August 18, 2004

Funding Terror

Here's an update on the situation involving the Tennessee Consolidated Retirement System and a think tank's effort to get public-employee pension funds to divest from companies that do business in terror-supporting countries such as Iran. As I reported here on Monday, the TCRS refused to provide the Center for Security Policy with its investment portfolio information - even though the information is supposed to be available to the public, and even though 87 of the nation's 100 largest public-employee pension funds provided the information.

I have asked the TCRS for a complete list of the pension fund's investment portfolio but have, as of Wednesday morning, received no response.

The TCRS, as I reported two days ago, has $9.4 billion of the pension funds of state employees and public school teachers invested in corporate bonds and stocks. But my initial math speculating on how much of that was invested in companies that do business in terror-supporting countries was incorrect.

Overall, the TCRS has a $19.1 billion investment portfolio - and also controls a $3.1 billion pension fund for Tennessee's political subdivisions (cities and counties). That's $22.2 billion in total public employee pension-fund investment in Tennessee. Of that, 10.95 billion is invested in corporate stocks and bonds.

The CSP found that, on average, the nation's 87 largest pension funds have between 15 and 23 percent of their total investment portfolio invested in companies that do business in terrorist-sponsoring states. If that's true for Tennessee, that means Tennessee taxpayers currently have between $3.3 and $5.1 billion invested in companies that do business in terror-supporting countries.

The CSP's 115-page report showing that 87 of the nation's largest public employee pension funds have a combined $188 billion invested in companies doing business in the terrorist-supporting nations of Iran, Libya, North Korea, Sudan, Syria, and Saddam-era Iraq, has received some press attention, with stories in the Los Angeles Times (which ran in several newspapers) and a surprisingly positive report from Reuters.

Closer to home, the report has not been widely publicized in the Tennessee media, nor has the TCRS's refusal to provide information about its investments. However, Frank Gaffney Jr., president of the Center for Security Policy, was yesterday to meet with local news media editors and reporters, including at The Tennessean, so perhaps that will change.

Slate, a popular Left-leaning online magazine, has attacked the CSP' study as a right-wing plot to attack foreign companies while protecting American corporate ne'er-do-wells like ... Halliburton. Ah, you knew that was coming, didn't you?

But the Reuters report I mentioned earlier noted that U.S. Sen. Frank Lautenberg, D-N.J., - not exactly a tool of the right wing cabal - recently sent a letter to the governors of all 50 states urging them to take a similar stand on terrorism-related investments that some state have taken with the prohibition of investing public pension funds in certain products, such as alcohol or tobacco.

Slate fails to mention Lautenberg's letter, and slams the CSP's report for naming only a dozen companies - all foreign - from the 400 or so that the CSP says are doing business in terror-supporting countries. It implies that this is a CSP plot to ignore "the most obvious targets," which, Slate says, are "American companies - including some with strong GOP ties such as Halliburton." To the Left, companies that support Republicans are "more obvious targets" than countries whose business deals indirectly support terrorists.

I read the CSP's report. Besides being shocked that officials with the Tennessee Consolidated Retirement System refused to provide the CSP information about the TCRS investment portfolio even though it is supposed to be public record, I also noticed that only foreign firms were mentioned. Here's why that is: The CSP listed the dozen companies with the most significant investments in terror-supporting countries, whether because of the size of the financial investment or because their business dealings involved the transfer of advanced technology, or other factors that makes their business dealings in terror-supporting countries the most problematic. They all happened to be foreign companies.

In the extended portion of this post, I've excerpted about one page of the CSP's 115-page report. The excerpt makes the case for why you should support pressuring your state's public-employee pension funds into divesting from companies that invest in terror.

It is indisputable that the regimes of terrorist-sponsoring states benefit enormously from foreign investment. Consequently, their attraction of such investment has been a priority over the past several years. For a number of these countries’ domestic industries – most notably the energy sectors – foreign investment has been the decisive factor in maintaining their economic vitality. Without the advanced equipment, technology, expertise and revenues provided by the world’s leading public companies, the economies of these countries would stagnate and probably collapse over time.

Indeed, this premise underpinned the passage of the Iran-Libya Sanctions Act of 1996, which sought to discourage business activities in the energy sectors of these countries in hopes of diminishing the capability of Tehran and Tripoli to sponsor terrorism and fund expensive WMD and ballistic missile programs.

According to former Clinton Under Secretary of State Peter Tarnoff: "A straight line links Iran's oil income and its ability to sponsor terrorism, build weapons of mass destruction, and acquire sophisticated armaments. Any government or private company that helps Iran to expand its oil must accept that it is contributing to this menace."

Libya offers a text-book example of the dependence of these countries on foreign capital. During the 1990s, Libya’s oil industry was largely paralyzed and overall government resources severely restricted by comprehensive UN and other sanctions. Eventually, economic pressures brought about what is said to be a dramatic course correction by Muammar Qaddafi involving unprecedented cooperation on a variety of security-related concerns. While the Libyan dictator was clearly concerned that the U.S.-led liberation of Iraq might have meant his regime would be the next to be "changed" by force of arms, another impetus behind this change was his need to reverse the country's dire economic condition which could also have impelled the collapse of Qaddafi’s misrule.

The Libyan case underscores the potentially powerful effect that publicly traded companies can have on the policies of rogue regimes. Indeed, the Center’s proposed divestment and investor activism campaign – DivestTerror.org – is based on a simple proposition: Were publiclytraded companies, as a result of investor pressure, to threaten to withdraw from terroristsponsoring states or to take such a step if necessary, other rogue states would be compelled to follow the Libya model of foreswearing dangerous policies in exchange for sustained economic viability.

Iran serves as another example. It reportedly seeks foreign investment of up to $5 billion per year to achieve its goal of doubling oil production by 2015. According to the Energy Information Agency of the U.S. Department of Energy: "Overall, Iran's oil sector is considered old and inefficient, needing thorough revamping, advanced technology, and foreign investment." Other countries, such as Syria and Sudan, also benefit enormously from the infusion of foreign capital and expertise coming from scores of international companies. These corporations are primarily publicly traded firms from Europe, Asia and even the United States. Indeed, there are some 400 publicly traded companies doing business in terrorist-sponsoring states, helping to develop and advance economies that would otherwise stagnate and decline. The alternative to these foreign concerns would be domestic, often state-owned, companies that are plagued with inefficiencies, corrupt business practices and an overall lack of advanced technological capability. In other words, without U.S. and foreign publicly traded companies, the economies of terror-sponsoring regimes would be severely afflicted. Under such circumstances, it seems reasonable to expect that their ability to pursue terrorist and other agendas hostile to this country would be significantly degraded, as well.