, or the California electricity market. You tell me that is a good situation?

You tell me this Senate and this Congress should let that happen. We should not. That is just plain wrong. Those who want to protect this secret niche are just dead wrong. It is not in the American people's interest to have a secret trading niche that can be an empire for fraud and manipulation. We need to protect consumers from future Enron-like scams because they are going to happen.

Now, was Enron and its energy derivative trading arm, Enron Online, the sole reason California and the West had an energy crisis? Absolutely not. Was it a continuing factor to the crisis? I certainly believe that evidence has shown it was.

Unfortunately, because of the energy exemptions in the 2000 Commodity Futures Modernization Act, which took away the CFTC's authority to investigate, we may never know for sure. In other words, quite purposely, this Congress, in 2000, let this secret world be created and said: We are going to take energy and metals out of the entire trading regulatory structure and we are going to let them go ``on operating'' on their own, without the proper oversight. That is exactly what happened. It is just plain wrong.

I repeat, once again, the amendment we offer will subject electronic exchanges such as EnronOnline to the same oversight as other commodity exchanges, such as the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the Chicago Board of Trade--no more, no less. Without this type of legislation, there is insufficient authority to investigate and prevent fraud and price manipulations since parties making the trade are not required to keep a record.

This amendment is not going to do anything to change what happened in California and the West. That is done. But it does provide the necessary authority for the CFTC to protect other parts of this country against this kind of thing happening again. And it well could happen.

Nobody thought we would ever see the kind of event that blacked out most of the east coast and the Midwest, but we did. Nobody thought we would ever see what happened in the West, but we did. Nobody ever thought anybody would come up with schemes like ``Ricochet,'' ``Death Star,'' ``Get Shorty,'' ``Fat Boy,'' but they did. Nobody thought they could use them to commit a manipulation of the market, but they did.

I will leave you with one fact: The total cost of electricity in California in 2000 was $7 billion. The cost the next year was $28 billion. Does anyone believe that market forces--namely, supply and demand--could account for a 400-percent increase in the cost of electricity in a year? The answer has to be no. The answer has to be that bad things were done.

So we have worked on this amendment. I sit on the Energy Committee. I have tried to pay a great deal of attention to these matters, to follow this, and I am absolutely convinced that America and the business climate of America is much better off when things are transparent, when there are records kept, when there is a regulatory authority that can say: Whoa. Something may be going haywire. Let's take a look at it. That is all we do--no more and no less than for any commodity.

I wish to say one other thing. A financial derivative is not like an energy derivative. For people to confuse this and say it affects financial derivatives is not right. Energy is a finite commodity. There is a beginning and there is an end, and it is different from a financial derivative.

Mr. President, may I ask how much time our side has remaining?

Thank you. I retain the remainder of my time.

I yield the floor.

Is this meant to be an amendment to my amendment?

Correct.

Will the Senator be quick? I want to address some of the comments that have been made.

Mr. President, I would like to try to respond to some of the comments that have been made.

I believe the CFTC has antifraud and antimanipulation oversight on futures exchanges but not on over-the-counter energy trades. That is the difference here. We would cover over-the-counter energy trades and particularly those trades that are electronic.

I also want to show where existing law is inadequate. There is a case that has just been brought to my attention which I think shows that the existing law is inadequate, and this is what we are trying to fix.

Two energy traders from the energy firms Dynegy and El Paso were charged by the U.S. Government with reporting false information on a number of trades--at least 48 trades. They falsely reported the number and the prices used in trades they conducted involving natural gas in an attempt to influence the natural gas spot price indices.

The Federal indictment charged them, among other matters, with wire fraud and violation of the Commodity Exchange Act, which is what we are talking about, provisions prohibiting price manipulation and dissemination of false information about energy commodity rates.

The Federal court allowed the wire fraud charges, but it dismissed the Commodity Exchange Act charges on the ground that the wording of the act failed to prohibit persons from knowingly providing false information. While the CEA used the word ``knowingly'' in an earlier part of the provision, the court ruled that the word had to be repeated in the section prohibiting false information.

The Feinstein-Lugar-Levin amendment would clarify the wording of the CEA provision to resolve the problem identified by this Federal district court in the case of the United States of America v. Michelle Valencia, Criminal Action No. 8-03-024.

That is a pretty clear indication of where present law is not adequate. These were bogus trades. These trades never took place. There were totally bogus, and yet the wording in the Commodity Exchange Act, which we are trying to fix, was judged by the court as too vague to take any action.

Second, I want to make this point: What we are trying to do is prevent fraud and manipulation. We are trying to prevent it and deter it from happening. The soft penalties we have now don't prevent it. That should be very clear. We toughen the penalties in the Electricity Act and in the National Gas Act. Clearly, a number of these schemes that Enron practiced, whether it was Death Star, Ricochet, or Black Widow, or any of these other terrible schemes, took place. Our bill would specifically prevent them.

We are trying to prevent and deter, and the way we do that is by strengthening the law.

I am really puzzled by the administration's position. I am really puzzled because it seems to me they should be on the side of the American people, not on the side of the traders and those who want to get rich quick from this open marketplace.

Additionally, it is interesting to me that the President's working group, when it came out in 1999, specifically said:

``Due to the characteristics of markets for nonfinancial commodities with finite supplies''--that is energy--``however, the working group is unanimously recommending that the exclusion''--the exclusion from the bill--``not be extended to agreements involving such commodities.''

So beginning in the year 2000, they have done a total switch and I do not understand why, particularly after the events of 2000 and 2001, where we know fraud and manipulation was explicit. Now when the Government tries to go after two companies for bogus trades, a court finds the Commodities Exchange Act is inadequate; it is vague.

Why would people oppose what we are trying to do? I think we are on the side of the angels.

Let me quickly go over some points. Why do we need this legislation? We need it because companies are now permitted to trade large amounts of energy in virtually unregulated markets, which makes it easier for unscrupulous companies such as Enron to manipulate the price of energy. The bill would close the Enron loophole that allows this unregulated trading.

Secondly, do we have any examples of how these markets have been manipulated? FERC recently released a 1-inch thick report on how the markets for electricity and natural gas in the western United States were manipulated in 2000 and 2001. So we know it happened. The FERC found Enron and other companies lied about the prices of their trades, reported fictitious trades to drive up prices, did wash trades with each other, and engaged in rapid trading to drive prices up and then back down, reaping millions of dollars of profits in the process and costing customers billions of dollars in unjustified energy costs. That is according to FERC. That is a finding in their study. Yet people still oppose this legislation. Unbelievable.

Would this legislation have prevented these manipulations? Under current law, the CFTC is totally in the dark about what goes on in the over-the-counter markets. Under this legislation, manipulation in these markets would be a felony and the CFTC would get reports about large trades in the over-the-counter markets, so it would be able to monitor these markets, something it cannot do now. Should anybody be able to escape from ongoing monitoring of what they do in these markets, big traders? I do not think so. Yet they are in this little loophole that was created. That was the purpose of the loophole, to prevent anybody from looking; keep no records. Therefore, they are not going to be able to catch us, and there will be a weak law so it will not be sustained in court when they try to bring a case.

Another question: Enron is bankrupt. A number of traders have been fined and energy trading is back on the rise. The marketplace seems to be correcting itself. Why is this legislation needed?

It is needed to avoid more problems like we have just had. Although everything mentioned in the question I just asked may be true, there is one other significant fact. The consumers and businesses that paid higher prices have only recovered a small fraction of their losses. It is better to prevent the manipulation and the losses from happening than try to make up for them after they take place. That is the point. What our agencies have shown is there is, up to this point at least, no way for an aggrieved marketplace to recover its losses from fraud and any manipulation. Therefore, it should be our job to see the laws are accurate and in place to prevent this kind of activity from taking place in the beginning. That is where increasing the penalties comes in.

Imagine, a $2,000 penalty for doing this. That is nothing. That is not even a slap on the wrist for multibillion-dollar companies.

How does one respond to the concerns that this legislation will increase costs and uncertainty and scare off investment in the energy markets? It will not. The regulated U.S. commodities

markets are the most successful and reliable in the world. Ever since the agricultural exchanges were first regulated, we have heard dire predictions from commodities traders that regulation will drive business overseas. In fact, the opposite has happened. We have seen a flight to quality as investors seek safe and reliable markets. That is a fact. This helps the market.

Many traders and energy companies have said the actual cost of compliance with this legislation will be minimal.

The final question: Why should energy derivatives be regulated differently or more stringently than financial derivatives? Because we do not touch financial derivatives. Mr. Greenspan, please know that.

The price of energy derivatives can be manipulated by manipulating the supply of the underlying energy commodity. The price of financial derivatives is very difficult to manipulate because it is difficult to manipulate the price of financial measures underlying the instruments, which generally are not commodities but abstract financial measures such as interest rates and currency exchange rates.

Then again, in 1999, the President's working group saw this. They recommended they not put energy into the loophole. The Congress saw differently and put energy into this loophole, and the never-never land of secrecy went on. These bogus trades were enabled. These bogus trades took place.

There are cases being brought, and we are even finding that the law is inadequate because a court has said it is too vague. We correct that.

I think this is really an important amendment. I do not think I could live with myself if I did not try to do it. If we lose today, believe me, I will come back again and again, because we saw what happened. We know there was massive fraud and manipulation. We know the loophole was there. We know there is no transparency, no record, no audit trail, and no antifraud and antimanipulation oversight for any over-the-counter energy trade. That is what we are trying to do.

My colleagues have referred to futures exchanges rather than over- the-counter energy trades, and that is what we are referring to in this bill. Please, I know back here people look at the West and they say, aha, it is not us, but what I say to them is some day it could be them. Do they not want the law right? Do they not want to be protected? Do they not want a record kept so the regulatory agency can look at it? I really hope the answer is yes, and I hope this Senate will vote for this amendment.

If there are no further comments, I will yield the remainder of my time. If there are, I reserve the remainder of my time.

I thank the Senator. I will do that.

Madam President, I would like to respond to the Senator. I think this discussion is constructive and I am pleased to partake in this exchange with my good friend from Idaho.

This is a report entitled ``The Over-the-Counter Derivatives Market in the Commodity Exchange Act'' which was written by the President's working group on financial markets in 1999.

