Tag Archives: Divest Terror/Terror-Free Investing

Senator Thompson Offers Leadership On The National Security Dimensions Of The U.S. Capital Markets

(Washington, D.C.): In a stirring speech to a high level gathering of policy
practitioners and
media representatives at the Heritage Foundation on 3 March, Senator Fred Thompson joined the
swelling ranks of those on Capital Hill and elsewhere who demanding answers to questions the
Casey Institute has posed over the past four years: What are the true identities and activities of
foreign firms seeking large-scale U.S. investment dollars and how are those funds to be used?
Indeed, building on the growing firestorm of national security- and human rights- related
controversy surrounding PetroChina’s bid to raise as much as $5-7 billion through an initial
public offering on the New York Stock Exchange, Senator Thompson broadened the scope of
this controversy to include a visionary look ahead at the funding efforts of known and suspected
proliferators and other security-relevant violators worldwide. Among the Senator’s important
remarks were the following:

  • “[A]nother intriguing idea was implicit in some of the finding of the Cox Committee and
    the
    Deutch Commission. The Cox Committee reported that “the (PRC) is using capital markets
    as source of central government funding for military and commercial development.”
  • “According to recent estimates , the PRC is presently involved in U.S. bond markets to the
    tune of approximately $14.5 billion. I believe that this may be an economic lever that could
    be used. We already know that we are financing some bad actors, including a notorious PRC
    arms dealer. In fact, the PRC, itself, is the largest Chinese borrower of dollars in the United
    States — some $3.2 billion in sovereign bond offerings. We have no idea what these funds
    were used for.”
  • “That is why we should also pass legislation which brings greater
    transparency to all
    foreign companies that use our markets. The SEC provides little information on these
    companies now, many of whom, in the case of China, are front companies. We need to
    require more detailed information in prospectuses regarding the specific identity and
    activities of foreign government related firms applying for entry into our capital
    markets.    “
  • “This would giver pension fund managers something to look to in order for them to develop
    their own national security criteria for investments. This would also give Congress, as part of
    an annual review, a mechanism whereby companies, or even countries, who engage in
    proliferation activities are denied access to our debt and equity markets.”
  • “This is leverage. Perhaps enough to cause China to reconsider some of
    those nuclear
    missile sales.    “

In addition to providing critical insight with respect to Senator Thompson’s
ground-breaking
pronouncements, the attached Wall Street Journal-Asia piece by Eduardo Lachica
helps break
the code on prospective links between China’s proliferation and funding activities and the
granting of permanent NTR status for that country.

Wall Street Journal Asia, 6 March 2000

China’s Conduct Is Hurting Vote In U.S. On Trade

By Eduardo Lachica

Congressional anger over China’s recent saber-rattling and arms-dealing is starting to hurt its
trade and financial prospects in the U.S.

At immediate risk is a congressional vote that would permanently grant Chinese products
low-tariff treatment, or PNTR status, just before its entry into the World Trade Organization. A
Reuters poll taken last week shortly after China renewed its threat to reclaim Taiwan by force
showed the normally free trade-leaning U.S. Senate supporting China’s PNTR status by only the
slimmest of margins.

Sen. Daniel Patrick Moynihan and other members of the Senate Finance Committee warned
that
the vote could be lost unless China reins in its truculent rhetoric and the Clinton administration
does a better job of rounding up votes in the House of Representatives.

More Opponents

House Minority Whip David Bonior counted 199 House members opposed to the bill — 19
short
of what’s needed to defeat it, but a lot more than earlier votes cast against China’s trade benefits.

Even if PNTR eventually passes, the backlash could still hurt China over the longer haul if
the
Senate succeeds in attaching national-security amendments to the bill. Sen. Fred Thompson, the
chairman of the Senate Governmental Affairs committee, said these amendments could
incorporate some elements of the Taiwan Security Enhancement Act, which the House passed by
a veto-proof margin earlier this year. Beijing strongly objects to that measure’s provision for
closer U.S.-Taiwanese defense coordination.

The Chinese may have assumed they have a “locked deal” with the Clinton administration on
PNTR since “they show no hesitancy in threatening to invade Taiwan, embarrassing our
high-level delegation and reminding us of their ability to lob an ICBM (intercontinental ballistic
missile) onto one of our cities – all practically on the eve of PNTR consideration,” Sen.
Thompson said at a briefing Friday.

The Tennessee Republican was referring to the release of a Chinese white paper on Taiwan
shortly after a visit by U.S. Deputy Secretary of State Strobe Talbott and the publication in the
Chinese press of a possible retaliatory Chinese missile strike if the U.S. were to intervene in a
Taiwan conflict.

Link to Fund Raising?

Sen. Thompson also may tie the PNTR bill to legislation requiring greater transparency for
stock
and bond offerings by Chinese and other foreign government-owned enterprises. Noting a plan
by PetroChina Co., a China National Petroleum Corp. subsidiary, to raise capital in the U.S., he
said Congress needs a mechanism that could deny “bad actors” access to the U.S. debt and equity
markets.

A number of other congressional critics are likely to oppose PetroChina’s initial public
offering
unless it can be shown that the proceeds aren’t used to prolong a civil war in Sudan or unfairly
exploit Tibet’s natural resources.

The senator said that selective capital denial may be just the right “leverage” to cause China
to
back away from its practice of selling missile technology to rogue states like Iran and Iraq. Sen.
Thompson is attracted to that formula because it could inflict pain on the intended target without
the collateral damage to U.S. importers that high tariffs would cause. The legislator also
announced his intention to toughen U.S. export-control rules so that further transfers of U.S.
missile-launching knowhow to China can be averted.

The reaction to the latest display of Chinese belligerence also spilled over into the U.S.
presidential campaign. During their Los Angeles debate last week, Republican candidates George
W. Bush and Sen. John McCain echoed the Clinton administration’s warnings against any hostile
action against Taiwan. But they stopped short of endorsing Taiwan’s request for U.S.-supplied
antimissile defense systems.

Such a transfer should be made “after a careful assessment by the Department of Defense and
the
State Department – as has been our tradition in the past,” Mr. McCain said. But he also vowed, if
elected, to develop sea-based missile defenses that can deployed in such a way as to convince the
Chinese that “the consequences of aggression against Taiwan far, far exceed anything they might
gain from committing that aggression.”

USA Today Op.Ed. Underscores Need for National Security-Minded ‘Due Diligence’ in Purchasing Foreign Securities

(Washington, D.C.): On 7 February, USA Today published a wake-up call to
the American
people by Peter Schweizer (see attached), a research fellow at the
Hoover Institution: The U.S.
capital markets are being targeted for penetration by global “bad actors” seeking access to
millions — if not billions — of dollars that can, due to the largely undisciplined nature of such
foreign stock and bond offerings, translate into the underwriting of activities that affront
American moral values, respect for religious freedoms and/or national security interests.

CalPERS — A Case Study

As the Schweizer article indicates, thanks in part to the work of the William J. Casey
Institute,
there is fortunately growing pressure on the U.S. financial community to expand “due
diligence” assessments of foreign equity and debt offerings to include national security and
human rights considerations. The state of California — and in particular its public
employees
retirement system (CalPERS) — has emerged as a case study of what can go wrong in the absence
of security-minded evaluations performed by pension funds and their so-called “external fund
managers.”

Specifically, the costs associated with international portfolio managers ignoring these
concerns
are rising as a result of divestment campaigns, delays in bringing initial public offerings (IPO’s)
to market and new scrutiny by the Securities and Exchange Commission and the New York
Stock Exchange. In the case of CalPERS, at least, such present problems — and perhaps the
future prospect of security-related sanctions being taken against select foreign firms — is
evidently beginning to translate into investors declining to subscribe to such offerings.

