Tag Archives: Divest Terror/Terror-Free Investing

Bankrupting Iran is not enough

According to a spate of recent media reports, Iran’s economy is on the skids. It works out that aside from being a messianic, genocidal killer, Iranian President Mahmoud Ahmadinejad is also an economic dunce.

Ahmadinejad entered office two years ago after running a populist campaign pledging to share Iran’s oil and gas revenues with the Iranian people. As his campaign slogan put it, Ahmadinejad would "put petroleum income on people’s tables." But two years into his tenure, the economy is failing. While the government places inflation rates at 12-13 percent, Radio Farda reported that Iran’s Parliament Research Center indicates that the rate is actually closer to 20 percent.

Interviewed on Radio Farda, Iranian economist Fereidun Khavand explained that most of Iran’s economic woes are the direct result of Ahmadinejad’s economic foolishness. The chaotic economic situation, Khavand noted came after Ahmadinejad "shifted the circle of economic decision-making from the Ministry of Finance and Economics, the Planning and Management Committee, and the Iranian Central Bank to the presidential administration solely."

Ahmadinejad’s economic mismanagement, which includes discouraging international investment by destabilizing the region politically through his bellicose rhetoric and frenetic advance of Iran’s nuclear weapons program and support for global jihad, has singled him out for opprobrium by Iran’s intellectual elites. In June, 57 Iranian economists signed an open letter condemning Ahmadinejad’s policies and accusing him of "ignoring the basic principles of economics." The economists warned that "government mismanagement is inflicting a huge cost on the economy and underscores that high oil revenues over the last two years can only delay the imminent economic crisis."

The basic problem with Iran’s economy is that the government spends more subsidizing prices than it takes in from oil and gas revenues. The government sells gasoline to the public for one-fifth the cost of production. As the Associated Press reported on Sunday, in 2006 Iran earned $50 billion in oil and gas revenues. But it spent $60 billion on fuel and other subsidies.

Iran would be able to cover its costs more successfully if it were able to attract foreign investors to develop its increasingly antiquated oil and gas fields. While there is much foreign interest in developing Iran’s oil and gas sectors, two factors work to depress such investment. First there are the US efforts to discourage foreign investment in Iran’s energy sector. Second, as AP reported, Iran itself discourages foreign investors in its energy sector by offering deals with low rates of return. Mikkal Herberg, a former oil executive, told the wire service that Iran today offers rates of return of between 6-10 percent to foreign investors. As Herberg put it, "In a very low-risk environment, you want to see 10 to 12 percent returns. In a high risk environment [like Iran], you need 15 percent plus to make sense."

Iran’s low-ball offers have put off investors who have no problem with investing in a nuclear-proliferating rogue state. China’s Sinopec’s deal to develop the Yadavaran oil field is being delayed because the rate of return Iran offered the Chinese was too low.

For its part, Iran maintains that foreign investment is high. Last week Iranian parliamentarian Ahmad Nejabat boasted that Iran had secured some $10 billion in European investment in its oil and gas sectors in recent years. Iran also announced that from March 2006-March 2007, its volume of non-oil trade with the Arab world stood at some $16 billion.

Yet even if the picture is mixed, it is clear that Iran’s economy is on a downward trajectory. That this is the case has caused many to believe that the Iranians’ economic dissatisfaction will cause the Iranian regime to take a more conciliatory position toward the international community by putting its nuclear program aside. It is similarly argued that Iran’s economic woes will bring Ahmadinejad’s more moderate political opponents to power in next year’s parliamentary elections. Additionally, for the past several months, it has been forecast that Iran’s economic weakness will eventually cause the regime to collapse and so end the specter of a nuclear-armed Iran.

Unfortunately, the probability that in the foreseeable future Iran’s economic problems will cause the regime to moderate its policies or bring regime opponents to power in Iran’s parliament is not high.

Sunday, the regime’s Guardians Council appointed four radical mullahs to form Iran’s elections panel. This panel is responsible for approving political candidates and overseeing the voting processes. In 2004, the elections panel disqualified moderate candidates from running and so ensured that that hardliners would control the parliament. Sunday’s announcement by the Guardians Council ensures that the 2008 elections will similarly maintain the power of the radicals.

