(Recasts, adds details from hearing) By Rachelle Younglai WASHINGTON, Oct 3 (Reuters) - A bill that would allow U.S. states to divest from companies doing business in Sudan could hurt international efforts to end the violence in war-torn Darfur, Bush administration officials told a Senate panel on Wednesday. The pending Senate bill aims to put economic pressure on Sudan to stop the violence in its western Darfur region, where an estimated 200,000 people have been killed since rebels took up arms against the government in 2003. Jendayi Frazer, assistant secretary of state for African affairs, said the Bush administration was confident its sanctions were working and warned against legislative measures that might undo progress. "We are concerned that some initiatives to increase economic pressure on Sudan will damage our relationship with our key partners rather than increase pressure in Khartoum," Frazer told the Senate Banking Committee hearing. But several senators voiced support for the bill and said they would work to get it passed. Democratic Sen. Robert Menendez of New Jersey said he did not "understand how the State Department can come before committee and say this is inappropriate." Sen. Sam Brownback of Kansas, a bill co-sponsor and Republican presidential candidate, said: "We have a responsibility to ensure that genocide does not continue on our watch or on our dime." In July, the House of Represenatives overwhelmingly passed a bill that would protect investment managers who pull money out of key sectors in Sudan from lawsuits from disgruntled investors. It also calls on the U.S. government to list companies whose business in Sudan supports "genocidal practices." The companion Senate bill would allow state or local governments to adopt measures to prohibit any investment of state assets in the Sudanese government or in any company with a qualifying business relationship with Sudan. That bill has yet to move out of the Senate Banking Committee, a crucial step in the legislative process. DIVESTMENT Adam Szubin, director of the Treasury's sanctions arm, the Office of Foreign Assets Control, said a list would by nature consist of foreign companies whose activities in Sudan were most likely legal in their home countries. "Such a list likely will be viewed by our allies as a U.S. government 'blacklist'... and therefore as an unwelcome effort by the United States to expand the scope of our sanctions," Szubin said in written testimony. "Such a list seriously risks alienating the very countries whose assistance we need to maintain and increase international pressure on the Bashir regime," he said. U.S. companies are generally prohibited from investing in and conducting business in Sudan without a license from OFAC. Creation of a list of companies would also impose ongoing burdens on the agency that would divert resources from other activities, Szubin said. Since 2005, 20 states have adopted Sudan divestment policies, according to the Sudan Divestment Task Force. Activists have pressured investors to divest their holdings in companies such as PetroChina Co Ltd <0857.HK>, whose parent company, China National Petroleum Corp, is helping Sudan drill for oil. Malaysia's state-owned Petronas [PETR.UL] and India's ONGC are also targets. (Additional reporting by David Lawder)