According to an article published in yesterdays’ Wall Street Journal Asia by
Peter Wanacott and
Eduardo Lachica, entitled “Protest, Regulatory Review Hamper Planned Stock Listing of
PetroChina”:

After asking its investment advisers what they thought of investing in PetroChina, CalPERS
told
the California legislature’s audit committee that most “generally indicate that the company will
not be considered as part of their investment strategy.” One of Calpers’s managers, Nomura
Asset Management, said it wouldn’t invest in PetroChina because its parent company, China
National Petroleum Corp., or CNPC, is involved in a politically sensitive project in Sudan.

The Bottom Line

California State Treasurer Philip Angelides and his staff and the
California legislature (in
particular, that body’s Joint Legislative Audit Committee) are to be
commended for the
concern they have begun to express about taking national security and other appropriate
non-financial considerations into account in CalPERS investment decision-making.
Their actions
are creating a potential template for a more comprehensive and voluntary approach to
“due diligence” on the part of other publically-managed pension funds, as well as private
and institutional portfolio managers.

Clinton Legacy Watch # 44 : A Lot is ‘Going South’ South of the Border

(Washington, D.C.): “What the President
meant to say is….” Any seasoned bureaucrat has had
to employ a variation on this theme from time to time. Usually, the reason is because the
occupant of the Oval Office has misspoken in some minor way, deviating unintentionally from
the government’s chosen line on a point of policy.

Who Will Be ‘Running the Canal’?

Rarely — if ever — however, have all the President’s flacks and all the President’s bureaucrats
had such a monumental challenge as the Clinton spinmeisters now face in walking-back a
statement the Commander-in-Chief made last week concerning Communist China and the
Panama Canal. On November 30, Mr. Clinton dismissed concerns about a Chinese company’s
acquisition of ports at both ends of the strategic waterway saying, “I think the Chinese
will in
fact be bending over backwards to make sure that they run it in a competent and able and
fair manner….I would be very surprised if any adverse consequences flowed from the
Chinese running the Canal.”

The problem for Mr. Clinton is that this is no small mistake in which he innocently
substituted
“the Chinese [will be] running the Canal” when he really meant to say they will run two ports.
The President is, after all, on record as a great admirer of how well the Chinese run strategically
located ports. He personally held four meetings to try to help secure port facilities for COSCO,
the PRC’s merchant marine, at the former U.S. Navy base at Long Beach.

Indeed, the problem is not simply that it is the Panamanians who are supposed to be
“running” the Canal after next week’s hand-over ceremony. Rather, it is that
Mr. Clinton’s
remarks, as delivered in all their insouciance, are entirely consistent with his well-documented,
“see-no-evil” attitude towards Communist China in particular and, more
generally, toward the unraveling security situation in much of the Western hemisphere — to
which Beijing is significantly contributing.

With regard to the former, a President who has authorized the sale to China of an array of
militarily relevant technologies (for example, supercomputers, jet engine hot sections,
sophisticated machine tools and fiber optic telecommunications gear) and failed to respond
vigorously to the PRC’s theft or diversion of others (notably, ballistic missile- and nuclear
warhead-related know-how and equipment) is perfectly capable of viewing with equanimity the
prospect that the Chinese will fill the vacuum of power we are creating with our withdrawal from
Panama.

‘Going South’

Worse yet, Mr. Clinton has been Neroesque in his attitude towards ominous developments in
Latin America and the Caribbean — and the Chinese role in exacerbating, or at least taking
advantage of, them. Consider a few of the things “going south” south of the border:

  • Colombia is in the throes of civil war, a war in which it seems likely the
    axis between drug
    traffickers and Marxist revolutionaries will at a minimum achieve the country’s de
    facto
    partition, if not the overthrow of its democratically elected government. Interestingly,
    Colombia’s revolutionary organization known as the FARC is said to be seeking Chinese
    permission to open a liaison office in Beijing.
  • Since neighboring Panama has no armed forces, Colombian money
    launderers, drug-smugglers, guerrillas and others operate from and through its territory with
    impunity. This
    greatly exacerbates the climate of corruption that is rampant in Panama (and much of the rest
    of the region), making especially problematic the prospects for stability so critical to the
    Canal’s reliable operations once the U.S. presence comes to an end.
  • Colombia’s neighbor to the east, Venezuela, is undergoing its own
    momentous political
    transformation at the hands of its new president, Hugo Chavez. The
    implications if the
    United States’ largest source of foreign oil were to adopt a constitution that greatly
    consolidates power in Chavez’s hands, at the expense of pluralistic democratic institutions,
    are likely to be all the more serious in light of his travels. During recent state visits to China
    and Cuba, Chavez announced respectively his admiration for and his intention to
    emulate Mao’s and Castro’s revolutions.

    It is worth noting that both energy-starved Beijing and economically destitute Havana
    have a keen interest in exploiting Venezuela’s oil resources and/or wealth. Both
    would be especially pleased to do so at American expense. It is no accident then that
    the huge, state-owned China National Petroleum Corporation (CNPC) is
    making a
    play for Venezuelan oil (even as it is seeking to exploit reserves in Sudan and Iraq).
    And one can only assume that Fidel and his Chinese friends are delighted at Chavez’s
    declared intention to nationalize foreign oil companies’ holdings in Venezuela.

  • Ecuador, which also shares a porous border with Colombia, is in the throes of an
    economic
    meltdown. When Quito recently defaulted on bonds bearing the name of the man who
    engineered an earlier bail-out — then-U.S. Treasury Secretary Nicholas Brady — the Clinton
    Administration, in its wisdom, decided to make an example of Ecuador. Evidently, because
    they lacked nuclear weapons and/or major sponsors among multinational corporations, the
    Ecuadorans have been denied the sort of emergency interventions that countries like Russia,
    Mexico and Indonesia have received. Meanwhile, thanks to improving military-to-military
    ties with China, the U.S.-trained and -equipped Ecuadoran military are providing “aggressor”
    units to help teach the People’s Liberation Army how to defeat our armed forces.
  • The eased — and increasingly unpoliced — access to the United States’ market and territory
    afforded by NAFTA is making Mexico once again a transhipment point of
    choice for
    Colombian cocaine and heroin and Chinese and others’ alien-smuggling operations. Systemic
    corruption, rampant poverty and growing popular anger at the political elite may mean
    Mexico is approaching a pre-revolutionary situation.
  • President Clinton’s hapless efforts to prevent Puerto Rican displeasure at
    the U.S. military’s
    use of the vital Vieques live-fire training range from harming the campaigns
    being waged by
    his wife and Vice President Gore is giving rise to the worst of both worlds: Navy and
    Marine battle groups unprepared for combat operations and increasingly expensive
    bribes for unappeasable separatists.

The Bottom Line

The reality is that these and other cancerous situations in our backyard have gone largely
unaddressed while they metastasized on the Clinton-Gore Administration’s watch. The
squandered opportunity for democratic consolidation and free market economic growth in
the Western hemisphere will be among the most malevolent aspects of the Clinton legacy —
a legacy made all the more reprehensible for Mr. Clinton neither meaning nor saying
that
he stands by the Monroe Doctrine when it comes to Chinese penetration of our
neighborhood.

WTO: Life Support for Communist China?

By Frank J. Gaffney, Jr.
Investor’s Business Daily, 01 December 1999

The new trade round being launched in Seattle will also inaugurate a campaign featuring
news
reports, editorial columns and advertisements in favor of making communist China a member of
the World Trade Organization.

This campaign will likely reach a crescendo next spring, when Congress will be asked to
clear
the way for such membership by abandoning annual consideration of Most Favored Nation status
for the People’s Republic of China in favor of a permanent grant of Normal Trade Relations.

While many claims will be made about the benefits of such an arrangement to this country’s
economy and businesses, the ultimate success of the effort to sell the American legislature on
China’s accession to the WTO will probably turn on a different contention.

Proponents will likely argue that, by agreeing to open its economy to foreign imports and
partial
ownership according to the WTO’s rules, the PRC will begin to be transformed into a genuinely
free market and ultimately a democratic society.