Moreover, Ahmadinejad has responded to his economic failures by further strengthening his control over the economy. Sunday the Iranian media announced that Ahmadinejad had sacked the country’s oil and industry ministers. Both men had worked to prevent Ahmadinejad from completing his takeover of the economy. With the two powerful ministries now under his full control, there is little doubt that he will intensify both his consolidation of power and his repression of his critics.

While it is possible that Ahmadinejad’s economic mismanagement may at the end of the day capsize his regime by bankrupting the country, there is no reason to believe that this will occur before Iran acquires nuclear weapons. Today Iran is enriching uranium in some 3,000 centrifuges at its nuclear installation in Natanz. Last month, an Iranian official stated that this is sufficient make a nuclear bomb.

If Iran acquires nuclear weapons, the desirability of investing in its oil sector may rise. European countries eager to appease the Iranians in the hope of removing themselves from the nuclear-armed mullahs’ enemies list may decide that a 6- or even 3-percent return on their investment is a deal to be had. And so a nuclear-armed Iran may be more economically viable than a non-nuclear armed Iran.

Finally, even if the regime collapses as a result of its economic incompetence, it is far from guaranteed that a new regime would be more friendly to the outside world, or pose less of a threat to global security in the medium and long term than the current regime. To understand why this is the case it is worth considering post-Soviet Russia.

The collapse of the Soviet Union did not cause the Russian people to revisit the basic ideological and moral assumptions on which the Soviet regime was predicated, or link those assumptions to the eventual implosion of the Soviet empire. As Reuben Johnson noted this week in the Weekly Standard, the Russians attributed the fall of the USSR to betrayal – by disloyal officials and by the outside world. By scapegoating others for the collapse of the regime, the Russians spared themselves the need to accept the moral failure of the Soviet model and to strike out on a new course.

The fact that the Russians have not come to terms with the evil nature of Soviet Communism was brought to the fore in 2003, when 53 percent of Russians claimed that Josef Stalin was a great leader and 36 percent said that he was more good than bad. As Boris Nemstov, the former deputy prime minister and current regime opponent wrote recently in theVedemosti newspaper, the fact that "40 percent of Russians are prepared to vote for whomever [Russian President Vladimir] Putin supports" in next year’s presidential elections is testament to the fact that the Russian people themselves oppose democracy.

Russia today is challenging the US on every conceivable level. It is pushing out in a neo-imperialist direction. This is brought home most clearly in its assertion of sovereignty over the North Pole, its treatment of the former Soviet republics and its stated aim to build a permanent naval station in Syria. In light of Russia’s hostility, and its rejection of democracy, it is evident that the fall of the Soviet Union did not foment a change in Russia’s moral or psychological make-up.

Noting Russia’s refusal to reckon with the legacy of the Soviet Union, Russia scholar David Satter presciently warned in the National Review in 2002 that "The ‘era of good feelings’ in US-Russian relations… may prove short lived… Geopolitical interests notwithstanding, the Russian leadership has made no real effort to adopt Western values, particularly respect for the individual and the value of human life."

The same could easily be the case in Iran if economic failure, unaccompanied by moral rebuke, foments the fall of the regime. To prevent a successor regime in Iran from looking like an Iranian version of Putin’s Russia, it is insufficient to weaken Iran’s economy. The US, Israel and other outside forces should be actively cultivating, supporting and organizing an alternative leadership that can take charge and move Iran in a new moral and ideological direction after the regime falls.

From all of this it is clear that while Iran’s economic failure is a positive development which should be capitalized and built upon, it alone is no indication that Iran’s threat to global security is weakening. To prevent Iran from acquiring nuclear weapons and threatening the world in the long run, the promotion of its economic failure must be accompanied by military policies aimed at destroying its nuclear facilities, and political policies aimed at ensuring that Iran’s next regime will be better than the current one.