On page 16 of that report, it goes on to say--and I want to read it in its context:

Due to the characteristics of markets for nonfinancial

commodities with finite supplies--

Which energy would be one--

the working group is unanimously recommending that the

exclusion--

In other words, the loophole--

not be extended to agreements involving such commodities. For

example, in the case of agricultural commodities, production

is seasonal and volatile and the underlying commodity is

perishable, factors that make the markets for these products

susceptible to supply and pricing distortions and to

manipulation. There have also been several well known efforts

to manipulate the prices of certain metals by attempting to

corner the cash or futures markets. Moreover, the cash market

for many nonfinancial commodities is dependent on the futures

market for price discovery. The CFTC, however, should retain

its authority to grant exemptions for derivatives involving

nonfinancial commodities as it did in 1993 for energy

products, where exemptions are in the public interest and

otherwise consistent with the Commodities Exchange Act.

Then the loophole was promulgated. The section of the Commodities Exchange Act which contains that loophole is section 2(g) and is titled, ``Excluded Swap Transactions.''

The section reads, No provision of this Act (other than section 5a (to the extent provided in sections 5a(g)), 5b, 5d, or 12(e)(2) shall apply to or govern any agreement, contract or transaction in a commodity other than an agricultural commodity if agreement, contract or transaction is . . .

And then it goes on.

This section in the Commodities Exchange Act is what creates the loophole, and that is the problem that we are trying to correct in this legislation. I believe we do correct it.

Again, it is very hard for me--and this might have something to do with the fact we went thorough it the west--to understand why we would not want to deter this activity and strengthen the rules to prohibit such manipulation from happening in the future.

We want to be very certain that with all of this kind of trading, including over the counter trades and electronic trades, that the records are kept and there is an audit trail clearly exists and there is an opportunity for the Commodity Futures Trading Commission to note something may be wrong and hold the proper investigation. This is no more and no less than what exists on the exchange today.

Why should this secret world of trading be allowed to exist? I know people get rich through it. This secret trading world allows people to get rich by engaging in fraudulent trades, as was seen during the Western energy crisis. It is this type of manipulative behavior that we are trying to stop.

I can't understand why the administration would not want to support this. When Mr. Greenspan came in and talked to me a few years ago when we first proposed this legislation, his main concern was financial derivatives. This is why we made certain, as I have said in my comments, that this legislation does not concern financial derivatives. He may well have expanded his view to all kinds of over-the-counter trades since then, but at the time I sat down and met with him, that was not his position.

Regardless, we are talking about public policy. We are talking about protecting the people of America. We are talking about strengthening the law so that what happened on the west coast can never happen in the Midwest or on the east coast or any part of the nation.

I mentioned what the attorney general of the State of New York--the attorney general, not a deputy--Mr. Spitzer, has written. Once again, let me read what he said. He is the one who prosecutes many of these cases and I really think his views in this area should make a difference.

He says:

I urge your amendment's adoption. In addition to providing

wholesale electricity markets, the transparency vital to

effective competition, the amendment closes loopholes used to

manipulate energy markets. It improves the ability to detect

fraud and other manipulation, and it deters manipulation by

establishing substantive penalties.

This is the attorney general of the State of New York who is going to be prosecuting many of these cases. He says it is a wise thing to do, it is a prudent thing to do, and you should do it.

He also says that this amendment makes a major contribution to competitive energy markets by initiating an electronic information system to be operated through the Federal Energy Regulatory Commission. I have already talked about this. Earlier, I said how this legislation will provide open access to comprehensive, timely, and reliable wholesale electricity and transmission prices. The attorney general repeats that. He says:

The reliability of market information would be markedly

improved by the amendment's--

Don't we want that? I think so--

general prohibition on manipulation of the purchase or sale

of electricity, or the transmission services needed to

deliver electricity and by the specific prohibition of the

round trip trading manipulation used so effectively to

inflate electricity prices to the public's injury.

This is the prosecutor in one of the main States that would have this kind of litigation.

Then he goes on to say:

Enforcement of the law and regulation safeguarding our

energy markets would be greatly aided by other reforms the

amendment provides. The amendment would repeal the so-called

Enron exemption which shields large energy traders from

oversight.

Once again, I want to iterate that this is the attorney general of New York speaking.

In addition, the amendment would apply to anti-manipulation

and anti-fraud provisions of the Commodity Exchange Act--

I just read to this provision to you. Clearly this section of the Act is inadequate by anybody's reading to effectively regulate all energy transactions--

Our legislation would improve the Federal Energy Regulatory

Commission's ability to

address complaints, and it would lift the restriction on the

Federal Energy Regulatory Commission's authority to order

refunds. These reforms will make accountable parties, which

are currently beyond the law's reach accountable for their

actions and will increase recovery of overcharges.

Once again, I ask, don't we want to do this? Do we really want to protect these people who are willing to do such harmful things to the American people?

I am shocked at the administration's letter. I thought they were there to protect the public.

I thank the Chair. I reserve the remainder of my time.

I would be very happy to yield my 2 minutes to the ranking member if I might have 3 minutes to conclude.

Madam President, there really is a difference of opinion. I would like to have the time to read part of the transcript in a hearing on the Committee on Agriculture on July 10. A question that Senator Crapo asks to Mr. Newsome of the CFTC.

Senator Crapo: I know we have been over this before but I

want to be sure that I have it right. As I listened to the

testimony of both of you it seems to me that there is

actually a lot more agreement than disagreement with respect

to what we ought to be doing and where we ought to be. The

disagreement, as I understand it, is over whether 2G excludes

from the fraud and manipulation provision swap transactions.

Now, swap transactions are the dominant majority of what goes over the over-the-counter market.

I am correct about that. Would the two of you agree that is

the core of the disagreement between your testimony?

Mr. Newsome: 2G certainly does exclude swap transactions.

That is my point. And he is testifying to it in this committee that this is not covered by the CFTC.

It goes on.

Senator Crapo: It excludes them from fraud and manipulation

protections.

Mr. Newsome: 2G excludes them from jurisdictions of the

I ask unanimous consent for 1 minute to permit Senator Cantwell to speak.

Madam President, I have a copy of a colloquy between the leaders that we would have an up-or-down vote on the amendment.

Madam President, the extraordinary courtesy of the Senator is appreciated because he is actually correct. It did say ``in relation to.'' But I quickly accept his offer to have an up-or-down vote.

Mr. President, I rise to address the Feinstein amendment, as the Senator from Mississippi has indicated, for the third occasion that we have debated this issue in this Congress. It is important to note that each time this amendment has been raised, it has been defeated. Each time the amendment has been raised, it has been opposed by those in the regulatory community--again as has been indicated by the Senator from Mississippi--whether it be the CFTC, the Department of the Treasury, the Board

of Governors of the Federal Reserve, or others. The fact is that consistently those who are in charge of regulating, overseeing, and managing our economy and our financial markets have been opposed to this amendment. The question that we must ask ourselves is, Why?

To do so it is important to go back over the history of this act. The Commodity Futures Modernization Act that we are debating is one with which we have had a long history of dealing in this Congress. In fact, before 2000, when President Clinton was in office, a President's working group was established which brought together experts from across the industry, not only those who were in the financial industries, but those who were regulating the financial industries, those we have already mentioned. The Secretary of the Treasury, the Commodity Futures Trading Commission, the Board of the Federal Reserve, and others were a part of this Presidential working group. Those who were involved in this Presidential working group looked at all the different commodities that we deal with, the different types of manners in which we deal with these commodities, and came up with an approach to how we should reform and modernize our law to best take advantage of the types of trading contexts or trading ideas that were utilized in the management and trading of commodities.

It is a difficult subject to talk about because it is so complicated. The bottom line is that this act was then put forward. It was brought forward on a bipartisan basis in Congress, studied extensively by congressional committees after the Presidential committee brought forward its recommendations. And in the year 2000, reforms of the act were implemented.

The amendment seeks to change the structure of regulation that this act established. The first time this challenge to the act was brought forward, we had occasion to have Mr. Greenspan before the Banking Committee. Mr. Greenspan was asked in his testimony what the proposed amendment would mean and what this concept of derivatives, that most people in America don't really get very engaged with, meant to our economy. I was the one who asked the question at that time.

Mr. Greenspan's answer is very illuminating. He said, in his opinion, increasing the regulation and changing the scheme for regulating the management and the trading in derivatives from that which had been put together by the President's working group and approved by Congress would actually increase the threat to our economy. In fact, he pointed out that a very simple way to understand derivatives is that they are a tool by which sophisticated participants in the market are able to allocate risk so that those who are better able to bear it can pick it up, and that by being an instrument or a tool through which we allocate risk in our economy, the American economy actually was able to respond more quickly, more resiliently, and more effectively to the threats that have faced it over the last few years.

Had we not had the capacity for derivatives transactions between sophisticated buyers, had that been regulated and diminished or pushed offshore because the United States chose to regulate it so aggressively, we would not have had the resilience and the response in our economy that we had.

We would have had a deeper trough and a more difficult recovery. Again, this amendment seeks to change that regulatory system Congress and the President and his working group so carefully put together.

How did that act work? Well, the act created three different categories of derivatives transactions. The first category that was fully covered and is on an exchange--regulated exchange--where the first category was the category of agricultural transactions. Those transactions are fully regulated and fully covered under the act.

The act identified certain types of transactions that should not be covered at all and should have no regulatory impact. Those were called financial derivatives. They include things such as treasury bonds, foreign exchange, or interest rates--those types of transactions that occur in the financial markets, and it was concluded they should not have any regulation. They were simply excluded from the act.

A middle category was created for all other kinds of transactions. We have, on the one hand, agricultural transactions, which are fully covered. On the other hand, we have financial transactions, which are fully excluded and, in the middle, all other types of commodities, where the energy transactions fall. It has been argued today that these energy transactions simply are not covered. In fact, the phrase that has been used is one that would imply those engaged in energy derivatives transactions simply don't have any regulatory coverage at all. The phrase ``let anything go'' has been used, or it has been said there is literally no antifraud or antimanipulation provision or protection in the law regarding these types of transactions. That simply is not the case. This middle type of transaction was not put on an exchange because these are not the kinds of transactions that general investors in the market get involved with. These are highly sophisticated transactions, detailed negotiations between very sophisticated buyers and sellers, accomplishing this result which I talked about earlier of trading and exchanging risk. It is done in such a way that it doesn't effectively work on an exchange. That is why in this middle category the exchange was not included, but regulation for price reporting, antiprice manipulation, antimarket manipulation, and antifraud protection was included. So it is simply not correct to say those engaged in energy transactions--derivatives transactions--are not subjected to antifraud, antimanipulation, or price-reporting requirements. They are, which brings to bear the question of why we need to change this system of regulation.

