NTF Issue Paper:  legwatch28.doc.  6-03.
NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
SCRUTINIZING INVESTMENTS BY NEBRASKANS AND NEBRASKA.

BACKGROUND.  The Investor Responsibility Research Center in Washington, D.C. has compiled a list of about 375 American companies that engage in business dealings with nations sponsoring terrorism and/or owning weapons of mass destruction.  The U.S. State Dept. lists the following countries engaged in terrorism and/or involved in production of weapons of mass destruction: Iran, Libya, North Korea, Sudan, and Syria.  Many ITRRC-listed companies have fine commercial reputations.  However, several of their subsidiaries conduct business in terrorist nations.  The Global Security Risk Monitor Data Base identifies all companies operating in the above 5 countries.   

MAJOR U.S. COMPANIES.  Listed companies include ChevronTexaco, Conoco, Exxon, General Electric, Halliburton, Northrop, and Mobil.  It is legal for a foreign subsidiary of a U.S.-based firm to engage in commerce with terrorist states as long as no U.S. nationals are involved.  However, these American companies could evidence investment risk by losing their investments from war or facing media scrutiny because of suspect foreign holdings.1  Companies listing in U.S. capital markets do not have to disclose business operations in nations accused of terrorism but must notify investors of anything that would present a “material risk,” such as having a big plant or major supplier in a rogue nation that could become a target of U.S. attack or trade sanction.  Companies ignore such investor concerns at their peril.2   

FRENCH & FOREIGN COMPANIES.  Montana investment officials have joined masses of Americans in protesting against French opposition to the Persian Gulf War II and French military and economic aid to Saddam Hussein, by selling $14.9 million in investment in French companies.  Officials feared widespread American consumer backlash against French products.3  Mitsubishi is active in Iran, Australian Oil & Gas pumps oil in Libya, and PetroChina and Petronas of Malaysia develop oil resources in Sudan; all these companies intertwine with Nebraska investors.   

DANGER TO INVESTORS.  Some companies indirectly support terrorism by selling or manufacturing in terrorist states components that go into weapons of mass destruction or by providing foreign tax revenues to terrorist governments.4  Sophisticated technology and equipment, unknowing to companies involved, funnel from irresponsible governments to terrorists.  A subsidiary of GE sells locomotives to Syria and oil and gas equipment to Iran, component parts thereof used for lethal weapons.5  The Russian subsidiary of IBM moved its power computers to weapons manufacturing facilities in Iraq.  These companies may become increasingly liable to falling profits as nervous investors sell stocks as international tensions escalate and as American investors and investor groups rethink their investing criteria.  It appears immoral for Americans to invest in terrorist-sponsoring nations.  Our investors face severe risks, as firms that invest in governments that sponsor terrorism may see share values fall, official sanctions, divestment campaigns, negative media publicity, and military action that cripples their investments in these nations.  Stock prices can drastically fall because of legal actions taken, expropriation by host countries, or negative investor reaction to concealed company activities.  Canadian Talisman Energy has taken an adverse publicity hit because of its ties to Sudan, oil ventures that supply that government with a major source of revenue.  In 1997, our government imposed a ban on American companies trading with Sudan and froze all its assets here.  Talisman still has a line on our stock market listing, but a divestiture campaign by concerned citizens has shaved $10 off the company share price.  The German company Siemans, which has sold telecom materials, and Volvo, which sold trucks to Iraq, suffer investor attack.6  PetroCanada saw its corporate rating downgraded by Moody’s after its purchase of Veba Oil, which has large operations in Libya and Syria, thus raising the PetroCanada risk factor.  Over 400 companies help raise billions in revenues and introduce advanced, dual-use equipment and technology to governments that sponsor terrorism.  Investments in these companies, including several operating via overseas subsidiaries, help provide needed financial support for several of the worst tyrannies and most dangerous enemies of the U.S.7  Obvious and known or not, company products feed perverse uses.  During the Cold War, Toshiba sold machine tools to make washing machine blades, but the technology manufactured sub propellers.  The U.S. Navy  spent hundreds of millions for equipment to detect the quieter Soviet subs that prowled our waters.  Likewise, Exxon Mobil notes very small fuel and chemical sales to Syria and very small fuel and lube sales to Sudan.  These companies put profits before the Flag, citing compliance with U.S. laws.  Chevron Texaco proclaims that one of its joint ventures is not in North Korea, but this venture won a contract to deliver 22,000 metric tons of heavy oil to Pyongyang, its 26^th shipment, which fuels North Korea plants that manufacture plutonium.  Halliburton pled guilty in 1995 to criminal and civil charges that it violated our ban on exports to Libya and paid a $3.8 million fine.  The firm admitted that one of its units shipped 6 pulse-neutron generators in the late 1980s to Libya.  These generators, used in oil and gas exploration, also can help manufacture nuclear triggers.8  Companies in some portfolios are using foreign subsidiaries to legally evade U.S. sanctions against terror-sponsors, violating the spirit of the law.9 Some analysts already expect an exodus of U.S. investment in companies labeled as having dealings with targeted regimes, as angry investors vote with their dollars.  No fund manager wants to see himself in a news article reporting that his fund invests in companies that abet terrorism. 