What happens, though, if no such change can be assured? More to the point, what would be
the
strategic implications if it will not happen in the near to medium term, even if American and
other Western business dealings and investment might encourage political as well as economic
liberalization in China over the longer term?

Indeed, China’s communist rulers may have made just such a calculation. They appear to
have
decided – or feel they have no choice but – to take their chances on the more distant future as long
as they are able to secure the life support the regime needs to survive more immediate, and
growing, challenges to its legitimacy and control.

In fact, there are signs the hardliners are ascendant in Beijing. They’re men perfectly capable
of
making whatever promises are necessary to secure international financial assistance today, but
determined tomorrow to use violence or any other means necessary to perpetuate their power.

Unfortunately, the PRC’s entry into the WTO could greatly facilitate this sort of
bait-and-switch
scheme. For example, with American and other foreign businesses being encouraged to make
ever-larger investments there, the U.S. capital markets are likely to experience huge new
demands for China-related projects and so-called general-purpose financing.

If we are not careful, American pension funds, life insurance portfolios, mutual funds and
institutional and private stock and bond holders could unknowingly become subsidizers of
Chinese government repression and some of its more ominous global activities.

For example, as former Reagan NSC economist Roger Robinson has documented, companies
with ties to the Chinese government and its People’s Liberation Army have already raised
billions of dollars in the American financial markets.

And now, according to Robinson – a past vice president at Chase Manhattan Bank who
currently
chairs the Center for Security Policy’s William J. Casey Institute – one such company, the
Chinese National Petroleum Corporation (CNPC) is poised to launch an initial public offering in
New York that is expected to be valued at between $5 billion and $10 billion. If this transaction
materializes, it would be one of the largest IPO’s in New York Stock Exchange history.

The proceeds would be used in part to support CNPC’s global exploration and exploitation
activities. Given the ties the company its government have been forging with oil-rich states like
Sudan, Iraq and Iran, American investors would, as a practical matter, be facilitating infusions of
hard currency not only into the PRC’s coffers, but into those of some of the world’s most
dangerous nations as well.

That, in turn, would translate into additional resources with which those rogue states can
support
their domestic repression. The cash infusion could let those countries buy components for
weapons of mass destruction, ballistic missiles and other lethal capabilities from Beijing. The
effect would be to greatly compound the threats facing the U.S. and its allies.

To be sure, the U.S. has a powerful stake in seeing communist China transformed into a
peaceable, law-abiding and free-trading nation.

America’s vital interests will suffer gravely if, in the name of accomplishing such a
fundamental
transformation, it engages in undisciplined trade and financial ties with the PRC.

These ties could actually wind up perpetuating a regime in China unwilling genuinely to
open its
markets and bent on military and international activities highly inimical to U.S. security.

Frank J. Gaffney, Jr. held senior positions in the Reagan Defense Department. He is
president
of the Center for Security Policy in Washington, D.C.

Lessons of Seattle: Greater Transparency, Representation Must Apply to Global Finance, as Well as Global Trade

(Washington, D.C.): As the dust — and ashes — settle on the World Trade Organization
meetings
and associated demonstrations in Seattle, two major outcomes are already evident: First, the
secretive, “back-room” nature of the deliberations that have attended the WTO’s operations and
its conflict resolution panels to date is politically insupportable. And second, organized labor
and environmental groups will have to be accommodated — presumably by including their
representatives in working groups or other mechanisms, lest there be a repetition of the “recent
unpleasantness.” In other words, there will have to be greater transparency and
inclusiveness
with respect to international decisions affecting global trade if the WTO is to remain
viable.

What is Missing from this Picture?

Amazingly, the other side of the ledger — global finance — continues to be, in a
troubling
number of cases, a “black box” operation, however. There is, at times, little genuine
transparency with respect to the true identity of certain foreign market entrants or their
subsidiaries and affiliates, not to mention where the funds raised via equity and debt offerings on
the U.S. capital markets are going and to what use they will be put.

As a result, the world’s ever-more sophisticated “bad actors” — including those involved in
proliferation, technology theft, espionage, organized crime, arms smuggling,
terrorist-sponsorship, threatening military modernization programs, etc. — are directly or
indirectly
coming to market with anodyne prospectuses promoted by prestigious investment banks. Today,
the holdings of U.S. public and private pension funds, insurance companies, mutual
funds
and corporate and private portfolios include billions of dollars worth of stocks and bonds
issued by dubious entities.

Don’t Tell, Don’t Ask

Incredible as it may seem, as the congressionally-mandated, blue-ribbon commission chaired
by
former CIA Director John Deutch documented, there is virtually no
national security-minded
due diligence being performed by either investment banks or fund managers involved in
the
purchase of these instruments:

Because there is currently no national security-based review of entities seeking to
gain
access to our capital markets, investors are unlikely to know that they may be assisting in
the
proliferation of weapons of mass destruction by providing funds to known
proliferators. Aside
from the moral implications, there are potential financial consequences of proliferation activity —
such as the possible imposition of trade and financial sanctions — which could negatively impact
investors. (Emphasis added.)

To be sure, market analysts do not lack the expertise to perform the necessary economic and
financial evaluations. The problem is that they have, until now, seemingly failed to grasp the
fact that governments and companies of concern to the United States from a defense and foreign
policy perspective are increasingly cloaking themselves as benign commercial/civilian
enterprises, only too delighted to find that they can get away with exchanging paper
promises to
repay (in the case of bonds) or to provide return on investments (in the case of equity offerings)
for hundreds of millions, or even billions of dollars.

A case in point is China International Trust and Investment Corporation (CITIC),
whose
chairman, Wang Jun, is one of China’s most notorious arms-dealers. He cannot
even secure
a visa to enter the United States because of his alleged involvement in the effort to
smuggle
automatic weapons to West Coast street gangs and his role in the illegal campaign finance
scandal. Yet, Wang’s company has thus far attracted some $800 million in
dollar-denominated bonds, primarily from U.S. investors.

For their part, many of the leading pension funds in this country — such as the
California Public
Employees Retirement System (CALPers), the Texas Teachers Retirement
Sytem, the TIAA-CREF educators’ pension fund — as well as other
fund managers seem disposed automatically
to take into their portfolios the “emerging market” and “global growth” entities served up by
New York’s premier investment houses. They, too, have apparently failed to appreciate the risks
of doing so either to the country or to those to whom they have fiduciary responsibilities.

‘Nobody Here But Us Financial Types’

Obviously, matters are made worse by the systemic failure of the global financial
community to include — or at least give due weight to — the views and counsel of
national
security experts, as well as those of proponents of human rights and international religious
freedom, as part of overall “due diligence” assessments. In the absence of such inputs,
it is a
safe bet that more billions of dollars will continue to hemorrhage from unwitting American
investors to individuals, enterprises and governments whose activities are inimical to our nation’s
interests and anathema to our values.

The Bottom Line

The ferment that has been engendered by the WTO’s high-handed and insular deliberations
and
decisions must not only catalyze constructive changes in the way global trade matters are
addressed. 1 It must also translate into a new
transparency and inclusiveness on the part of
the global financial community, encompassing far greater information about the true
identity of foreign borrowers and equity issuers and the end-use of funds they raise in our
financial markets.

The latter corrections can, and must, be accomplished without impeding the free flow of
capital
into and out of the United States or precipitating undue government intervention in our highly
successful — and delicate — markets. That said, the consequences of a failure to address, through
greater transparency and disclosure, the national security and human rights implications of
problematic, undisciplined financial transactions could make the “battle in Seattle” appear trivial
by comparison. 2

1 It is important that they are addressed, moreover, in a manner
consistent with and reinforcing
of U.S. sovereignty and democratic institutions. Under no circumstances should the actions of
anarchists, extremist environmentalists and others be permitted to translate into advances in the
utopian, so-called “One World” or “civil society” agenda. Creating global government to
monitor and regulate global trade is a formula for unacceptably compromising America’s
liberties and independence — and, ultimately, its economic dynamism.