Again, on the floor today, as has been the case in the past each time we have debated it, the argument has been made that the Enron transaction or the Enron problem would not have been a problem had we had the aggressive kind of antifraud and antimanipulation this amendment proposes to create. Well, again, when we have had experts before us, and as has been said on the floor already by others, the Agriculture Committee and other committees have studied this very carefully. The experts have said to us there is no indication the lack of regulatory authority, if such exists, was any cause for what happened with Enron, and the lack of having regulated derivatives transactions, in terms of putting them on an exchange, or failure to have further fraud or antiprice manipulation and enforcement authority, was the cause of what happened with regard to the Enron transaction.

As a matter of fact, I asked that same question, when this issue first came up, to Alan Greenspan. He, among many others, has indicated there is no evidence the failure to have more rigorous regulatory schemes in place on derivatives transactions would have stopped Enron from doing exactly what it did.

Nobody is saying Enron did not violate the market, that Enron did not engage in price manipulation, that Enron did not engage in these wash transactions, that Enron did not engage in fraudulent behavior. The fact is, Enron did engage in these types of activities. The fact is the CFTC is currently investigating and enforcing its antifraud and antimanipulation enforcement authority against Enron and others in the market who might engage in these types of activities.

The point is, as we proceed, we must understand whether what happened in terms of the Enron circumstance was as a result of the law not being strong enough or was simply the result of the fact that Enron violated the law. The fact is Enron did violate the law, those violations are being identified, and something over $90 million in fines and penalties against Enron and other market violators have already been enforced.

Again, the point is enforcement is occurring. Why should we be concerned about adding a further regulatory scheme on top of that which is already in place? It gets back to the point Alan Greenspan made in that first hearing, where I first asked him about the issue; that is, we have a need in this country for resilience in our marketplace, in terms of allocation of risk.

Our management of derivatives is critical in terms of how well we

achieve that objective. If we want to increase the regulatory burden and increase the potential of diminishing our ability in the market to have the benefit of these very important types of transactions, then we better have a very good reason for doing so. If we want to have the benefit of a resilient marketplace, where derivatives transactions can occur between sophisticated buyers and sellers, then we want to be very careful about how we regulate it or overregulate it.

I agree with anybody who says we want to make sure there should be antiprice manipulation or antifraud provisions in place. We should have those kinds of protections in place. But we should be very careful that, as we implement this type of regulatory scheme, we don't drive offshore derivatives transactions or cause a loss of resilience in our marketplace because we overregulate these important transactions.

I note the chairman is looking to perhaps intervene here to conduct other business. I will reserve the remainder of my time.

Order of Procedure

I do. I will need 3 or 4 or 5 minutes.

Mr. President, I want to conclude by once again going over the material that has already been put into the record by Senator Cochran from Mississippi.

As I indicated, as we have gone through this battle--now the third time--and the debate over whether we should change the manner in which we address derivatives transactions in this country, each time those who are charged with regulating and overseeing these types of concerns have weighed in in opposition to this amendment. I simply want to go through some of the points they have made from the materials. Again, they are already a part of the record.

The first time we debated this amendment, back in September, a letter was submitted by Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System, Paul O'Neill from the Department of Treasury, Mr. Harvey Pitt, Chairman of the U.S. Security and Exchange Commission, and James E. Newsome, Chairman of the CFTC.

In their letter at that time, they pointed out that this proposal would subject market participants to disclosure of proprietary trading information and new capital requirements.

The capital requirements, I understand, have been dropped in this amendment. But as they go forward, they explain they don't believe a case exists in public policy to justify this increased level of Government intervention.

The OTC markets, they state, trade a wide variety of instruments. Many of them are idiosyncratic in nature. They are customized markets and do not generally serve a significant price discovery function for nonparticipants, nor do they permit retail investors to participate.

Again, this is not a market in which general investors participate. Highly sophisticated investors engage in these transactions. There has been some debate they have actually created the market through wash transactions and other activity. My point is that type of manipulation, either through manipulating a price or through other activities, such as wash trades, is already regulatable and being addressed by the CFTC.

They go on to make the point: The trading of these instruments arbitrages away the inefficiencies that exist in all financial and commodities markets, and that we should not cause increased regulatory burdens on those important functions in our economy.

Then again in June, when we addressed this issue last, the same group responded again to the same proposal. They wanted to point out then that with regard to the argument there was all of this bad activity taking place and we needed to pass new laws to stop this bad activity, the same group of regulators--the Treasury, the Federal Reserve System, the Securities and Exchange Commission, and the CFTC--stated they have brought formal actions against Enron, Dynegy, and El Paso for market manipulation, wash or roundtrip trades, false reporting of prices, and operation of illegal markets, and these actions have already resulted in substantial monetary penalties and other sanctions.

Again, the point there is, as I made earlier, that we are enforcing the existing regime.

Lastly, if there is still concern that we don't have enough protection in the law, our current chairman of the Energy Committee, Senator Pete Domenici, and those who are working with him from the Agriculture Committee, and others are beefing up those protections in the current law.

A letter which, again, the Senator from Mississippi has already put in the Record, coming from Senator Cochran, myself, Senator Domenici, and Senator Miller, explains that the Energy Policy Act, which we are now working through in conference, will contain increased protection against fraud and price manipulation which addresses the EnronOnline problems that have been raised by the Senator from California.

Even if the current situation in the law was not already satisfactory, we are increasing the antifraud and antimanipulation provisions to make certain that any concerns about this possibility occurring again are addressed as we focus the regulation without trying to do something to our derivatives markets that would cause a reduction in the resiliency of U.S. markets.

Mr. President, I reserve the remainder of my time.

Mr. President, I would like to respond to some of the points my colleague from California has made and try to further clarify some of these issues. It appears there may be a difference of understanding between us as to just what the CFTC actually has jurisdictional authority over. My colleague from California has indicated that the antifraud and antimanipulation provisions in the Commodities Futures Modernization Act do not apply to over-the-counter trades. My understanding is very different from that. In fact, it is my understanding that the CFTC has antimanipulation authority that allows the Commission to obtain books and records from any market participant when the CFTC believes the prices are being manipulated. In fact, as I had indicated in my previous comments, enforcement authority with regard to market manipulation and price manipulation is being undertaken with regard to Enron.

The question here is whether there is a standardized set of books and records that are required of each participant. In that case, that is correct; the act does not put the full level of regulation onto those in the energy derivatives markets, only on agricultural commodities. So that might be the difference we are talking about. But the fact is, the distinction here is whether there is an exchange type of document disclosure as opposed to simply the type of document disclosure that the CFTC can ask for if it is investigating alleged price manipulation.

Second, the Senator from California indicated that she believed the penalties were too soft, and her legislation addressed that issue. I suppose there is not a lot of disagreement. I have not really talked with other Members of the Senate about it. I don't know if there is a lot of disagreement in strengthening the penalties, but that is not really all this amendment does. In fact, it is not really the focus of this amendment. What this amendment does, as I said before, is it increases and creates an entirely new regulatory regime for the management of derivatives transactions in energy.

I think this next point is a very critical point that we need to address. The Senator from California said in 1999 the working group said that energy transactions should not be excluded from the act. I am not familiar with the exact quotation or document that is being referred to there. But if the word ``excluded'' is the word the President's working group used, then that makes sense because, as I said earlier in my remarks, the act that we established after the President's working group went through its analysis created three different categories: Those that were included, those that were excluded, and those that were exempted. Why they use the word ``exempted'' as opposed to some other category, I don't know. But there is a real distinction in this law between the word ``excluded,'' which means they are not covered, and the word ``exempted,'' which means they are not required to be registered on an exchange.

Those that are in the exempted category are not excluded, which is what the 1999 working group apparently recommended for energy. Energy transactions in derivatives are not excluded, they are exempted, which means they, along with every other commodity transaction except for agricultural and financial transactions, are required to be subject to the reporting and investigatory antifraud and antimanipulation provisions of the act. That is what we are debating here.

Finally, the Senator from California mentioned a case where the court did say there was a sufficient lack of clarity in the act that it could not be enforced against knowing and willful conduct. That is correct. That case, to my knowledge, is one of the only, if not the only, case in the country where there has ever been a court ruling that did not give the CFTC the authority it needs to go after this type of conduct.

As I indicated in my earlier remarks, the Energy bill, which we are now putting together in the Energy conference, is correcting the problem that came up with that case. I actually have the language in front of me that is being changed in the law to address the concern raised by that case.

So because there is a case where the court said the language needs to be tightened up a little bit, that does not mean we then need to create a whole new regulatory regime for the management of derivatives. What it means is we need to correct that problem that the case law pointed out in the statute to be sure that the antifraud and antimanipulation language is able to be enforced as we intended it to be. That is exactly what the chairman of the Energy Committee and the others of us who submitted this letter have stated is being corrected in the Energy bill.

Then just one final comment. There was some question as to whether Mr. Greenspan or those of us on this side were making a distinction between financial derivatives or energy derivatives. I can assure those who were involved in the debate on all sides that Chairman Greenspan, as well as the rest of us, understand that we are talking about different types of derivatives when we talk about financial derivatives or energy derivatives or agricultural derivatives or other types of transactions in these commodities. The fact is, whether it is agriculture or energy or financial or other types of commodities, the manner in which we regulate them has incredible impacts on the way in which the markets operate.

I will conclude my remarks at this time by asking unanimous consent to have printed in the Record a letter which was delivered to me today, again by Alan Greenspan, responding this third time to the issue, and discussing the reasons our market needs to retain its resilience as we deal with the management of different types of very sophisticated transactions like these derivatives transactions.

I ask unanimous consent this letter be printed in the Record.

With that, I withhold my further remarks. I suspect we may need to get into a little bit of debate on these issues, and that may help us to bring focus on what the differences and concerns we have are. But I withhold further remarks at this time.

Thank you very much, Madam President. I will try to be brief.

I wish to respond to what really has become the one focal point in the discussion we have been having over the last few minutes; that is, whether the Commodity Futures Trading Act applies and provides tools to protect against over-the-counter trades and derivatives. There isn't any difference between us in regard to that.

The Senator from California said: Would we want to protect people who would do all of these bad things? She indicated from the letter she read from the attorney general of New York that we were shielding large over-the-counter trades from oversight. I will simply say again that this is not the way the laws have been interpreted by the authorities of the government who administer this act, and it is not the way the law has been interpreted by those who were involved in writing the act. Frankly, with the exception of one case of a word change correction in the energy conference bill to address the issue--with the exception of that one case, to my knowledge, there is no indication that the CFTC does not have authority to regulate these trades.

Let me go on. I will go back to the letter of June 11. This is a letter from the Department of the Treasury, the Board of Governors of the Federal Reserve System, the U.S. Securities and Exchange Commission, and the Commodity Futures Trading Commission in which they state they were aware that one of the arguments was they do not have the authority or that adequate regulation is not taking place.