Reports: Iran to buy jets from Russia

The reported Russian sale of Su-30 aircraft and aerial refueling tankers to the Islamic Republic of Iran is a very serious development. The Su-30 is an extremely capable aircraft, a potent adversary for aircraft like the F-15, F-16, Mirage 2000 and the F-18. It will be some time before the Iranians are trained up on them–perhaps a long, long time, if ever. But this is a true transformation of Iranian air power. Their current inventory consists of 1970s-era fighters (it is doubtful that any of their F-14s are in shape for sustained combat operations) such as the F-5 and F-4. The Su-30 is truly state of the art. With Iranian pilots at the controls, it is doubtful that these aircraft would be a match for US and Israeli combat pilots, but they could certainly present problems–a real threat–to just about every other country in the Middle East. And, in fact, a US pilot in an F-18 or F-15 would be presented with a greater challenge–by far–than anything the Iranians can present today. This comes about all thanks to our good buddy, Vladimir Putin.

Most of the world is increasingly concerned about Iranian sponsorship of Al Qaeda, Hezbollah, HAMAS and guerillas in Iraq and Afghanistan. Virtually the entire world is concerned about Iran’s nuclear program, which has all the hallmarks of a weapons program. So what does Russia do? Russia sells Iran advanced offensive weaponry, advanced air defense systems, and helps them build nuclear reactors.

The fact that the Iranians are buying 250 Su-30s is telling. The Iranian Air Force will go from having basically no advanced aircraft to having more than any other nation in the region, save Israel and our "friends" in the Gulf, Saudi Arabia. 250 is a big air force. By comparison, the Royal Air Force does not have 250 aircraft equal to the Su-30.

The other worrisome aspect to this is that the report says Iran will be getting aerial tankers with the Su-30s. That can mean only one thing: Power projection. They don’t need a tanker to fly combat air patrol over Qom. They need tankers to be able to carry out far-flung operations–offensive operations.

This development demonstrates two things:

1. Getting Russia to help with UN sanctions is a pipe dream. The Russians don’t give those birds away. Iran’s paying for them.

They sell Iran nuclear technology. They sell Iran weapons. They drill for oil in Iran. They are capitalists now and if they can make money off of selling weapons to our enemies, they are doubly happy to do so. In the absence of true international sanctions which, thanks to our Russian and Chinese friends, will be impossible, a divestment program offers the greatest leverage against the Iranian regime.

2. Narrow divestment which only targets Iran’s energy sector completely misses these deals. The Russians are capitalists with stock exchanges now. Sukhoi, or some of its subcontractors for avionics and other components, almost surely trades on an exchange. But under the Iran-energy sector only model, they can sell Iran 250 advanced fighter bombers and not be targeted.

Divest Terror breakthrough? Or a bait-and switch?

Since August 2004, public pension funds across the United States have, with few exceptions, steadfastly refused to participate in an effort to deny terrorist-sponsoring states the wherewithal such regimes use to support attacks on Americans, here and abroad.   In fact, since the Center for Security Policy first unveiled its Divest Terror initiative in that month with the publication of its landmark report The Terror Investments of the Fifty States, a number of these funds have: gone to considerable lengths to attack the Center and its allies in this fight; worked tirelessly to defeat legislation aimed at taking state and local pension funds’ portfolios terror-free; and otherwise striven to insulate this country’s enemies from any financial pressure that legislators, pension fund beneficiaries or taxpayer-underwriters might try to impose.

A Sea-Change?

It is against this historical backdrop that indications of a sea-change in public pension fund attitudes must be viewed.  For example, yesterday’s Wall Street Journal featured an article entitled, "Pension Funds Weigh in on Iran."  A similar article appeared in today’s New York Times. Both describe a new "coalition of large public funds" that, as the Journal put it, "has begun pressuring companies to reconsider their ties" to Iran.  

The Times report describes a letter recently sent by a coalition of funds to the following foreign oil companies doing business in Iran: Royal Dutch Shell, Total of France, Repsol of Spain, Eni of Italy, Gazprom of Russia, the China National Petroleum Corporation, the Oil and Natural Gas Corporation of India and Inpex Corporation of Japan.