2 In this connection, see the href=”index.jsp?section=papers&code=99-C_139at”>attached article by Center for Security Policy President Frank J.
Gaffney, Jr. which appeared in yesterday’s Investors’ Business Daily.

Clinton Lets Trade Trump Security, Again

(Washington, D.C.): The World Trade Organization meeting that opens tomorrow in Seattle
will
provide an unparalleled backdrop for demonstrations by those around the country worried about
the Clinton-Gore Administration’s proclivity to put trade above every other national interest.
Interestingly, there is one group whose equities have been perhaps even more seriously afflicted
by this practice than have those of the voluble labor union operatives, environmentalists, human
rights organizations, AIDS activists and opponents of world government — namely, the
national
security community.

Just how grievously America’s defense posture has suffered at the hands of the trade
uber alles
crowd has been obscured by other manifestations of the “hollowing out” to which the U.S.
military has been deliberately subjected over the past seven years. It is far easier to see, for
example, the devastating effects being wrought by the combination of: sustained
over-commitment of the armed forces’ personnel and assets on innumerable peacekeeping,
humanitarian and other assignments; inadequate force structure and recapitalization; and
plummeting morale.

Decimating the Nation’s ‘Qualitative Edge’

It could be argued, however, that even more serious damage has been done to our armed
forces’
“qualitative edge” — the decisive advantage in technology that has in the past permitted
numerically inferior American units to dominate the battlefield and accomplish their mission
with minimal casualties. That advantage has been compromised by Mr. Clinton’s single-minded
determination to curry favor with deep-pocketed U.S. exporters and/or foreign governments by
selling Communist China or other potential adversaries militarily relevant equipment and
manufacturing know-how. The latter include, for example: supercomputers, advanced machine
tools, fiber optic and other sophisticated telecommunications gear, jet engine hot sections, rocket
propulsion and guidance components, “stealth” technology, to name a few.

There is no indication that the Defense Department is properly addressing the prospective
costs
to the United States associated with these transactions. These can be huge. Consider the case
nearly two decades ago of the Soviet Union’s illegal acquisition of tools needed to produce very
quiet submarine propellers. For an expenditure of roughly $40 million, the Kremlin was able to
degrade dramatically the U.S. Navy’s acoustic anti-submarine warfare (ASW) techniques. At the
time, it was conservatively estimated that restoring the Nation’s previous advantage in ASW
would require an investment of over $1 billion. No one has proposed adding many times that
amount to the Pentagon’s budget to help preserve or restore America’s qualitative edge in the
wake of more recent — and Clinton-approved — technology transfers.

Worse yet, the ultimate costs of the Administration’s ill-advised dual-use exports will
probably
be measured in a currency we hold still more dear: the lives of American servicemen and
women.
This is especially true since the Administration has all-but-liquidated America’s mechanisms for
controlling overseas sales of such technologies. The House select committee chaired by
Rep.
Chris Cox (R-CA) underscored this point recently in connection with Chinese
technology theft,
diversion and above-board acquisition efforts — using words that could apply equally well to
other potential foes:

    United States and international export control policies and practices have facilitated
    the People’s Republic of China’s efforts to obtain militarily useful technology. Recent
    changes in international domestic export control regimes have reduced the ability to
    control transfers of [such] technology. The dissolution of the Coordinating Committee
    on Multilateral Export Controls (COCOM) in 1994 left the United States without an
    effective, multilateral means to control exports of militarily useful goods and
    technology.

Interring D.T.S.A.

Unfortunately, the Clinton-Gore team has compounded its folly in dismantling COCOM by
waging war on the Defense Technology Security Administration (DTSA).
The fact that this
Pentagon agency played a pivotal role in winning the Cold War by impeding Soviet efforts to
acquire Western dual-use equipment and know-how apparently earned it the abiding enmity of a
number of Mr. Clinton’s political appointees. From the get-go, they have employed one
bureaucratic instrument after another to ravage DTSA — taking job actions against and otherwise
harassing some of the organization’s most savvy and effective analysts; cutting back on of
DTSA’s resources; and reducing its role and clout in interagency decision-making on
controversial export licenses. 1

Not content with hamstringing DTSA in these ways, Deputy Secretary of Defense John
Hamre
further weakened the agency’s critical sense of mission — and its ability to carry it out — by
imbedding this export control unit into a newly created entity with the catch-all responsibility for
“threat reduction.” The effect has been to add layers of bureaucracy, compounding the
Administration’s already considerable impediments to having key licensing actions informed by
national security-minded expertise.

Now, Hamre wants to banish this unwieldy and incoherent Threat Reduction Agency to
“temporary” and other structures at Fort Belvoir, an Army base sufficiently removed from
Washington effectively to preclude DTSA experts’ participation in day-to-day deliberations
about technology transfers. The plan calls for completing this kiss-of-death “consolidation and
relocation” by August, just before next fall’s election, thus presenting a new President who may
take a more responsible view of export controls on strategic technologies with a fait accompli.

The Bottom Line

The United States cannot afford to wait for another, more responsible administration to come
to
town to begin correcting some of the damage done by the Clinton Administration’s misfeasance,
if not outright malfeasance, with respect to the export of strategic technologies. Unfortunately,
unlike efforts to correct the underfunding of the military or its over-utilization for non-combat
purposes, it may prove not just costly but exceedingly difficult fully to redress the military
repercussions of having allowed such technologies out of the proverbial barn.

We must nonetheless start at once with a wholesale reexamination of the premises and
repercussions of the Clinton approach to exporting dual-use equipment and know-how. At the
very least, the Defense Technology Security Administration must be rehabilitated and given once
again a real say in decisions about strategically sensitive licenses. This will require, among other
things, that DTSA remain a force to be reckoned with in Washington — not a spent force
consigned to the bureaucratic equivalent of Siberia.

1See the Center’s Decision Brief entitled
Profile in Courage: Mike Maloof Speaks Truth to
Power about Clinton’s Dangerous Tech Transfers to China ( href=”index.jsp?section=papers&code=98-D_192″>No. 98-D 192, 30 November
1998); Broadening the Lens: Peter Leitner’s Revelations on ’60 Minutes,’ Capitol
Hill Indict
Clinton Technology Insecurity (No. 98-D
101, 6 June 1998); and Profile In Courage: Peter
Leitner Blows The Whistle On Clinton’s Dangerous Export Decontrol Policies
(No. 97-P 82,
19 June 1997).

Message to Wall Street and Pennsylvania Avenue: Bank of New York’s Russian Debacle is but a Symptom of a Larger Problem

(Washington, D.C.): With breath-taking speed, the scandal described by the New York
Times as
“one of the biggest money-laundering operations ever unearthed in the United States” is
expanding with implications for the future position of a major U.S. commercial bank, the
presidential election prospects of Vice President Al Gore and the Kremlin’s
relationships with
the United States, the International Monetary Fund and other benefactors.

The Clinton Administration is in a desperate damage-control mode. Yesterday,
Treasury
Secretary Lawrence Summers was reduced, it seems, to echoing House Banking
Committee
Chairman Jim Leach’s (R-IA) recent admonition that the U.S. should not support future IMF
disbursements to Russia “without adequate safeguards to assure that any funds disbursed are
used properly (and) without adequate accounting for the previous use of funds.” The question
now is: Will the next shoe to drop, in the absence of these and other “safeguards,” be
one
that affects (literally) a host of American equities, via the Nation’s capital markets?

