WASHINGTON, D.C. -- Senate Democrats are expressing concern about a loophole in U.S. sanctions law that allows American companies to do business through their foreign subsidiaries with countries that the United States designates as state sponsors of terrorism.

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

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

Critics say it is convenient way for U.S. companies to circumvent sanctions.

Victor Comras, a retired U.S. career diplomat who is now a consultant on international trade embargoes, testified before a Senate Commerce subcommittee:

"Our own trade with Iran has grown considerably since President Clinton imposed trade sanctions in 1995 - from less than $500,000 in two-way trade in 1996 to over $242 million in 2006," said Victor Comras.

"In addition, foreign subsidiaries of some 35 different U.S. companies continue to remain active in Iran. This includes such companies as Halliburton, Baker-Hughes, Smith International and General Electric. They get around the sanctions because the regulatory guidelines here are quite murky."

A group of Senate Democrats has introduced legislation that would tighten sanctions law and deter subsidiaries of U.S.-controlled companies from doing business in Iran, which the United States has designated a key state sponsor of terrorism and believes is using its nuclear program to build a bomb.

Among the sponsors is Senator Byron Dorgan of North Dakota, who chairs the Senate panel:

"No more trading with the enemy," said Senator Dorgan.

"No more creating foreign subsidiaries for the purpose of engaging in business purposes of profit in the country of Iran."

Dorgan says he believes the pending legislation played a key role in Halliburton's recent announcement that it is ending its work in Iran.