As of now, this coalition includes pension funds of California, New York, Illinois and North Carolina.  Collectively, the Journal notes that the coalition controls "$570 billion in assets – or nearly a fifth of all public pension fund assets nationwide – including $3.7 billion invested in energy companies doing business in Iran."

No Accident, Comrade

The latter statistic is particularly noteworthy because, as the Journal makes clear, the funds in this coalition are explicitly responding to pressure from the Divest Terror movement at the state level: "In what has become a popular issue for lawmakers, more than a dozen state legislatures have passed laws or are working on measures that could compel public pension funds to divest holdings in companies doing business in Iran."  

In a number of cases, these legislative initiatives have been narrowly defined, focusing exclusively on the Iranian energy sector’s foreign corporate enablers.  In other states, though, lawmakers have taken up true terror-free investing legislation – namely, bills that would bar pension fund investments in all but humanitarian activity in Iran and in three other officially designated state-sponsors of terror: Sudan, North Korea and Syria.

Given the past, aggressive hostility of big pension fund systems like the California Public Employee System (CalPERS) and Illinois State Teachers Retirement System (ISTRS) to the idea that their funds could be used as leverage to help defeat our terrorist foes, the question occurs: Is their new coalition’s apparent "conversion" the welcome development it would appear to be?  Or is it merely a deflection, a cynical ploy designed to relieve the rising tide of popular and legislative demands for such action?

How to Tell if It’s the Real Deal

Fortunately, financial security initiatives like terror-free investing lend themselves to quantification.  If the pension fund coalition is an authentic effort on the part of that community to help win the War for the Free World, their efforts will involve the following:  

  • The coalition should actively seek to include every major public pension fund in this country.  After all, when a similar effort was mounted against the apartheid regime in South Africa two decades ago, nearly two-hundred public pension funds participated in that campaign.  Odious as that racist regime was, it was not seeking to kill Americans or destroy this country.  Since the same cannot be said of Iran and its fellow terrorist-sponsoring regimes, the least we can expect is the full participation of the public pension funds in an effort akin to the South African divestment initiative.

    In this connection, a website should be established that shows the public which of their pension funds are " signing up " to security-minded shareholder activism and which continue to stonewall this initiative (i.e., as determined by their absence from the "membership list").

  • The coalition should demonstrate its seriousness of purpose by eschewing the limited approach involved in focusing on just eight companies doing business in Iran’s energy sector.  There are hundreds of companies providing legitimacy, material assistance and financial life-support to the odious regime in Tehran and scores more helping its fellow state-sponsors of terror and strategic allies in Khartoum, Damascus and Pyongyang.  They should each be put on notice: You can do business with America’s public pension funds or with those trying to kill our countrymen and destroy our way of life – but not both.
  • Those publicly traded companies that are induced by the coalition to cease doing business with our enemies should be listed on the coalition’s website, both to recognize publicly that fact and to demonstrate that the pension funds’ effort is achieving concrete results.
  • The coalition’s communications with companies held in their respective portfolios should be transparent and posted on its website so that the nation’s public employees and other investors can judge the seriousness of this effort on the part of the pension funds as well as empirically evaluate the results.

  • Coalition members should cease immediately and publicly disavow their historic opposition to their respective state’s legislative initiatives to rid their portfolios of firms offering material life-support to these odious regimes.
  • The coalition should develop and publish on its website a timetable or clearly defined process for this security-minded shareholder initiative – including specific milestones – so that targeted companies can anticipate with certainty the consequences (i.e., actual divestment) if they fail to comply with this process.  These timelines should be relatively short given the peril created by a nuclear Iran, continued Sudanese genocide, etc.

The Bottom Line

The Center for Security Policy and like-minded Americans across this country will be extremely gratified if the effect of their efforts to promote terror-free investing translate, in fact, to behavior-modification on the part of publicly traded companies that are currently doing business with – and thereby enabling – state-sponsors of terror.  Such a change can deny the regimes in question cash-flow they currently use to underwrite behavior that threatens this country, its interests and/or other freedom-loving peoples.

This necessary step to our success in the war for the Free World must not be diminished, let alone undermined, by false efforts – designed not to advance terror-free investing and its potential contribution to enhanced U.S. security but to dissipate the pressure for the financial sector to do its part.  