A Bill of Particulars

A recap of some of the relevant highlights of the current drama, which began last month with
the
publication of reports that the Bank of New York (BoNY) was suspected of laundering at least
$4 billion — and perhaps as much as $10 billion — in funds possibly tied to Russian organized
crime and/or top Kremlin officials and their associates, includes the following:

  • According to various reports, the BoNY account maintained by the Russian firm, Benex
    Corporation, alone saw over 10,000 transactions involving some $4.2 billion between October
    1998-March 1999. Law enforcement and other U.S. officials, moreover, are currently said to
    be investigating thirty-three companies that have done business with the bank to determine
    whether any others have engaged in suspicious Russian-related financial activity.
  • The misappropriation of taxpayer-funded aid flows to Russia from the International
    Monetary
    Fund and the U.S. Agriculture Department has also been alleged. While both agencies have
    vehemently denied such charges, the IMF has admitted that monitoring internal disbursement
    of aid flows has proven to be more challenging than it previously anticipated. In fact,
    according to a Wall Street Journal article of 25 August, investigators have identified
    at least
    $200 million in IMF funds which surfaced in a Russian Channel Islands account for a short
    period before it was diverted to an unknown location. It is impossible to say with certainty
    how much of the more than $20 billion in Western taxpayer funds that the IMF has lent
    Russia since 1992 has met a similar fate.
  • Russian organized crime syndicates are not the only entities suspected of laundering funds
    through the Bank of New York, and perhaps other Western financial institutions. President
    Yeltsin’s political “families” — the latter prominently including a number of former
    apparatchiks-turned-“oligarchs” — have also been implicated. Of particular concern is the
    apparently deliberate leaking of closely-held Russian plans to devalue the ruble and default on
    some $40 billion in GKO debt. Insider-dealing seems to have contributed to the accelerated
    movement of capital out of Russia that immediately preceded this action taken on 18 August
    1998.

Importantly, much more appears to be in jeopardy than the interests of an American
commercial bank and U.S. and multilateral financial institutions. Consider the following recent
revelations that indicate the U.S. capital markets are also being penetrated by “bad actors” 1:

  • A U.S. company named YBM Magnex — which has been linked to the same
    Russian-owned
    entity, Benex Corporation, that has been accused of facilitating the money transfers via its
    Bank of New York account — was once publicly traded on the Canadian stock
    exchange    .
    According to a 19 August New York Times report on the matter, American
    officials believe
    that the YBM case “was one reflection of the success of Russian organized crime in
    infiltrating Western financial markets.”
  • On 30 August, USA Today reported a troubling — and possibly related — story
    of Bank of
    New York assistance to another questionable Russian institution, Inkombank,
    in winning
    regulatory approval to sell the Russian bank’s stock in the U.S. equity market via American
    Depository Receipts (ADR’s). It is said to have done so at a time when even Russian
    regulators had the bank under investigation    .

    According to USA Today, the bank avidly promoted
    Inkombank’s 1995-96 bid to sell
    bank shares to U.S. investors through the ADR mechanism. According to Russian
    investigators cited in the article, Inkombank had “inflated its income in 1995 by tens
    of billions of rubles” and had “violated numerous laws and accounting standards.”
    Incredible as it may seem, the bank still received permission to trade its ADR’s on the
    U.S. equity market in 1996 — even though regulators in Moscow were not the only
    ones aware of the apparent scam: The SEC and the Federal Reserve Board
    reportedly also received notice of these suspected misrepresentations,     as well as
    English translations of Inkombank’s financial reports. The bank was declared
    insolvent following the Russian financial collapse of last year.

  • According to the New York Times of 29 August, investigators suspect
    Semyon Mogilevich, a
    shadowy Russian operative who Western intelligence sources claim is “a major figure in
    Russian organized crime,” is a primary player in the money-laundering scandal. Mogilevich
    is reportedly engaged in, among other activities, international arms trafficking. As the
    Times
    noted: “An F.B.I. report on Russian organized crime said that when the Soviet Union
    withdrew its military forces from East Germany, many Russian generals sold their weapons to
    Mr. Mogilevich, who in turn sold them, at much higher prices, to countries like Iraq, Iran and
    Serbia.”

The Gore Policy Toward Russia’s Systemic Corruption: ‘Don’t Ask, Don’t
Tell’

The Center for Security Policy and its Casey Institute have long been concerned about the
apparent, if (in some cases, at least) unwitting, collusion between the Clinton-Gore
Administration and corrupt elements in both official and unofficial circles in Russia. 2 The now-unfolding scandal only serves to reinforce this
concern. The difference is that, today, it is a
widely shared apprehension.

For example, in response to a condescending call published this week in
Newsweek by Deputy
Secretary of State Strobe Talbott — one of the principal architects of the Clinton Administration’s
failed Russia policy — for the world to “calm down,” long-time Washington Post
foreign
correspondent and columnist David Ignatius wrote in today’s edition:

    The strategist Albert Wohlstetter 3 liked to
    observe that when policymakers talk
    about a “calculated risk,” it usually means they haven’t done any calculation.
    What they’re really describing is a simple gamble, a roll of the dice.     Wohlstetter’s
    remark is a useful rejoinder to recent characterizations of the Clinton administration’s
    policy toward Russia as a calculated risk — a reasoned bet that the benefits of
    economic reform would outweigh the dangers of corruption….

    It would be more reassuring if these folks told the truth: Our policy
    toward
    Russia has been a crap-shoot, and growing evidence — symbolized by recent news
    reports on the alleged $10 billion Russian money-laundering operation through
    the Bank of New York — suggests that it hasn’t worked….    The bottom line is that
    Clinton and Gore had lots of warnings about Russian corruption under Yeltsin’s
    banner of reform. And the question continues to be: Why didn’t the Administration
    do more to stop it?     (Emphasis added throughout.)

The ‘Culture of Corruption’

In addition to strengthening an already robust Russian “moral hazard” trap — Russia’s
financial
and political elite are well-versed in capitalizing on Western bailouts — the kind of
non-transparent official relationship epitomized by the secretive Gore-Chernomyrdin sessions
has served to
encourage Russia’s thriving system of corruption by refusing to penalize corrupt financial and
political behavior.

This week’s edition of the Economist gives a name to this sort of relationship
and the behavior it
spawns: a “culture of corruption,” a culture, unfortunately, that extends far beyond Russia. In a
powerful editorial, this respected journal declared:

    Far from “civilizing” the wreckage of the Soviet economy, economic transactions
    between Russia and the West are running the risk of corrupting the Western side, if
    only by forcing it to wink at practices which would be outlawed in more established
    economies. There is a particular irony in the fact that one western party is the IMF,
    whose stated purpose is to propagate virtues of sound economic policy and good
    governance. But if the IMF’s integrity has been compromised, the cause does not
    lie in its own sloppy controls; it lies in the collusion of the American and Russian
    governments     to cover up failures and press the Fund into treating Russian with
    greater generosity than its economic performance would warrant.     (Emphasis
    added.)

The Bottom Line

The multi-billion-dollar scale of this latest financial scam by global “bad actors” in
the U.S.
financial markets calls into question the SEC and other official regulators’ ability to
monitor effectively transactions involving dubious foreign entities — let alone their ability
to protect adequately U.S. investors and depositors, to say nothing of the national
interest.
Among the “follow-the-money” questions which should now be asked are: What were the
precise sources of cash profits being funneled through U.S. institutions? Which specific
individuals and/or enterprises were involved? What policy and procedural changes need to be
made to prevent a repetition of such misconduct?

It is heartening that Rep. Leach’s Banking Committee will shortly be holding hearings (at
this
point scheduled for September 21-23) at which, it is to be hoped, these and related questions
about the emerging scandal and its implications will be addressed. The Casey Institute urges the
Senate Banking Committee — and other relevant panels on Capital Hill (especially
those with
oversight responsibility for arms trafficking and proliferation matters) — to convene their own
companion hearings on this long-neglected subject. As Steve Forbes (the
1994 recipient of the
Center for Security Policy’s “Keeper of the Flame” award) observed yesterday, Vice
President
Gore should properly be among those high-level Administration officials (notably, Strobe
Talbott, Sandy Berger and Larry Summers) called to testify at such hearings.