This is a letter written to me and to Senator Zell Miller, whom I commend for his efforts in this matter. They state in the letter:

As you know, the Commodity Futures Trading Commission has

brought formal actions against Enron, Dynegy, and El Paso for

market manipulation, wash--roundtrip--trades, false reporting

of prices, and operation of illegal markets.

If they don't have the authority under the act to regulate price manipulation or other market manipulations, then how could they have brought formal actions to enforce it? Not only do they bring formal actions but the Securities and Exchange Commission, the Federal Energy Regulatory Commission, and the Department of Justice have also initiated formal actions in the energy sector.

At the time of this letter, which was last June, they indicated:

Some of these actions have already resulted in substantial

monetary penalties and other sanctions. These initial actions

alone make clear that wrongdoers in the energy markets are

fully subject to the existing enforcement authority of

Federal regulators.

We can debate about whether we should increase the penalties or add more regulations on top of this, but the fact is that under the Commodity Futures Trading Act, anti-price-manipulation and other antifraud provisions are enforceable.

I wish to go back also to one other comment the Senator from California made. She read to us out of the 1999 report of the President's working group. I listened very carefully to the words she was reading because it is important to understand the usage of words by the President's working group.

I will go back again to when the President's working group recommended how to create this statutory system. When Congress adopted that recommendation and made it law, we created three categories-- included, exempted, and excluded. What this working group language which was read to us said was that due to the characteristics of nonfinancial commodities, exclusion was not intended or not recommended.

That is exactly, in fact, what we did in the law. We did not exclude the energy sector. We put it in the middle category, which is exactly where their working report said it should go. It said they should have authority to be exempted. It was put in the ``exempted'' category which, again, although that exempted word makes it sound as if they are excluded, is not the way the wording of the statute works. The exempted category is fully subject to antifraud and antiprice manipulation protections and to record-reporting requirements imposed by the CFTC.

Again, we may have a difference of opinion on where the reach of the law is, but the bottom line is the agencies involved in administering these and other laws are fully enforcing the law.

I conclude by reading one further letter sent to the Honorable Bill Frist and Tom Daschle yesterday by a number of associations. I will read the names of the associations. These are not just energy companies but companies, associations, and groups involved with the management of our economy from many different perspectives. They point out that the President's working group's approach, which we have been debating today, has been applied and that enforcement actions are taking place. In their words:

These actions make it clear that wrongdoers in the energy

markets are fully subject to the significant authority of

federal and state authorities.

Again, in their words:

Led by the CFTC, federal and state authorities are

currently investigating 32 companies and since last year the

Commission has entered into six settlements collecting a

total of $96 million in civil penalties from energy companies

and power merchants for attempting to manipulate energy

prices.

Again, if they do not have the authority to regulate, they are certainly doing a good job of regulating. They have collected over $96 million in civil penalties and continue to enforce the act.

Signers of this letter are: the American Bankers Association, the ABA Securities Association, the Association for Financial Professionals, the Bond Market Association, EMTA, the Financial Services Roundtable, the Foreign Exchange Committee, the Futures Industry Association, the International Swap and Derivatives Association, the Managed Funds Association, the National Mining Association, and the Securities Industry Association.

I bring that up simply to point out that not only are those agencies in our Government--such as the Department of the Treasury and the CFTC and the Federal Reserve and others--concerned about this, but those in the industry, those operating in our financial industries are concerned about what this will do to our economy and the resilience of our ability to manage risk in our economy.

One of the factors that gives us the ability to have the strongest economy in the world is our ability to utilize these types of transactional authorities to allocate risk in a way that gives us the resiliency to defend against the kinds of threats against our economy we faced over the last few years.

I yield back the remainder of my time.

Mr. President, first let me thank Senator Feinstein for her leadership on this issue and for her typical courtesy in interrupting her statement so I may give mine at this time. It is most appreciated. More important, I thank her for her leadership and Senator Lugar's leadership in bringing this amendment to the floor.

Recent highly negative events in our energy markets show that there is an urgent need to prevent price manipulation in those markets, improve the transparency of energy markets, and to strengthen the ability of State and Federal agencies to enforce the rules governing the operation of those markets.

Widespread price manipulation and falsification of price information in the electricity and natural gas markets in the last few years have inflicted billions of dollars in extra costs on energy consumers and businesses and have been a severe blow to our economy.

The corruption and manipulation of these markets by Enron and other companies fueled the collapse of some energy markets in the United States, the bankruptcy of some energy companies, and a huge decline in investment and trading in the energy markets.

The bipartisan amendment of Senators Feinstein, Lugar, myself, and others would close these ``Enron loopholes.'' Enron used these loopholes, and other companies joined with them, to manipulate energy markets at the public's expense. Our amendment would strengthen prohibitions on fraud and manipulation and give both the Federal Energy Regulatory Commission, FERC, and the Commodity Futures Trading Commission, CFTC, the necessary tools to monitor the energy markets, to prevent manipulation, and ensure that prices are fairly and competitively arrived at.

This legislation is needed because companies such as Enron are now permitted to trade large amounts of energy in virtually unregulated markets, making those unregulated markets and

the resulting price of the energy we use vulnerable to fraud and manipulation.

FERC's recent report on manipulation in the western energy market provides some stunning examples of how the energy markets can be manipulated.

FERC found that Enron, through an unregulated electronics trading center called EnronOnline, ``manipulated the price of physical gas upward and downward,'' earning huge amounts of illegal profits. FERC determined that Enron often ``invited counterparties to wash trades, and these trades created a false sense of liquidity, which can distort prices. Enron also manipulated prices on the EOL by having affiliates on both sides of certain wash-like trades. This created artificial price volatility and raised prices.''

The report by FERC concluded that ``large-volume, rapid-fire trading by [Enron] . . . substantially increased natural gas prices in California.'' FERC found ``significant market manipulation'' in the ``inextricably linked'' natural gas and electricity markets, and that ``dysfunctions in each fed off one another'' during the energy crisis in California.

According to FERC:

Spot gas prices rose to extraordinary levels, facilitating

the unprecedented price increase in the electricity market.

Dysfunctions in the natural gas market appeared to stem, at

least in part, from efforts to manipulate price indices

compiled by trade publications. Reporting of false data and

wash trading are examples of efforts to manipulate published

price indices.

Finally, the report found:

The widespread false reporting led staff to conclude that

reported prices did not reliably reflect market activity.

I would like to give one specific example on how one day, January 31, 2002, Enron used an unregulated, nontransparent Internet trading system to manipulate the natural gas market in California.

In August of 2002, the FERC staff issued an investigatory report finding that out of a total of 227 trades on that day, January 31, 2002, 174, or more than two-thirds of the trades on that day, involved Enron and a single unnamed party. Most of these trades took place during the last hour of trading with two parties buying huge amounts of natural gas from each other in numerous transactions.

FERC determined that the trades took place at ``higher prices,'' in their words, than other trades that day, and resulted in a steep price increase over the last hour of trading. FERC described this trading activity as ``difficult to rationalize as a normal or standard business practice'' and noted:

[O]nly Enron and possibly the counter party could have

known that so much of the trading was going on between

themselves, because parties looking at EOL's screens could

only see the bid and ask prices; they could not know who the

counter party was on any particular trade.

The FERC report indicated that EnronOnline's prices were routinely used to prepare published reports on natural gas prices, which meant that the Enron price data was not just affecting Enron trades but also causing higher natural gas prices industry-wide. The report concluded that Enron had ``significant ability and incentive to manipulate the price data published by the reporting firms.''

This spring, FERC issued a number of recommendations to fix the problems in the energy markets. FERC recommended new policies and procedures for the oversight of commodity trades and prices and a system of market surveillance to detect and prevent manipulation.

In March of this year, following a year-long investigation, I released a Permanent Subcommittee on Investigations staff report into the operation of crude oil markets. The report describes the regulated and unregulated markets for buying and selling crude oil and explains how crude oil prices are set and how they affect the price of critical oil commodities, such as gasoline, home heating fuel, jet fuel, and diesel fuel.

The report describes the vulnerability of unregulated commodity markets to price manipulation and the need for and beneficial effects of U.S. commodity regulation. The report also explains how the over- the-counter markets are virtually unregulated and, therefore, vulnerable to manipulation.

The report recommends that traders in over-the-counter markets be required to ``provide the CFTC with routine information on large positions in crude oil and energy contracts and derivatives, as well as other information that would aid the CFTC in detecting, preventing, and halting commodity market manipulation.''

So we have two reports reaching the same conclusions about the need for more market transparency and strengthened oversight to detect and prevent fraud and manipulation in energy markets.

How did we get to this position where companies, such as Enron, are permitted to manipulate prices in our energy markets? The answer lies in how the energy markets and the Federal regulations have evolved over the last 20 years.

Billions of dollars' worth of contracts for the future delivery of energy are now traded every day. These contracts are called energy derivatives because they derive their price from the price of the energy commodity in the contract.

There are two basic types of energy derivatives. Energy derivatives that are traded on futures exchanges are called futures contracts. The trading of futures contracts on futures exchanges is regulated by the Commodity Futures Trading Commission under the Commodity Exchange Act.

The other type of energy derivatives, which are not traded on futures exchanges, are called over-the-counter energy derivatives. These derivatives may be traded by fax, by phone, in face-to-face meetings, or over the Internet. The trading of these derivatives is virtually unregulated.

Both the futures markets and the over-the-counter markets perform identical economic functions. Both markets enable traders to buy and sell commodities at fixed prices, disseminate information about commodity prices, and provide a way for buyers and sellers to hedge against changes in the price of these commodities. Commodity traders routinely use both the futures markets and the over-the-counter markets for price discovery and hedging.

Today, the types of contracts traded in the futures markets and the over-the-counter markets are virtually identical. As an indication of how indistinguishable these contracts really are, the NYMEX even calls some of the contracts that it offers on its over-the-counter electronic market ``futures contracts.''

This is an example of what is shown on the NYMEX boards. This is the way the NYMEX advertises: Light Louisiana sweet crude oil futures-- futures. Futures are supposed to be bought and sold on futures markets, not over-the-counter markets, but this is an over-the-counter sale and offer.

This is a picture the New York Mercantile projects over the Internet for the purchase and sale of over-the-counter contracts. Notice it says: Trading venue is over the counter, and yet it calls that over- the-counter offer ``futures.'' If they were really futures, they would be regulated as futures contracts are by the Commodity Futures Trading Commission. But these are over-the-counter sales. These are unregulated, and yet they are characterized as futures. The language used here is interchangeable. The economic function is interchangeable. The only difference--and it is a critical difference--is that futures contracts are regulated by the Commission and over-the-counter contracts are not. And they should be. They perform the same economic function. The language used is exactly the same and yet there is one group of contracts unregulated. The other group of contracts is regulated. It is the unregulated contracts which got us into so much trouble, the lack of transparency which got us into so much trouble.