Debra Burlingame, the remarkable sister of Capt. ‘Chic’ Burlingame, whose aircraft was hijacked and flown into the Pentagon on 11 September 2001, observed at a Center for Security Policy press conference on the Divest Terror initiative last March: "The U.S. financial community was the first to be targeted by the perpetrators of the 9/11 attacks.  It is time for Wall Street to do its part to help win the war."  The American people will neither forget nor forgive the public pension funds if their current, apparent willingness to enlist in that fight proves to be a subterfuge.

Progress for terror-free investment index








Developments in Louisiana are bringing Americans one step closer to total terror-free investment. 
(Washington, DC): One of the most groundbreaking bills authored to date in the Divest Terror movement has quietly made its way through the Louisiana state legislature and was signed into law this week.

The bill, written by State Representative Pete Schneider and designated HB 864, passed resoundingly in both chambers of the legislature in the House of Representatives by a floor vote of 100-0, and the Senate by a tally of 35-0.


There are two reasons why HB 864 is of national significance.  First, it will result in the establishment of a terror-free investment index for international investments.  Once this index is established it will become available to public, institutional and perhaps even individual investors across America.  This removes the biggest obstacle to terror-free investing in the 3 years of Divest Terror’s existence.


[More]Second, and in a sharp contrast to other states, the Louisiana pension systems took an active role drafting and supporting HB 864.  The most noteworthy help came from the Louisiana Sheriffs Pension and Relief Fund and the Louisiana Firefighters Pension Fund.  Both objected to their retirement funds being invested in terror-sponsoring states, and cast their lot with the Divest Terror program.


A Primer on Index Investing


Index investing is one of the most popular forms of investing in the US among individual and institutional investors.  Literally tens of millions of Americans invest in different vehicles that are designed to track various indexes, in the form of Index Mutual Funds and Exchange Traded Funds (ETFs).


The most widely watched index, S&P 500, covers US companies and thus is not directly relevant to terror-free investing, since US companies are forbidden from doing business directly in Iran, Syria, Sudan and North Korea.


Foreign companies are not subject to the jurisdiction of US restrictions on business with terror nations.  For that reason, the relevant index for terror-free investing is the EAFE Index, an index of European, Australian and Far East Companies that is popular for international index funds and ETFs.


The EAFE Index may be a convenient way for individual, institutional and public investors to invest internationally, but it has also proven an obstacle to terror-free investing and divestment from terrorist regimes because there is no way to simply divest a portion of an index b it’s all or nothing.  Until an entire index goes terror-free, any attempts to wield them as Divest Terror tools will be only ineffective half-measures.


Progress, At Last


For some time now, Wall Street firms have averred that a terror-free international index can be created, but no entity has specifically requested that one be created.


HB 864 in Louisiana changes that.  It will result in the creation of a terror-free index available to public, institutional, and individual investors across America.  The bill mandates that fund managers with international experience create “an international terror- free index fund which identifies and excludes from the fund companies having facilities or employees or both in a prohibited nation.”  The “prohibited nations” are Iran, Sudan, Syria and North Korea, each from the US State Department’s official list of terrorist sponsoring nations.  The creation of this index must take place within 180 days of the bill’s passage, and it must replace the excised stock with those of equal value.


The Center for Security Policy cannot overemphasize the importance of this precedent and the attractiveness of this legislation as a model. Whereas some states have announced that they intend to divest from companies doing significant business in Iran’s energy sector, when a pension system shifts from its current international index to a terror-free index, many more companies that do business in Iran – and Syria, Sudan and North Korea will get left out, and we will be that much closer to victory in the War for the Free World.

SEC Announces Divest Terror Tool

SEC Chairman Chris Cox announces new tool for investors to identify companies that do business in terror sponsoring countries. 

In the latest of a series of steps to use the Internet and interactive computer technology to make public company disclosures more accessible to investors, Securities and Exchange Commission Chairman Christopher Cox today announced that the SEC has added to its Web site a software tool that permits investors to obtain information directly from company disclosure documents about their business interests in countries the U.S. Secretary of State has designated “State Sponsors of Terrorism.”