Such hearings should also give fresh impetus to the need for legislation like “The
U.S. Market
Security Act of 1999″ (H.R. 2204), sponsored by House Banking Subcommittee
Chairman
Spencer Bachus (R-AL) and Rep. Dennis Kucinich
(D-OH). This bill would require an Office
of National Security to be established at the Securities and Exchange Commission
charged
with reporting to responsible congressional committees on a quarterly basis the names of foreign
government-connected entities seeking to enter the U.S. capital markets. Even though the
mandate of such an office would be modest and limited in scope (i.e., a far cry from undesirable
capital controls 4), it would send a needed
message to global wrong-doers that the United
States is, at long last, following the money.

1For example, the issuance of some $800 million in U.S.
dollar-denominated bonds and roughly
$2.5 billion in yen-denominated bonds by arms dealer Wang Jun’s China International Trust and
Investment Corporation.

2 For example, see the Center’s Decision Brief
entitled Clinton Legacy Watch # 33: ‘See-No-Evil’ Security
Policy-making (No. 98-D 189, 23
November 1998). It stated, in part:

    Today’s New York Times discloses that in 1995 Vice President Al Gore
    chose not to
    be ‘bothered with the facts’ — even though they called into question the premises of
    foreign policy initiative in which he and the rest of the Clinton Administration had
    hugely over-invested: a policy of U.S. ‘support’ for Russian ‘reformers’ led by
    President Yeltsin and Prime Minister Viktor Chernomyrdin, no matter what. As the
    Times put it:

“When the CIA uncovered what its analysts considered to be conclusive evidence of
the
personal corruption of Prime Minister Viktor Chernomyrdin of Russia in 1995, they sent it to the
White House, expecting Clinton administration officials to be impressed with their work. Instead,
when the secret CIA report on Chernomyrdin arrived in the office of Vice President Al Gore, it
was rejected and sent back to the CIA with a barnyard epithet scrawled across its cover,
according to several intelligence officials familiar with the incident.

“At CIA headquarters in Langley, Va., the message seemed clear: The vice president did not
want to hear allegations that Chernomyrdin was corrupt and was not interested in further
intelligence reports on the matter. As a result, CIA analysts say they are now censoring
themselves.”

    But the Times report makes clear that the Russians have been making
    choices for
    years now, many of them seriously wrong. Specifically, under Prime Minister
    Chernomyrdin, the Kremlin embraced crony capitalism with a vengeance — the
    thoroughly corrupt mutant “market” system that has brought grief to economies
    throughout Asia and, most recently, in Russia itself. In fact, Chernomyrdin could have
    been the poster-child for this practice of self-dealing and -enrichment at the expense of
    the state and its citizenry.

    Obviously, the highest levels of the Administration — most especially Vice
    President Gore, Chernomyrdin’s interlocutor in a highly secretive joint
    commission — did not want to change American policy towards Russia in light of
    the thoroughly dishonest character of the government in Moscow. It did not even
    want to know about the Kremlin’s dishonesty.

3In 1993, Dr. Wohlstetter was recognized for his innumerable,
brilliant contributions to U.S.
security policy over five decades with the Center’s distinguished “Freedom Flame” award. For a
text of his remarks on that occasion, see Aspin, Woolsey Join Center in Honoring
Albert
Wohlstetter, Winner of the 1993 ‘Freedom Flame’ ( href=”index.jsp?section=papers&code=93-P_81″>No. 93-P 81, 21 September 1993).

4See the following Casey Institute Perspectives
entitled Bipartisan Congressional Letter Is
Wake-up Call To State Officials Re: Portfolio Security Concerns ( href=”index.jsp?section=papers&code=99-C_88″>No. 99-C 88, 4 August
1999); Casey Initiative to Increase Transparency Re: Bad Actors’ Efforts to
Penetrate U.S.
Capital Markets Gains Momentum (No. 99-C 80,
13 July 1999); A Job for C.F.I.U.S.:
Proposed Chinese Buy of U.S. Telecommunications Assets Needs National Security
Scrub
(No. 99-C 75, 3 July 1999); and ‘Follow the Money’:
The Next Shoe to Drop on China Scandal
Should be Its Penetration of the U.S. Bond Market (No.
99-C 57, 13 May 1999).

Bipartisan Congressional Letter Is Wake-up Call To State Officials Re: Portfolio Security Concerns

Investor’s Business Daily Takes on ‘CalPERS’

(Washington, D.C.): On Monday, Representatives Spencer Bachus
(R-AL) and Dennis
Kucinich (D-LA) sent the State Treasurers and Attorney Generals of every one of the
50 states a
letter putting them on notice that they — or organizations for which they each have fiduciary
responsibility — could unwittingly be helping to finance activities harmful to U.S. security
interests. It is to be hoped that the Bachus-Kucinich letter will prompt these state officials to
examine with care the extent to which foreign entities that have ties to their respective host
government’s military and intelligence agencies are attracting substantial funding on the U.S.
capital markets, a largely unprecedented national security challenge first identified by the Casey
Institute over three years ago. 1

Notice Now Served

In addition to delineating the substance of this complex subject matter, the letter describes
bipartisan legislation the two authors recently introduced, the “U.S. Market Security Act of
1999″ (H.R. 2204). They describe the purpose of this bill as follows:

    Our legislation would advance the sensible objectives of strengthened disclosure and
    monitoring by establishing a quarterly reporting mechanism and an Office of National
    Security at the Securities and Exchange Commission. It is designed to do so in a
    way that avoids disruption of the free flow of capital into and out of the United
    States.     H.R. 2204 would, nonetheless, help those of us in the Congress with financial-
    and security-related oversight responsibilities to obtain a better understanding of the
    scope of this new national security challenge and how it might be remedied primarily
    through greater awareness and volunteerism.

‘CalPERS’: A Case In Point?

Reinforcing the need for this type of disclosure-oriented legislation, and a security-minded
review of state portfolios, was a front page article in the 27 July edition of the Investor’s
Business Daily (IBD) (see attached). It details how the Nation’s largest public pension
fund, the
California Public Employees’ Retirement System (CalPERS) holds offerings from several
Chinese firms with alleged direct or indirect ties to the People’s Liberation Army and/or Chinese
intelligence agencies.

The Bottom Line

The bipartisan Cox Committee and Deutch
Commission have recently reaffirmed the
seriousness of this major, new national security concern, the latter doing so in the context of
possible funding of proliferators of weapons of mass destruction. The Casey Institute strongly
recommends that state governments waste no time in initiating comprehensive audits of their
respective pension and investment funds to ensure that they have not been penetrated by the
ever-more sophisticated funding mechanisms of actual or potential adversaries of this country.

1 See the Casey Institute Perspective entitled
If You like the Rigging of the Lebed Dismissal,
You’ll Love the Rigging of the Global Credit and Securities Markets ( href=”index.jsp?section=papers&code=96-C_100″>No. 96-C 100, 17
October 1996).

Patent Deform will Serve Neither U.S. National Security or Economic Interests

(Washington, D.C.): In the post-Cold War period, even people who should know better
seem to
believe that economic performance and national security are separable, if not mutually
inconsistent, priorities. The fact is that, properly understood, the two are inextricably intertwined
— and, arguably, this is more true today than ever.

The U.S. Patent System: Enabling American Innovation

After all, at the dawn of the 21st Century, the obvious nexus for U.S. prosperity
and security is
technological innovation. And at present, as for much of this country’s history, the
climate for
fostering such innovation has been created by the American patent system.

This system, established under the Constitution, has rewarded inventors for sharing their
creativity with others by assuring that the rights to earn royalties from their breakthroughs would
be protected for seventeen years. The result has been a position of unrivaled U.S. dominance
with respect to intellectual property. By some estimates, we own ten times as much as the rest of
the industrialized world combined.