Let me give another example. The largest over-the-counter electronic trading facility is the Intercon- tinentalExchange, known as ICE, in Atlanta. It trades contracts that it calls futures, and yet these are not futures; these are over-the- counter transactions, described by the ICE as futures. It says you can trade futures from your desktop. Yet these are over-the-counter transactions.

Here is what they say on their Web site:

IntercontinentalExchange brings parallel trading in IPE

Brent crude of futures to the ICE platform. Electronic

futures trading sessions operate in parallel with the regular

open-outcry session on the IPE floor in London.

Now, that open-outcry session, as they phrase it, is the futures trading session that occurs at the exchanges. So they are treating them the same. They are saying, one can trade in futures electronically. The language now has become the same, the economic function is the same, but there is one key difference, and it is a deadly difference in terms of consumers and in terms of manipulation of prices. That difference is that futures contracts are in fact regulated and must be disclosed and are in fact transparent, whereas the over-the-counter trades are not. They are now dealt with interchangeably by the largest exchange, the largest over-the-counter electronic trading facility in the country, the IntercontinentalExchange in Atlanta.

Only real futures markets are regulated to prevent price manipulation. That is a fact. The over-the-counter market is not. That is what has got us in the hole we are in. That is what permitted Enron to dig us deeper into the hole we are in and to cause the loss of huge amounts of money to our consumers and to many customers. No disclosure, take care of these trades over the market. If the market were a regulated market, such as the futures market is, it would have been regulated. It could have been transparent. We would not have seen the Enron disaster and the manipulation that we saw in Enron and by other companies.

The Commodity Exchange Act regulates the futures exchanges so that they cannot be artificially manipulated. This regulation and transparency has bolstered the confidence of traders in the integrity of these markets and it has helped to propel our country into the leading marketplace for many commodities.

For example, the New York Mercantile Exchange, NYMEX, is the world's leading exchange for futures contracts, for energy products such as natural gas, crude oil, gasoline, and home heating oil. The CEA makes it a felony to manipulate the price of any commodity, and it contains a number of provisions to enable the futures exchanges and the CFTC to detect and prevent price manipulation. The CEA requires the regulated futures exchanges to ensure that trading is orderly and to detect and prevent price manipulation. The CEA directs the CFTC to oversee the operations of the futures exchanges and to itself perform market oversight and ensure that trading is orderly.

According to a former CFTC Chairman:

The job of preventing price distortion is performed today

by regulatory and self-regulatory rules operating before

the fact and by threats of private lawsuits and

disciplinary proceedings after the fact. Both elements are

essential.

According to the CFTC:

The heart of the commission's direct market surveillance is

a large-trader reporting system, under which [the futures

exchanges and brokers] electronically file daily reports with

the commission. These reports contain the futures and option

positions of traders that hold positions above specific

reporting levels set by the CFTC regulations.

There are no protections against manipulation in the over-the-counter markets. Unlike the futures markets, the over-the-counter markets are not required to monitor trading to detect and deter fraud and price manipulation. Information that is routinely reported to the futures exchanges and the CFTC is not available to the over-the-counter exchanges or to the CFTC. Traders do not have to report large trades. There are no position limits or daily price limits. The over-the- counter markets lack all of the critical features of an effective program to detect and prevent price manipulation.

Over-the-counter energy derivatives are unregulated because of a provision that was added to a conference report at the last minute in an amendment to the Commodity Exchange Act in an omnibus appropriations bill at the end of the Congress in the year 2000. The Commodity Futures Modernization Act of 2000 was intended to clarify the regulation of financial instruments. Most of the provisions in the CFMA were based upon the recommendations contained in the Report of the President's Working Group on Financial Markets, Over-the-Counter Derivatives Markets and the Commodity Exchange Act, which was jointly issued in November 1999 by the Treasury Department, the Federal Reserve, the SEC, and the CFTC.

The working group recommended that financial derivatives be excluded from regulation under the CEA but that derivatives involving nonfinancial commodities with a limited supply, such as energy commodities, not be excluded.

The working group stated:

Due to the characteristics of markets for nonfinancial

commodities with finite supplies, however, the working group

is unanimously recommending that the exclusion not be

extended to agreements involving such commodities.

A unanimous recommendation of the working group and the House and Senate bills leading up to that conference in fact did not extend the exclusion to commodities transactions. Yet the exemption in the current law for trades in over-the-counter energy derivatives, the Enron exemption, somehow or another got inserted in that law at the eleventh hour during a House-Senate conference. This exemption was never considered by any committee. It was never discussed at any hearing. It was never commented on by interested parties. It was simply inserted in the conference report at the last minute. It is one of the reasons for the Enron mess that we have had to clean up after.

This amendment would correct that situation. It is essential we have this kind of transparency regulation in the commodities markets. I hope this amendment, which is a bipartisan amendment, will be adopted by this body and close the Enron loophole which was created in the dark of night, without any debate in this body, without any knowledge of this body, in a bill which this body had passed without such an exemption, in a bill which the House had passed without such an exemption, and yet the exemption showed up nonetheless in a conference report and helped to create the Enron disaster and mess which we have been trying to clean up ever since.

Exempting energy commodity trades from the CEA did not make sense when it happened in 2000. It would be irresponsible to continue it now, especially after we have seen how it facilitated the market fraud and manipulation by Enron and others.

The amendment before us would return the commodities law to the way it was for decades prior to the passage of the Enron exemption. It would ensure that fraud and price manipulation would be a felony, and it would remove ``the Enron exemption'' as a shield against regulation and prosecution. It would authorize the CFTC to establish recordkeeping requirements to enforce the anti-fraud and anti-manipulation prohibitions in the CEA.

This amendment also contains important provisions to improve FERC's ability to ensure the transparency and integrity of wholesale energy prices. It would direct FERC to establish an electronic price reporting system, strengthen the penalties for violations of the Federal Power Act and the Natural Gas Act, prohibit wash trading and other collusive and manipulative practices in wholesale energy markets, and clarify FERC's authority to fashion appropriate remedies in cases of wholesale price manipulation.

There is a great deal of support for this legislation.

Governor Jennifer Granholm, of my home State of Michigan, writes that, in the aftermath of the massive electricity blackouts that struck Michigan and large areas of the midwest and northwest this past summer, ``all necessary steps should be taken to bolster business and consumer confidence in the Nation's energy markets and promote additional investment in reliable energy delivery at a fair price.'' Governor Granholm says our language ``would improve energy price transparency in wholesale electricity markets, greatly increase criminal and civil penalties for trading violations, prohibit market manipulation and fraud in all energy market sectors, and strengthen day-to-day energy market oversight, including over-the-counter market transactions that significantly affect energy prices.''

The American Public Gas Association supports the amendment because ``it will improve market transparency and provide the essential regulatory oversight to detect and prevent manipulation and improve the efficiency of energy markets.''

Attorney General Eliot Spitzer, from the State of New York, urges swift

adoption of the amendment, writing that ``the amendment closes loopholes used to manipulate energy markets, improves the ability to detect fraud and other manipulation, and deters manipulation by establishing substantive penalties.''

The North American Securities Administrators Association, the association representing the securities administrators of the 50 States, supports this amendment because it ``would provide more transparency to the wholesale electricity markets, supply the CFTC with the authority to detect fraud and manipulation, and help to deter wrongdoing by significantly increasing the penalties for violations of the Federal Power Act.''

Consumers Union, the Consumer Federation of America, Public Citizen, and the U.S. Public Interest Research Group support this amendment. They state it ``would go a long way towards addressing the serious problems plaguing the Nation's energy markets.''

The Derivatives Study Center comments that ``this important legislation will assure that [energy commodities] will be covered by Federal prohibitions or fraud and manipulation. . . . It will subject [energy] derivatives to some of the same regulations that apply to securities, banking, exchange-traded futures and options and other sectors of U.S. financial markets.''

The National Association of State Utility Consumer Advocates writes that this legislation ``will help fix broken energy markets and given regulators the tools needed to protect consumers from market manipulators.''

One hundred and fifty years of history of our commodity markets demonstrates that market integrity and investor confidence will not magically spring up in markets that have been tainted by manipulation. That same history shows that fair and efficient markets do not emerge by themselves. Rather, regulation and oversight are necessary to ensure that markets are fair and efficient. Without fair and efficient, and that means transparent, energy markets consumers will pay higher prices for energy products, capital will be misallocated, and out national economy and energy security will be harmed.

This history also shows that a legal prohibition against commodity market manipulation, without more, does not deter or prevent manipulation. Continuous market disclosure and oversight are essential to halt manipulation before economic damage is inflicted upon the market and the public. This is why a major portion of the CFTC's budget and resources is devoted to oversight of the futures markets.

Although some enforcement actions have been brought following the manipulation of the western markets, these enforcement actions will do little to make whole the consumers and businesses that suffered billions of dollars in losses from those misdeeds. It would be far better to ensure that such abuses do not occur in the first place, rather than rely on the hope that a few of the manipulators are caught after the fact.

We cannot afford to have more Enrons, more manipulations, more frauds, and more flight of capital in the energy sector. It is imperative that we restore the integrity and credibility of our energy markets.

Our bipartisan amendment will help create fair and transparent energy markets that investors can trust.

Mr. President, I thank the Senator from California for her tenacity on this and so many other issues. But in this matter she and her State have suffered firsthand probably more than any other State as a result of this Enron loophole which she is so heroically and determinedly trying to close this afternoon.

Will the Senator withhold for a unanimous consent request?

Madam President, while that is being considered, I ask unanimous consent that a statement of the American Public Gas Association, supporting the amendment; a statement of Attorney General Eliot Spitzer, supporting the amendment; a statement of the North American Securities Administrators Association, supporting the amendment; a statement from the Consumers Union, Consumer Federation of America, U.S. Public Interest Research Group, and Public Citizen, supporting the amendment; and a statement from the Derivatives Study Center be printed in the Record.

Mr. President, I call up amendment No. 537.

Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. President, I rise to offer a substitute amendment to S. 113, the Kyl-Schumer FISA bill. I ask you to bear with me because the explanation goes on for a while.

I am also pleased that Senator Rockefeller, the ranking member on the Intelligence Committee, and Senator Leahy, the ranking member of the Judiciary Committee, are cosponsors of this amendment. I am pleased to also acknowledge that Senators Dodd, Edwards, Feingold, Boxer, and Wyden are also cosponsors of the amendment.

Let me try to briefly describe the difference between current law, S. 113, and my amendment.

