UPDATE

The United States Information Agency was disbanded in 1999. All of its functions were transferred to the Secretary of State. The Department of State has since established a Bureau of Public Diplomacy the mission of which is to disseminate propaganda in foreign countries, particularly Muslim nations.

This is the exact language in the law which governs dissemination of information within the United States:
"The Secretary is authorized, when he finds it appropriate, to provide for the preparation, and dissemination abroad, of information about the United States, its people, and its policies, through press, publications, radio, motion pictures, and other information media, and through information centers and instructors abroad. Subject to subsection (b) of this section, any such information (other than ''Problems of Communism'' and the ''English Teaching Forum'' which may be sold by the Government Printing Office) shall not be disseminated within the United States, its territories, or possessions, but, on request, shall be available in the English language at the Department of State, at all reasonable times following its release as information abroad, for examination only by representatives of United States press associations, newspapers, magazines, radio systems, and stations, and by research students and scholars, and, on request, shall be made available for examination only to Members of Congress. (b) Dissemination of information within United States

(1) The Director of the United States Information Agency shall make available to the Archivist of the United States, for domestic distribution, motion pictures, films, videotapes, and other material prepared for dissemination abroad 12 years after the initial dissemination of the material abroad or, in the case of such material not disseminated abroad, 12 years after the preparation of the material."

The reference in the United States Code is:
Title 22 Foreign Relations and Intercourse
Chapter 18 United States Information and Educational Exchange Programs
Subchapter 5 Dissemination Abroad of Information About The United States
Section 1461 General Authorization

End Update

Section 1461 of the Smith-Mundt Act specifically prohibits the United States Information Agency from disseminating any materials it has produced within the United States and its territories for a 12-year period. This act was passed as an amendment to the Freedom of Information Act, after Congress expressed concerns over "publicity." The USIA produces materials on the United States government, it's plans and activities, and the Congress does not want these potentially sensitive materials to be available to the American public until some time has passed. This ban on domestic distribution has since been reinforced several times by Congress. It was challenged by a group of journalists and researchers who were demanding access to a series of documents produced by the USIA. The District Court (in 1996) and the Appellate Court (in 1998) both ruled in favor of the USIA, further upholding the stipulations of Smith-Mundt. The case was Essential Information, Inc vs. United States Information Agency.