In the national security field, this dominance has rarely been more evident than it was in the
recent coalition warfare in Serbia. Due to the disparity in high technology, many among the
allied militaries were unable to operate on a par with their American counterparts. In some
cases, the result was to compromise the mission’s effectiveness; in other cases, the safety of U.S.
personnel was jeopardized.

Target America

The disparity has not only made the United States technology base the envy of the world. It
has
also made it a preeminent target for the world’s intelligence services. According to the FBI,
at
least 23 countries are actively engaged in industrial espionage and dual-use technology
diversions in this country. The recently released report by the select House committee
chaired
by Rep. Chris Cox, Republican of California, illuminated some of the more successful of these
operations conducted by Communist China in recent years.

Unremarked in that report, however, was one narrowly averted windfall for the Chinese.
In
1996, Bruce Lehman, who was serving at the time as U.S. Commissioner of Patents, sought
to give Beijing CD-ROMs containing the entire American patent data base, some 160 years
of valuable information. This outrageous idea — like so many other initiatives taken
by the
Clinton Administration as part of its campaign contribution-lubricated policy of “engagement”
with the PRC — was reportedly rationalized as a means of helping the Chinese avoid infringing
upon U.S. patents!

Unfortunately, the Chinese and other foreign competitors are not interested in preventing
infringements on Americans’ ownership of U.S.-produced high technology. To the contrary,
they are determined to acquire and exploit such technology in any way they can.

The Campaign to Dumb Down the Patent System

Toward this end, they have mounted a sustained and multifaceted effort — one that is far less
obvious, but every bit as insidious an assault on America’s economic interests and national
security as the episodes documented by the Cox Committee. The objective is to weaken the U.S.
patent system by making it over (read, dumbing it down) so that it will conform to the inferior
approach utilized with such dismal results by our international competitors.

The blueprint for such an effort was mapped out in 1993 by the Japanese Patent Office,
which
presides over an economy that has, in the past at least, proved somewhat better at exploiting
advanced American inventions than at coming up with its own. The Japanese paper proposed
that its U.S. counterpart change the way it does business so as to bring it more into line with the
practices followed in Japan and most of Europe.

The danger, were the U.S. to adopt these changes, is that it could literally kill the hen that
lays
the golden egg of our competitiveness. This could happen if, for example, the rights of large
multinationals and foreign governments were allowed to take precedence over the sorts of
protections and rewards that have traditionally inspired American inventors.

With Friends Like H.R. 1907…

Regrettably, the U.S. government has already agreed to adopt some of these changes
pursuant to
the GATT accord. Others — including some particularly pernicious ones — are now being
advanced in the name of “patent reform” in legislation now awaiting action in the Congress.
Patent deform might be a better way to describe H.R. 1907, the so-called
“American
Inventors Protection Act of 1999.”

Far from protecting American inventors, the restructured U.S. patent system contemplated by
H.R. 1907 seems designed to protect the interests of multinationals and foreign governments and
other entities bent on gaining earlier, freer and cheaper access to our inventions. This would be
abetted by a number of the bill’s provisions, including:

  • Giving an explicit mandate to the Patent Office to promote the “export of goods
    and
    services for those companies that rely on intellectual property.”     While increased
    exports
    is generally a beneficial result of American innovation, making their promotion an explicit
    objective of the Patent Office may skew the patent-granting process or otherwise open up its
    review and decision-making processes to pressures that could prove inimical to such
    innovation.
  • Virtually every title of H.R. 1907 opens up new opportunities for
    litigation     that could
    prove back-breaking for individual or small business inventors going up against well-financed
    and determined competitors.
  • The patent office’s director would be granted excessive authority,
    including the right to
    contract out to foreign governments and international organizations functions on behalf of his
    organization. In important areas, his decisions would not be reviewable or subject to adequate
    congressional oversight.

The Bottom Line

For these reasons, among others, twenty-two American winners of Nobel Prizes in
economics
and scientific research have publicly opposed similar legislation, claiming that it poses
a
fundamental threat to the national security of the United States and the integrity of scientific
research in this country. Their expert opinion about the contribution that the present patent
system makes to both endeavors must not be lightly disregarded.

The proposed dumbing-down of the U.S. patent system would be a triumph for those who
object
to the principle of American exceptionalism. They believe that U.S. sovereignty and national
interests should be subordinated to the lowest-common-denominator favored by champions of
international organizations and global enterprises. Such a course of action may or may not profit
a relatively small number of large corporations. What is certain, however, is that the country as a
whole will suffer, in terms of its economic well-being and, in due course if not immediately, in
terms of its security.

Administration Move To Normalize Relations with Castro’s Cuba Bucks Tide of History, Business

Will Gambit Be Next Source of Conflict Between Clinton and Gore?

(Washington, D.C.): The truth is finally out. An unnamed Clinton Administration official spilled
the beans yesterday to the New York Times, saying that “There is a conscious decision in this
Administration to do what needs to be done” to expand relations with Fidel Castro’s Cuba.
According to the Times, “American officials say they are now determined to go forward even
if Castro responds by cracking down on dissent….”

Not So ‘Modest’

While the front-page article tried to low-ball the sweep of this initiative (e.g., calling it a “modest
opening”), the anonymous official could not contain himself. He declared: “This is a policy that
has been held hostage to interest groups for way too long.” The clear implication is that Mr.
Clinton is determined to make part of his legacy normalized ties with (read, providing life
support to) not only the odious Communist governments of China, 1 Vietnam 2 and North
Korea 3 but also that of Cuba.

As the Times notes, the opening gambit of this new policy approach — which involves expanded
anti-narcotics cooperation, 4 travel opportunities and money transfers to Cuba — “recall the
largely secret White House effort in late 1995 and early 1996. Officials said that initiative which
focused more directly on the [Castro] Government, was approved by Mr. Clinton and managed
by Samuel R. Berger, deputy national security advisor at the time.” (Emphasis added.)

(A prime mover behind Mr. Berger’s efforts — which included according to the Times “a
choreographed…series of possible steps to ease American sanctions if Cuba continued to open up
its economy and to promote a more cooperative relationship with the Cuban Government” —
during this period was Morton Halperin, at the time a senior member of the NSC staff.
Halperin’s enthusiasm for Castro dates to his years as a radical left-wing activist associated with
the Institute for Policy Studies and related organizations. 5 Indubitably, Halperin is also actively
involved in the present initiative — if not the source of the New York Times leak — in his present
capacity as director of the State Department’s Policy Planning Staff. 6)

The earlier Berger-Halperin bid to help Castro came a cropper when the latter deliberately
murdered four American citizens flying in international airspace. Now, fearful that time is
running out on the Clinton Administration, its authors evidently intend to make a final
push to save Fidel by ending the U.S. campaign to isolate his regime — despite the fact that
the Cuban dictator is continuing to deny his longsuffering people fundamental human rights and
refuses to open up his economy. In fact, according to the Times, “American officials say they
are now determined to go forward even if Castro responds by cracking down on dissent….”

Even the Canadians Get It: Don’t Go There

This move to save Castro’s bacon is all the more troubling since it comes as evidence continues
to accumulate that the U.S. embargo is working, not only with respect to containing his external
aggression and subversion but in undermining his regime. In recent days, the Wall Street
Journal and Los Angeles Times have published reports documenting the fact that Canadian,
European and Latin American governments and companies that were convinced they could make
a killing investing in Cuba (with the Americans held at bay) have been sobered by hard
experience with the Cuban government.

As the Journal reported on 28 June, “‘[In 1993], there was an effervescent feeling that Cuba had
opened up a process of change,’ says Archibald Ritter, a prominent Cuba scholar at Carleton
University in Ottawa.” Now, however, in light of Fidel’s double-dealing (e.g., giving proprietary
information developed at one company’s expense and contracts based upon them to competitors),
capriciously instituted impediments to doing business (e.g., confiscation of portable copiers on
the grounds that they could be “subversive tools”) and determination to maintain control over
foreign investments, even the companies that seemed to delight in defying U.S. policy — like
Canada’s Sherritt International Corporation — have pulled back. The Journal reported that
Sherritt “had raised nearly $500 million three years ago to invest on the island. Now the mining
and energy company is looking elsewhere; it just bought a share of a nickel mine in Australia for
about $35 million. ‘There’s a limit to the rate you can invest in Cuba,’ Sherritt Chairman
Ian Delaney told reporters after the company’s annual meeting in May.”