S. 113 is the Kyl-Schumer FISA amendment. First, the Kyl-Schumer amendment only applies to non-U.S. persons. I want to make clear that it does not cover green card holders under that amendment.

Under current law, the FISA court may only grant a FISA application against a non-U.S. person if the Government can show probable cause that the target is working on behalf of a foreign power or a terrorist group. The Government also has to certify that it is seeking foreign intelligence information that can't be obtained by any other means.

As I understand the Kyl-Schumer bill, it drops a primary requirement for FISA warrants; that is, the individual or the target be agents of a foreign power. Under Kyl-Schumer, this prerequisite is gone. That is what the so-called lone wolf deals with.

This would then give the FISA court no discretion to deny applications for FISA orders against a true so-called lone wolf. These are alleged international terrorists operating completely on their own. This is confusing. In other words, current law gives the FISA court no discretion to grant FISA orders in closed cases. But S. 113--Kyl- Schumer--gives judges no discretion to deny FISA the FISA court application in closed cases. Both of these circumstances raise certain problems.

My amendment is essentially a compromise. It grants the court a presumption. So the FISA court may presume that a target is an agent of a foreign power, or the court may choose not to invoke that presumption. The bottom line is the court is given some discretion.

In other words, the court may choose to grant a FISA order despite a lack of evidence that a target is working on behalf of a foreign power. Similarly, the court may choose to deny an order against a true lone wolf. It is up to the court.Federal judges in title III criminal cases have similar discretion. Although the standard there is about whether the Government can show probable cause that a person has committed a crime or will commit a crime, that is a very different standard than under FISA. Federal judges have not abused that discretion and, in fact, in rare cases have been able to act as a check on the Government to prevent overreaching and abuse.

Why do the sponsors of S. 113 show less trust for FISA judges in the FISA content? In fact, such trust is even more warranted in the FISA content. Not only is the FISA process secret and hard to keep accountable, but the FISA court has only denied one FISA application in its 25-year history.

Such a lack of trust is even less necessary given the fact that even if the Government is unable to get a FISA order against a target, it remains completely free to use all the tools of the criminal process under title III to get search and wiretap orders against the target.

The bottom line is, our amendment preserves FISA's agent-of-a- foreign-power requirement without jeopardizing our security. Our amendment allows the Government to get FISA orders against suspected international terrorists even in close cases where the Government cannot show the target is working on behalf of a foreign power or terrorist group. However, unlike S. 113, the amendment also ensures the FISA court is more than a rubberstamp and has discretion to deny a FISA application if the Government overreaches by attempting to use FISA authority.

I now would like to discuss the issue in somewhat greater detail.

Mr. President, at times of crisis, it is possible the Government can overreach in both legislative and executive decisionmaking with respect to our criminal and intelligence laws. That can have unfortunate consequences for both our security and individual rights.

The Foreign Intelligence Surveillance Act, or FISA, was passed in 1978. It was the first statute ever passed in

the United States to provide a statutory procedure for the authorization of clandestine activities of our Government to obtain foreign intelligence.

Before it passed, then-Attorney General Griffin Bell testified in favor of the bill before Congress. He noted the ``delicate balance'' that needed to be struck between ``adequate intelligence to guarantee our Nation's security on the one hand and preservation of basic human rights on the other.''

He stated:

In my view this bill strikes the balance, sacrifices

neither our security nor our civil liberties, and assures

that the abuses of the past will remain in the past. . . .

Now, what does he mean by ``abuses of the past''? Decades earlier, America saw what happened in World War II with Japanese Americans who were removed from their homes, their businesses, and their schools, and placed in interment camps in violation of their rights. We do not want that to happen ever again in this country.

I am not saying this is an identically similar situation. I am concerned, however, about zealousness and overreach because now we are engaged in a global war on terror. In conducting this war, we must be careful that we not overreach when the temptations are so great.

This kind of war is unprecedented for the United States. It is unprecedented and unbelievable that anybody could fly four big planes, three into buildings, and kill 3,000 people. This is beyond our ken. America and Americans want to protect our homeland and our individuals, notwithstanding this is an entirely secret process and, as such, the laws that govern it must be balanced, must be carefully crafted, and must prevent it, lest someone use them to overreach. It has happened in the past, so you can assume it could well happen in the future. This is especially true, as I said, with FISA.

I supported reporting S. 113, the Kyl-Schumer FISA bill we are debating, in the Judiciary Committee. I agree with my colleagues--there is a clear problem here, needing a solution; namely, the potential difficulty the Government may have in obtaining FISA orders against certain international terrorist so-called ``lone wolves.'' These are people who have no affiliation with a terrorist group, no affiliation as an agent of a foreign power.

Under FISA, a ``foreign power'' is simply defined as ``two people conspiring,'' so it is a very easy goal and target. A problem arises in cases where the Government knows of a foreign individual who may be involved in terrorism but cannot yet prove a connection to foreign groups or governments. This problem stems from the proof requirement under FISA in current law.

To get a FISA order against a foreign visitor to the United States under current law, the Government needs to show two key things:

First, that the individual is a foreign power or an agent of a foreign power. Again, that is defined as two people working together. A foreign power could be a foreign government or an international terrorist group as defined.

And second, that it is seeking ``foreign intelligence information'' that cannot be obtained by other means.

This symbolizes the very purpose of FISA: to gather foreign intelligence. Criminal courts are for criminal cases, and the FISA court was set up specially to deal with cases where the Government wishes to obtain information or intelligence about the activities of foreign powers.

The problem is this: Under this current standard, it may well be difficult for the Government to meet the foreign power requirement if the Government does not yet have enough evidence of a connection to a foreign group, entity, or power. Some have described this problem as the ``false lone wolf'' problem, where you have an individual who may appear at first to be operating as a ``lone wolf,'' even though that individual is really an agent of a larger group.

That was one of the alleged problems with the pre-September 11 investigation into Zacarias Moussaoui. The FBI did not learn until after September 11 that Moussaoui had links to al-Qaida and may have been the intended 20th hijacker.

As a result, the Government may have been reluctant to request a FISA warrant because they did not think the intelligence they had could connect Moussaoui to an international group or government.

So there is no question in my mind that we need to amend FISA to fix this problem. And I applaud my colleagues, Senators Kyl and Schumer, for working so diligently to solve it. But the Kyl-Schumer bill also redefines ``agent of a foreign power'' to include any non-U.S. individual preparing to engage in international terrorism. In other words, it essentially eliminates the foreign power requirement altogether.

This change would allow the Government to get a FISA search or wiretap order against any foreign individual in the United States who is preparing to engage in international terrorism, regardless of whether the person is really an agent of a foreign government or terror group, and regardless of whether there is any potential to gather foreign intelligence.

Again, it is this foreign intelligence component that defines the very purpose of FISA. As a result, I believe this change goes too far.

Under S. 113, for the first time ever, the Government will be able to use FISA against any non-U.S. citizen preparing to engage in international terrorism--even individuals whom the Government knows have no connection at all to anyone else engaged in international terrorism.

There would be no check at all on the Government's use of FISA against many common criminals who just happen to be noncitizens and, therefore, the Government might be able to use this secret FISA court to obtain warrants that: (A) are easier to get; (B) last longer; and (C) are less subject to normal judicial scrutiny than criminal warrants under title III or regular criminal statutes.

FISA wiretap orders, for instance, are good for 4 times longer than normal criminal warrants--120 days versus 30 days--giving the Government a clear incentive to use this process even against common criminals. These orders can be reauthorized indefinitely each year for 1-year periods. The same is true for physical search orders under FISA, although these are good for 90 days, and 1-year extensions are subject to the requirement in current law that the judge find ``probable cause to believe that no property of any United States person will be acquired during the period.''

Under FISA, as modified by S. 113, the Government must show by probable cause only that a foreign national is engaged in international terrorism or preparation thereof. You might listen to that and you might think: What is wrong with that? We all want that. I want it, too. But in many instances, this probable cause standard will be easier to meet than the traditional criminal probable cause standard.

For example, for a title III wiretap, the Government must show that there is probable cause to believe an individual is about to commit or has committed an enumerated crime. To get a search order, the Government must show probable cause that the search will result in the discovery of offending items connected with the criminal activity. However, under S. 113, the Government need only show probable cause that the person is engaging in ``activities in preparation'' for international terrorism. Many ``activities in preparation'' for international terrorism are not crimes.

For example, a foreign visitor who bought a one-way airline ticket and a box cutter would arguably qualify as a person engaging in activities in preparation for international terrorism, even in the absence of other evidence that he or she might be an international terrorist.

However, these two activities, taken alone, would clearly not demonstrate probable cause that the person would commit a crime. These activities may be entirely innocent. As a result--and I don't believe this is anyone's intent--S. 113 could easily serve as a clarion call to all aggressive prosecutors who want to listen in on or search the homes of targets of investigation without ever having to prove that any crime may be committed or that foreign intelligence may be gathered.

By allowing FISA to be used against all solo suspected international terrorists, S. 113 runs counter to the whole purpose of FISA, which is to allow the Government to get foreign intelligence by searching and wiretapping people

working for other countries and groups against U.S. interests.

S. 113 essentially eliminates any discretion the FISA court has to turn down a case--this is my big problem with it--thus enabling the Government to overreach. I am not saying that it will overreach. But because it is a secret process, the laws we pass have to prevent that overreach.

By nullifying the requirement that the target of an investigation has some connection, any connection, to a foreign entity or government, this legislation essentially makes the FISA court a rubberstamp. The court will be required to grant a FISA order, even if there is no probable cause to indicate a connection to a foreign power; indeed, even if there is clear evidence that the individual is operating completely on their own. In fact, even if the Government admits that the terrorist is operating alone and that there is no foreign intelligence to be gathered, the FISA court must still grant the order under S. 113.

That is not what FISA is meant to be. Put simply: The legislation goes too far.

Let me be clear: We who are sponsoring this amendment are not trying to protect international terrorists, and our amendment does nothing to protect them. The vast resources of the Federal Government and the powerful tools of the criminal process remain available to target and investigate any terrorist against whom the Government is unable to get a FISA order.

What our amendment will do is retain the original purpose of FISA-- the seeking of foreign intelligence. S. 113 would not.

Our amendment is simple. Rather than simply eliminating the foreign power requirement altogether, our amendment would allow the FISA court judge to presume that a foreign terrorist is also an agent of a foreign power, even if there is no evidence supporting that presumption. On the other hand, under our amendment, the FISA court could also refuse to presume this connection in troubling cases of Government overreach. Thus, a FISA court judge would have some discretion.