DANGER TO STATES.  Large public pension funds in many states are examining this problem, reviewing their investment portfolios, and requesting guidance from the federal government about firms that D.C. considers national security risks.  State treasurers are anxious to identify companies that are potential investment risks because of engaging in commerce with nations that support terrorism.  State investment authorities manage retirement and other funds to maximize returns and implement fiduciary responsibilities to fund members.  They have an obligation to evaluate their investment portfolios for risk.10  As the Iraq war loomed, many cities and states took steps to ensure that their pension fund investments would not suffer from involvement with terrorism.11  The Arizona State Treasurer speaks about the loss of value in the trillions for vulnerable retirement funds.12 

NE RETIREMENT SYSTEM.  NE public employees unwittingly have their retirement funds invested in dozens of companies that have partnered with terrorist governments.  In the NE Retirement Systems Asset Allocation as of December, 2002, ChevronTexaco stood out as 1 of the 10 worst performers, with –3% rate of return.  Among the 10 largest holdings were GE Co. and Exxon Mobil Corp.  Among fixed income holdings were Conoco, France Telecom and Talisman Energy Inc. (Canada).  One fund, Alliance Capital, has 7.78% of its total market value portfolio in French companies, like Total Fina, Peugeot, Renault, and Michelin.  Total Fina leads a consortium holding a $2 billion contract to develop offshore natural gas fields for Iran, which spends profits from gas sales on long-range missiles that can target Israel and Europe.  Other shares are in Mitsubishi Corp. and Royal Dutch Petroleum, both with extensive holdings in terrorist-sponsor states.  Rowe Price-Fleming, another fund, has 13.77% of its market value portfolio in French companies.13  Total Fina leads a consortium holding a $2 billion contract to develop offshore natural gas fields for Iran, which spends profits from gas sales on long-range missiles that threaten Israel and Europe. 

TIT FOR TAT.  Muslim consumers in the Middle East have shown a large decline in purchasing of American products and services.  1 of 7 Saudis would not buy an American car.  McDonalds, Coke, and Proctor & Gamble see severe slippage in Arab area sales.  Saudi, Libyan, Egyptian, and Jordanian governments offer covert help in boycotts of American products.14  More reasons to NOT help their economies! 

CONGRESSIONAL ACTION.  One Senate bill would require U.S. intelligence agencies to investigate if companies  raising $$ in American capital markets are involved in proliferation of weapons of mass destruction (H.J.Res 2).  Sen. Robert Byrd (D.-W.VA.) introduced a bill amendment to require companies seeking access to U.S. capital markets to publicly disclose financial dealings of $100,000 or more with nations that sponsor terrorism.   

WHAT YOU CAN DO.  Urge both NE senators to support the 2 bills above.  NE should follow the lead of increasing numbers of states that divest themselves from companies doing business with terrorist nations.  Urge your state senator to pass legislation structured to include a staggered dividend schedule and other measures to guarantee the continue profitability of state retirement systems.  Urge your state senator to request the State Investment Council to ascertain if its funds hold investments in such companies and to implement investment policies to evaluate all risks associated with investments in firms that have known ties to terrorist nations.  Require fund managers to certify that they screen listed companies for ties to terrorist-sponsoring countries.15  Request a profile of each company activities in every terrorist-sponsoring nation, available financial information about each firm contributions to the national government, such as taxes or royalties, and steps established by each company to insure that revenues generated by its operations do not sponsor terrorism by such governments or the development or purchase of weapons of mass destruction.  Require knowledge of steps taken by each company to ensure that advanced technologies, equipment, and facilities introduced or developed by a company do not go to non-civilian uses.  Demand alternative investment strategies and their impact on the invested monies and how the portfolio might alter to exclude companies with commercial ties to terrorist-sponsors, without damaging the profitability of state assets.  This rationale comes from the renowned Claremont Institute, a California public policy research body, which discovered that over 400 firms that trade stock (many owned by public pension systems) help generate billions in revenues and offer advanced, dual-use equipment and technology to terrorist-sponsoring nations.  Our investments in these nations pose great financial risks to the value of NE and other state pension funds.16  If we stop providing money to companies through our investments, they must choose between stock values and continued schmoozing with terrorist-sponsor states.   

CONCLUSION.  We must wage and win the economic war on terrorism, making it prohibitively expensive for terror groups to engage in business, and ending their ability to launder money and mix their activities with legitimate businesses.  

SOURCES:
The Claremont Institute, www.claremont.org.
Global Security Risk Monitor.
Investor Responsibility Research Center.
Conflict Securities Advisory Group, Inc. Phone: (202) 223-8034.  www.conflictsecurities.com.
Congressional Bills and Resolutions.  See www.thomasloc.gov.

Research and documentation for this issue paper done by members of Nebraska Taxpayers for Freedom.  This issue paper copyrighted by NTF, with express prior permission granted for its use by Taxwatchers, Inc., Citizens for Local Control, Cherry County Taxpayers, Dawes County Taxpayers, and other groups in the Tax Freedom Network.   6-03    C