In words that were intended to be prescriptive to other businessmen, a Canadian entrepreneur
who once was enthusiastic about investing in Cuba recently wrote in a financial newsletter
quoted by the Wall Street Journal that “The best way to see Cuba is on a holiday package to the
island’s beautiful beaches. Don’t waste time in the business district.” (Emphasis added.)

Guess What: Unilateral Economic Sanctions Can Work

Importantly, this advice is sound for one other reason: America’s policy is succeeding. As the
Journal observed: “Finding money for Cuban investment projects isn’t easy. The country has
defaulted on much of its $11 billion foreign debt, and the U.S. blocks its access to the
International Monetary Fund and the World Bank. Helms-Burton has made most banks
skittish about lending to Cuba. 7

As the Los Angeles Times reported in a 29 June article on the first-ever European Union-Latin
America summit held in Rio de Janeiro, a Swedish government delegate to the summit declared
that “I’m sure European companies think about Helms-Burton more than once before trading
with Cuba.” What is more, the Cuban ambassador to Brazil was forced to admit that “The U.S.
embargo is the biggest reason Cuba has been able to attract only about $2 billion in foreign
investment during all the 1990s…Brazil, by comparison, currently averages that amount each
month.”

‘Trump Card’

As it happens, the case for preserving the U.S. embargo — and rejecting the craven Clinton-Berger-Halperin bid to normalize relations with Fidel’s regime — has rarely been more forcefully
and effectively made than was done on 27 June by Donald Trump, a man who readily
acknowledges he could “earn millions of dollars in Cuba” by forming an investment corporation
with European partners to skirt the U.S. embargo. In an op.ed. article in the 27 June editions of
El Nuevo Herald, the Spanish-language version of The Miami Herald, Mr. Trump made the
following observations:

    I perfectly understand the arguments that are frequently used in favor of lifting the
    embargo. The Cold War has ended. Castro has not much time left. Investing money
    in the Cuban economy would benefit a people that has suffered for a long time. It
    would be a way of exerting pressure so that Cuba “opens up”: it would help export
    democracy and promote free enterprise. All those arguments are totally false.

    The Cold War has certainly ended, but it would be timely to remember the
    role that Fidel Castro had in that confrontation between — yes — good and
    evil.     Castro delivered the island to his Soviet masters. He showed himself ready
    to use nuclear missiles and launch them from Cuban soil to destroy U.S. cities.
    Castro exported his revolution to Central and South America. He supported
    terrorism. He offered asylum to murderers. He sent armies to Africa.

    Even more, he converted his nation into a maximum security prison. His
    regime controls all aspects of human life. And Castro has not mellowed with
    age. His secret police is arbitrary and implacable. Detentions and beatings
    against peaceful citizens are still instruments of population control. As is the
    case with eliminating freedom of expression, Castro’s merciless domination of
    the Cuban people has not subsided despite the erosion of his regime.

    The real cause of the Cuban people’s misery is Castro’s economic system,
    not the American embargo.     Castro’s Cuba is a brutal police state. Castro rules
    through intimidation and savagery…

    Yes, the embargo is costly for U.S. capitalists. If I formed an investment
    corporation with European partners, I could earn millions of dollars in Cuba. But
    I prefer to lose those millions than to lose my self-respect. I prefer to
    dispense with that type of profit than to become a financial supporter of one
    of the most brutal dictators in the world,     a man who once was willing to
    collaborate in the destruction of my country. For me, there are no doubts
    regarding the embargo. Of course we must keep the embargo. We must keep
    it until Castro goes.     (Emphasis added throughout)

Clinton vs. Gore?

Not only is President Clinton’s new effort to normalize relations with Castro morally repugnant
and unjustifiable on the basis of economic considerations, it may also further exacerbate Vice
President Al Gore’s political difficulties. On the one hand, as the New York Times put it,
“Administration officials say they see the strength of conservative Cuban-American groups
waning, while opposition to the embargo continues to grow among business people farmers,
religious groups and younger Cuban-Americans.” Therefore, Mr. Clinton feels he can afford to
disregard the powerful, principled opposition to the Castro regime of organizations like the
Cuban American National Foundation. With much more on the line, however, Mr. Gore is
described by the Times as “highly aware of the considerable influence that Cuban-American
voters may have in two pivotal states, Florida and New Jersey.” 8

The President has made no secret of his fury at the Veep’s recent efforts to disassociate himself
from Mr. Clinton’s reprehensible personal misconduct. Perhaps his decision to proceed with the
latest Berger-Halperin effort to upgrade ties with Fidel’s government without regard for the
potentially large costs it might entail for his chosen successor’s electoral prospects is partially
motivated by the desire to punish Mr. Gore for his (very belated) apostasy. Alternatively, it may
simply reflect the true ideological bent of an Administration whose senior ranks are heavily
populated by those who cut their policy teeth in the counter-culture admiring Fidelissimo and his
lieutenant, Che Guevara.

The Bottom Line

Whatever the motivation, the latest Clinton Administration bid to prop up Fidel Castro is
inconsistent with long-term U.S. national security and other interests. 9 If loyalty to Al Gore is
not sufficient cause for the President to forego this odious initiative, that consideration should be
determinative.

1 See Center’s Decision Brief entitled Clinton Legacy Watch # 28: ‘Peace In Our Time’ With
China (No. 98-D 122, 6 July 1998).

2 See the ‘The Truth Will Out’: As Clinton Lifts Vietnam Embargo, American Spectator
Reveals New Clinton Scandal — On POW’s (No. 94-P 15, 3 February 1994) and Putting
Clinton’s Vietnam Policy on the Spot: ‘Cold Spot’ Files Cry Out for Inquiry on POW Cover-up (No. 94-D 07, 25 January 1994).

3 See the Center’s National Security Alert (No. 99-A 8, March 15, 1999).

4 The latest example of the Clinton Administration’s politicization of the intelligence
community is the IC’s directed conclusion that, as the New York Times reported yesterday,
“Although [drug] traffickers in the Caribbean might have bought the complicity of low-level
Cuban officials, there was no evidence of high-level drug corruption.” (Emphasis added.)
This is preposterous on the face, given direct proof from defectors of the complicity of Castro
and his clique in drug-running operations mounted against the United States. See Life Support
for Castro: New Commission on Cuba, Paris Club ‘Rescheduling’ of Havana’s Defaulted
Debt (No. 98-C 187, 18 November 1998).

5 See The Case Against the Halperin Nomination: Selected Readings From Morton Halperin’s
Collected Works (2 August 1993).

6 Secretary of State Madeleine Albright showed her true ideological colors in appointing
Halperin to this sensitive post after concerns about his judgment prevented his Senate
confirmation as an Assistant Secretary of Defense. She has described that appointment as “the
most satisfying” of her career.

7 For more on this important piece of legislation, see The Price of Compromise on Helms-Burton must Be Nothing Less than an End to European Help For the Coming Cuban
‘Chernobyl’ (No. 96-C 69, 17 July 1996).

8A vote last week in Congress offers further evidence that the Burger-Halperin contention about
a changed correlation of political forces regarding relations with Havana is, at the very least,
premature. On 30 June, the Senate defeated an amendment offered by Sen. Chris Dodd (D-CT)
seeking to end prohibitions and restrictions on travel to Cuba by a vote of 55-43.

9See Secretary Cohen, Casey Institute Symposia Agree: Castro’s Cuba Remains an
Asymmetric Threat (No. 98-R 80, 7 May 1998).