What does this mean? In the Moussaoui case, for instance, even though the Government did not yet have evidence that Moussaoui was acting as an agent of a foreign power, both our amendment and S. 113 would allow the Government to get a warrant. The only difference is that our amendment would allow the judge to carefully look at the case and, if the court determined Moussaoui was clearly acting alone, the warrant could be denied.

I know some will argue that this casts too much doubt upon the outcome of cases and that, as a result, FISA orders will be too hard to obtain. But in most cases, if you think about it, the outcome will be exactly the same, whether under our amendment or the underlying bill.

Others may argue that this amendment might give liberal judges too much power to deny FISA orders in every case or, as Senator Schumer put it today, ``inject gray into the statute.'' But in reality, I believe these judges should have some discretion. This is an entirely secret process. By providing this presumption, we give judges that discretion. That is, in fact, a good thing.

Liberal judges can always find ways to deny a FISA order, even under S. 113, if they are determined to do so. For instance, a judge could simply decide there is no probable cause showing that an individual is engaged in international terrorism. That is a requirement in both S. 113 and our amendment.

The bottom line is that we can and should preserve the foreign power requirement of FISA without jeopardizing our security. Under either approach, the Government will be able to get FISA orders against international terrorists, even if the Government cannot meet the foreign power requirement.

Bottom line, again: The only difference between the two approaches is that our amendment preserves some limited discretion so the FISA court could stop the Government from overreaching against those individuals who have no connection to a foreign conspiracy. Let me say, if they have no connection to a foreign conspiracy, you can get the title III criminal warrant.

I urge my colleagues to support the amendment and, therefore, support the underlying purposes of FISA.

I yield the floor.

I yield such time as the Senator from Vermont, the ranking member of the Judiciary Committee, requires.

I am happy to yield as much time as the Senator requires.

Mr. President, I thank the distinguished Senator from Arizona for his personal comments. He knows I have thoroughly enjoyed working with him. It is unusual--as a matter of fact, I cannot remember in all these years when we have ever been on opposite sides of one of these questions.

Let me state to the Senator my great fear. We all forget beneath the surface this Government has tremendous power. When that power is exercised against a person in this country, alone as a visitor, has no rights, it is enormous what can happen. What my deep concern is that overzealous prosecutors will use this where they should use title III and get a criminal warrant instead of a FISA warrant because of the removal of the agent of the foreign power. We keep the connection with the basics of the FISA statute which is surveillance related to an agent of the foreign power. We keep that. That is the justification for FISA. We give the judge the ability to make that as a presumption-- ergo, giving the judge some discretion not to make it, and therefore the individual seeks the warrant--an FBI agent or whoever it is--goes to title III and gets a criminal warrant.

Once you get a FISA warrant, the benefits from the law enforcement side of the FISA warrant are much greater than the title III warrant.

It is a small protection. I don't believe, in my heart of hearts--and if this were to pass and the Senator from Arizona showed me that it did in any way prevent the FISA court from exercising its discretion just as you want it to, I will change it. I would be the first one to come back.

It prevents this misuse of a prosecutor who should be getting a title III warrant, who will come to the FISA court instead because the FISA court will be a rubberstamp, and because myself, a visiting Indian, Pakistani, Muslim, Frenchman, Italian, anybody in Los Angeles who happens to have in their pocket a one-way ticket and maybe a pocket knife--a box cutter may be out of date--and somebody has a suspicion, they do not have to prove anything. And they can surveil me, they can wiretap me, they can exert all of the surveillance powers that are used under FISA. They do not know whether I am going to commit a criminal act and they have no evidence of anything else. That is what title III is for. Title III has a little heavier cause burden, but as the Senator said, there is probable cause in both.

But the benefits of the FISA warrant are superior to the benefits of the title III warrant in their duration. So you can do all this to somebody for 90 days instead of 30 days and you do not have to come back and renew the warrant once every year. That is my concern.

As I read your legislation, there is no discretion. That is the problem I have with it. This is such a slight change, it is kind of a little tweak that a judge can say, hey, now, let's wait and see what you are doing here.

If the Senator would like to respond, I am happy to yield.

The presumption would be that the target or the individual would be an agent of a foreign power. Otherwise, you could have this against the Unabomber, Oklahoma City. Of course, they are American citizens, so I understand that does not apply, but that same kind of situation.

What I don't understand is why you do not want to give the judge that small bit of discretion with a presumption. The judge can presume it. We both know the history and the history is 100 percent if you include the appeal of FISA judges in granting warrants. So there will not be a problem there.

I am concerned about the overreach. I am concerned about the misuse. And the only way we could figure to counter that was to keep the agent a foreign power, provide this presumption that a judge could use in that one case.

Senator, neither you nor Senator Feingold nor I would ever know if there was an overreach. That is what makes this far more dangerous, the fact that it is so secret.

I will yield time, Mr. President, and I will be very happy to have Senator Feingold in this.

I think this is really the kind of discussion that we should be having. I welcome the free flow.

If I knew a better way of solving the problem Senator Kyl mentioned, I would do it. But my view and what Intelligence staff and others have said to me is that the way it is worded creates a rubberstamp out of a FISA judge, once you take out that agent of a foreign power connection. I guess the reason they believe that is that it puts them into the other side, the title III side.

If I could think of another way, I would. But it is one added guarantee against an overreach. You and I have both known zealous prosecutors. You and I have both known people who would misuse this. The question comes, How do we prevent misuse from happening?

I am happy to yield to Senator Feingold.

Mr. President, I suggest the absence of a quorum. I know Senator Rockefeller is on his way.

Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Through the Chair, I think we can yield back the remainder of our time, I say to the Senator, and hold the vote, if everybody so desires.

I ask for the yeas and nays.

Mr. President, I suggest the absence of a quorum.

Mr. President, I, first, extend my appreciation to Senator McConnell. Senator McConnell and I were given a task and we have done the best we can. I have served in the Congress now for 22 years. This is one of the hardest things I have ever had to do, if not the hardest. It has been a very difficult 3 or 4 weeks that Senator McConnell and I have spent working with Members.

I have known Mitch McConnell for many years, the senior Senator from Kentucky, but as happens when one is thrown into a situation of stress, working closely together, one develops a different relationship, and the bond Senator Mitch McConnell and I have formed over this last month is one that will be with us forever.

I appreciate his willingness to allow me to drop in his office unannounced and call on him all times of the night and day. He has a fine staff and he has worked extremely well with my staff. Without belaboring the point, I appreciate all he has done to get us to this point. Without him, we could not be where we are now.

I have five children. My oldest child is a girl. I have one girl, my daughter Lana. I can remember as if it were yesterday, my little girl was going away to school, to college. I can still remember I cried that day, I felt so sad that my little girl was going to go away. I still feel some emotion when I think about it.

The reason I mention that is my daughter leaving to go to college is only an example of how difficult change is. Why did I feel bad? Because of change. I had been with my little girl for 18 years, and suddenly she was going to leave. Change in our lives is always very difficult. Change in the life of the Senate is difficult. What Senator McConnell and I have brought before the Senate is a change. I repeat, I only give the example of my daughter for illustrative purposes. But change here for 98 Senators with whom we have been working is difficult. It is not the same as sending a daughter to school, but it is still a change. Any time you change, it is difficult. That is what this has been about.

We have been considering ways to reform the executive branch of Government for 2 weeks. It is now done. Now it is time to turn the focus on reform of the Senate. A lot of change is taking place here in the waning days of this Congress, important changes brought about as a result of more than 3,000 Americans being killed through a terrorist act. That is why we are doing this.

A commission was appointed, led by long-time Congressman Lee Hamilton and former Governor of New Jersey Thomas Kean. They had members who worked very hard for a year. They had 80 full-time staff. They came to us with recommendations as to how we had to change the executive branch of Government. We have done the best we can in

that regard. We have changed, as far as the Senate sees it, the executive branch of Government. It has been painful. It has been painful for a lot of Senators. But we did it because we had to do it.

I will elaborate on that a little bit later, but the Commission said doing one without the other is doing nothing. If we walked away from this body now, as some have suggested, and said we have done our job, we have done the executive improvement, we may not have done everything, but we have done all we have time to do--we cannot leave here without having done this.

What we do tonight and tomorrow is nothing the President has to sign. The bill that passed here earlier this evening by a vote of 96 to 2 is something the President has to sign. He does not have to sign this. This is something the Senate is doing on its own. We are doing it because the Commission said you cannot have one without the other.

As I said, some have said, Why do this? Some have said, Maybe the House isn't going to do anything; why does the Senate have to tackle this issue?

We can't maintain the status quo after 9/11. We have to look at every facet of our Government. We did this: The homeland security functions, our intelligence functions, and our congressional oversight.

I extend my appreciation to Senators Roberts and Rockefeller. They have, during the most difficult times in the history of the Intelligence Committee, been asked to guide this country through these perilous times, and they did it without having much to do it with. The Intelligence Committee, as indicated by the 9/11 Commission, is weak and toothless. So I appreciate very much the work of these two very wise men. Being able to work together--it wasn't easy. They had a difficult time. The members of the Intelligence Committee also worked well.

But, as the 9/11 Commission indicated, we need to give the Intelligence Committee more authority and power. That is what we are in the process of doing. We, in effect, said, Can we do better? Can we do better for Rockefeller and Roberts and others, not only today but in the years to come? We have found, under the leadership of the 9/11 Commission, that oversight of the intelligence community is not strong enough--not enough power, not enough resources, not enough muscle.

As my friend Senator McConnell has indicated, the homeland security oversight is now splintered among 88 committees and subcommittees--not 8 in the Senate, not 8 in the House--Governor Ridge and I came together in 1982, each as a Member of Congress. I don't know the exact number of times he has come here, but I think it was 164 times so far this year. Think about it. We can do better.

We do not need these weak and fractionalized subcommittees and committees, all wanting a piece of the Secretary of Homeland Security. We are not going to make a tweak here and a tweak there. As the 9/11 Commission found:

Tinkering with the existing committee structure is not

sufficient. The United States needs a strong, stable and

capable committee structure to give America's national

intelligence agencies oversight, support and leadership.

We can't make all these changes in the executive branch which we did in this bill we just passed and not put our own house in order. The 9/ 11 Commission made that point very clear:

The other reforms suggested, such as the National

Counterterrorism Center and a National Intelligence Director,

will not work if Congressional oversight does not change too.

It has not been easy. We have taken 10 standing committees and taken jurisdiction from each of the 10 and given them to this new committee that will be formed from the Governmental Affairs Committee. It will now be the Homeland Security/Governmental Affairs.

People have had to give things up. Some have given them up graciously. Some have given them up kicking and screaming. There will be amendments offered here to reverse some of the changes we have recommended in the amendment that is now before the Senate. Senator McConnell and I recognize that should be a fair, open process. We are not infallible. Maybe we made some mistakes, but we certainly tried not to.

The Commission made the point clear that it will not work if congressional oversight does not change also. So here we are, with a resolution encompassing some of the most important recommendations of the 9/11 Commission--no doubt the most difficult. Obviously we would not be here without the fine work of the 9/11 Commission that I boasted about more than once, and without the urging of many brave families whose lives were shaken by the tragedy of 9/11.

I served in the House of Representatives with Lee Hamilton. I served under his leadership on the Foreign Affairs Committee in the House of Representatives. He is a fine man. He was a mentor to me. He and Governor Kean have made their mark upon the country with their excellent report. We are also here on the verge of landmark reform because of the strong partisan interest of our colleagues in reforming this institution. There may be different opinions about some of the details, but I believe the consensus is very strong about bringing much-needed reform to the intelligence and homeland security functions.

As I started my statement using an example of my dear daughter Lana, I said change is hard. I understand that. I am a member of committees. The committees on which I serve have given up things to make this work.

I also want to extend my grudging appreciation to the two leaders, Senators Daschle and Frist. The next time they have one of these nice things to pass out, they will think of someone else. This has been very hard for Senator McConnell and me, but they have stood with us. They are fine leaders. And if we get this done--and I am hopeful and confident we will--it all goes directly to their leadership. Both of these men are so busy that they look to their assistants. I am the assistant Democratic leader, the whip. Senator McConnell is the assistant Republican leader, the whip. We have done our best representing our caucuses. We run separate and apart from our two leaders. I run elected on my own, as does Senator McConnell. But we believe this was the time when without any question the two leaders were doing absolutely the right thing. That is why we have spent so much of our time, energy, and effort in carrying out what they have directed us to do.

I jokingly said I grudgingly send my appreciation. I really don't do that. I am happy Senator Daschle had enough confidence in me to allow me to go forward on this noble experiment.

I have spoken to members of the 9/11 Commission on quite a few occasions in conference calls and personal meetings, and I appreciate their time. The time is up for this Commission, but they are still devoting large blocks of time to people like me who come to them for direction, guidance, and understanding. They wanted first of all to know what we were doing was nonpartisan. I think Senator McConnell and I proved to them time and time again that it was.

Let us talk about the specifics.

The so-called task force recommended that the Senate inplement virtually all of the congressional reform recommendations made by the 9/11 Commission. I will go over what we have done. There are three basic areas we looked at. One is to reform the Intelligence Committee process. The other is to create a different, new committee on homeland security, which I have talked about, and the other is to make sure the appropriations process was part of this.

What we have done to strengthen collection of intelligence is eliminate term limits. We have to ensure that the majority has no more than a one-member advantage. This came directly from the 9/11 Commission. We maintain apportioned slots for these committees. The chairman and ranking member of Armed Services. I will offer an amendment because I heard directly from the Intelligence Committee itself that they also wanted in addition to the Armed Services Committee members of the Foreign Relations Committee doing that. In this instance, it will be Senator Lugar, chairman of the committee, and Senator Biden, ranking member, who will serve as ex officio members. I will offer an amendment at a subsequent time, and elevate the status, as I heard Senator McConnell talk about, from B to A.

We have maintained the majority and minority leaders' ability to appoint all committee members. Members not appointed will serve without term limits.

This is so important. Frankly, this is not anything that the 9/11 Commission recommended, but it came from Senator Warner in meetings we had with Senator McConnell and me. Senator Warner has been here a long time. I have served with him from the day after I came here as a member of the Environment and Public Works Committee. He has been so easy to work with. If there were ever a stereotype of a southern gentleman, it is John Warner. And John Warner in his typical gentlemanly fashion suggested to us that for a committee which is important, the chairman and ranking member should serve at the pleasure of the two leaders.

The reason for this is what I refer to as the ``Wilbur Mills problem.'' Wilbur Mills was a long-time Member of Congress and became chairman of the powerful Ways and Means Committee. This was a man who never had a problem in the world as far as anything dealing with ethics and morality. Suddenly, for whatever reason, Wilbur Mills--this distinguished Member of Congress who served 30 years--started doing a lot of things very publicly that were an embarrassment to this institution. He was there based on seniority and there was no way he could be disposed of. We don't want that. It is something that probably would never happen, but we need that protection. The people who are representing and leading this Intelligence Committee have to be above reproach ethically and morally. The two leaders should have the ability to do that.

That is why Senator McConnell and I, along with Senator Warner--that is where this came from. We believe that committees around here are too large. One of the things we set out to do was not have more committees. We wanted to do what we could to make the committees smaller. We did this. We reduced the size of the committee from 17 to 15. That may not sound like much, but it was a step forward. We have followed our philosophy and reduced the size of the committee. This is something the 9/11 Commission recommended. The staff positions for each member-- maintain nonpartisan professional staff, give the Intelligence Committee a stronger role in reviewing civilian intelligence nominees. This is something else the 9/11 Commission recommended.

That is one of the things they recommended in intelligence. We have done that. But we have gone a step further, and said not only that but the Intelligence Committee should be able to form whatever subcommittee they feel would help that committee perform the functions they have for the country.

Maintain committee subpoena authority; require the committee to make regular reports to the full Senate.

For the purpose of showing how much we did related to the recommendations of the of 9/11 Commission, all we have to do is look right here. We have done what they have recommended, and more.

If you look here, the committee conducts ongoing oversight, checked off; create subcommittee dedicated to oversight, another check; ensure committee has subpoena authority, check that off; ensure majority has not more than one-member advantage, check that off; ensure apportioned members slots for Armed Services, Appropriations, Foreign Relations and Judiciary; one-year term limit; reduce the size of the Intelligence Committee; ensure the Intelligence Committee has a nonpartisan professional staff.

I think we have done that. It is good work. It was not easy, but good.

We have talked about the operations committee, which recommended 14 specific measures to give the committee greater stature and power.

We believe the proposed measures such as elevating the committee from B to A, ending term limits, and creating a subcommittee on oversight will give the committee muscle and that will be oversight of the intelligence agencies.

I have talked about the need for the Appropriations subcommittee to focus on investigations. We have done that.

What I have not talked about is Senator Bob Graham. Bob Graham was chairman of the Intelligence Committee, ranking member, served in a very good way, former Governor of Florida, served in the Senate for 18 years. He is leaving now. He is retiring. When someone suggested to him that you should put the function of the appropriations and authorization all in one committee, he said it would concentrate power in too small a number of people and it would be devastatingly wrong for the intelligence community. So what we came up with, we feel, is something better than that; that is, as one distinguished Senator said, if we can have an Appropriations subcommittee for the District of Columbia, for agriculture, and the legislative branch of Government, we ought to have one for intelligence. It is simply too important, and we agree. Senator McConnell and I agree.

Therefore, we have now merged the Military Construction Subcommittee, which I chaired for a Congress or two, with Defense--again, we don't want to create more subcommittees or more committees--leaving 12 subcommittees for Appropriations. We have created another one on intelligence.

There has been a lot of complaints that the monetary function of the Intelligence Committee was hidden in the Defense Subcommittee on Appropriations. That won't be the case anymore. It will have chairmen selected based on seniority. I am sure it will be one of the senior members of the Senate. That is about all you have on the Appropriations Committee, and I think it would do well. This is a significant development.

We will increase the number of members and staff who oversee the intelligence community spending and finally shed light on programs that have been tucked away far too long.

Governor Kean was asked at a recent Select Committee on Intelligence hearing about the creation of an appropriations subcommittee on intelligence. Governor Kean said:

I think [an intelligence appropriations subcommittee] would

be very much in my mind, be within the spirit of our

recommendations.

I have spoken to Congressman Hamilton and indicated to him what we were going to do. He feels the same as Governor Kean about this.

Now, an appropriations subcommittee on intelligence is exactly the kind of conforming change that is required now that we have passed the Collins-Lieberman bill, where centralization and coordination of the intelligence community is achieved through the establishment of a national intelligence director.

Some Members suggest a joint authorizing and appropriating committee, but there are very strong feelings that creates too much power and too much secrecy for a handful of members, so it actually results in fewer checks and balances and much weaker oversight.

There was a broad consensus to consolidate the oversight of the Department of Homeland Security. Without any question, we should not have to have the director or his assistants appear before 88 committees and subcommittees of the Congress. We ought to have a single homeland security authorizing committee. This would match the Homeland Security Appropriations Subcommittee we created last year.

With this we achieve the much-needed consolidation by replacing homeland security oversight in the Governmental Affairs Committee and renaming the committee Homeland Security and Governmental Affairs.

What we have now before the Senate is significant and sweeping reform. This resolution with the amendment we placed therein, though it might not be perfect, and Senator McConnell and I would never say it was, is extremely powerful and makes the required structural changes at the same time it sends a clear message to the American people that the Senate understands the problems, and we are ready to make changes that will help keep our country safe.

Let's end what the Commission calls a ``dysfunctional'' oversight process. It is the right thing to do. This is the right time to do it.

We welcome anyone who wants to offer amendments. We do recognize, however, as the two leaders mentioned earlier, that it is almost 7 o'clock tonight, and we are supposed to leave Friday. We need to finish this legislation. People cannot wait us out. If

Members do not come tonight and tomorrow to offer amendments, we are going to go to third reading. We are not going to wait around while people do other things. This is not January or March or April or May or September. It is just a few days until the leaders have said we are going to go home. At the very best, it will be difficult to get out of here late Friday or even Saturday.

The two leaders are absolutely right in saying we want everyone to have an opportunity to review this resolution. The amendment was filed last night, and everyone has had more than 24 hours to read it, to study it, to prepare their amendments. It is not a 400-page amendment. It is a few pages in length, very simple and direct, and is something we are doing to change this body. It is a significant change, and we recognize that, but a most important change.

Members offering extraneous matters on this--and that is always possible--should understand they are doing it in the face of what the 9/11 Commission said: we have to do this. I hope Members would not come and offer amendments relating to extraneous matters.

If there is something wrong with the amendment Senator McConnell and I sent to the desk, let us know. We have worked with a lot of folks. But we cannot go back to the way things were before. We cannot have a committee called the Department of Homeland Security and not have anything that deals with homeland security. We have to have a committee on homeland security that has the ability to oversee what is going on and have more homeland security for our country.

The time is here. It seems logical that there will not be any votes tonight, but that is up to the leaders to announce. I repeat: This cannot go on forever. There has to come a time when people offer amendments. I hope that would happen before too long. We are here for business, Senator McConnell and I.

I suggest the absence of a quorum.