The information comes from the companies’ most recent annual reports as filed with the SEC.

Chairman Cox said, “No investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state. The law already requires companies to report on any material activities in a country the Secretary of State has formally designated a State Sponsor of Terrorism. Our role is to make that information readily accessible to the investing public. Making it easier to find significant information such as this by tapping the power of technology is central to the SEC’s mission.”

Five countries are currently on the U.S. State Department list: Cuba, Iran, North Korea, Sudan, and Syria. (In addition to its support for terrorism, the Sudanese government has also been widely recognized as complicit in genocidal activities in Sudan’s Darfur region.)

The new software tool can be accessed on the Investor Information section of the SEC’s home page. Clicking the tab for “State Sponsors of Terrorism” will bring up a menu of each of the countries on the State Sponsors of Terrorism list. Clicking on any of those countries will bring up a menu of the companies whose 2006 annual reports disclose business activities in that country. Clicking on the name of a company will, in turn, bring up the pertinent portions of that company’s annual report.

All of the disclosures are linked directly to the full text of the company’s annual report to insure proper context. The existence of a disclosure by a company concerning activities in one of the listed countries does not, in itself, mean that the company directly or indirectly supports terrorism or is otherwise engaged in any improper activity. The information will be continuously updated to reflect SEC filings as they are received, as well as any changes to the Department of State’s list.

Will Honda put the ayatollahs ahead of America?

Josh Mandel lives a double life.

The 29-year old former student body president of Ohio State is a member of the Ohio State Assembly. He is also a Sergeant of Marines with the Marine Corps Reserve in Ohio as an Intelligence Specialist.

Sergeant Mandel spent a year in Iraq fighting terrorists. While there, he had a first-hand look at exactly how Iran supports insurgents and Al Qaeda terrorists who are killing American heroes every day. Iran provides them with money–almost always in the form of US $20 bills–training and weaponry, including advanced IED’s, known as Explosively Formed Penetrators (EFP’s) which have taken a terrible toll in US lives.

Upon returning from Iraq, Representative Mandel was horrified to learn that, like all states, Ohio’s public pension systems are invested heavily in foreign companies that do business in and with Iran.

In other words, these foreign companies provide corporate life support to what the State Department describes as the world’s foremost sponsor of terrorism.

Iran is at war with America. New revelations reported by ABC News provide proof that Iran is arming the Taliban in Afghanistan. But Iran’s proxy war against the United States goes back much further to the time they formed Hezbollah and killed 241 Marines in a suicide bombing in Beirut, Lebanon in 1983.

Josh filed a bill in the current legislative session in Ohio to end that state’s investments in foreign companies doing business in and with Iran.

Then came the revelation that Honda has close business ties to Iran.

Honda has a large plant in Ohio. Whispers suddenly began to be heard that should that legislation be passed, Ohioans would lose their jobs.

In other words, Honda values its relationship with the Ayatollahs who are killing Americans more than it values its employees in Ohio. This after news earlier this year that Daimler-Chrysler, which had made a sizable investment in Iran just within the last five years, was pulling itself out of that country.

Frankly, I am still skeptical that this rumor could possibly be true.

Any automaker that was to put Iran ahead of America in such a brazen manner would surely lose market share and suffer a loss in sales.

But there is only silence from Honda spokespersons and the persistent rumors that have the political leaders in Ohio spooked.

Will Honda put Iran in front of America’s heroes?

Only time will tell.

Divest Terror makes the front page

Many state legislators, like Joshua Mandel of Ohio, are enacting terror-free bills.

Two articles in yesterday’s Wall Street Journal are bringing attention to a growing movement in American politics: the push for state governments to pass laws mandating that their pension funds divest from companies doing business in states that sponsor terrorism, notably Iran.

The articles are also an indication that the Center for Security Policy’s Divest Terror Initiative is picking up steam all over the country.

The first article, which appeared on the Journal’s front page, tells of Ohio Rep. Josh Mandel’s campaign to pass a law mandating that his state’s pension funds divest from terror.  Mandel, a former Marine and veteran of combat in Iraq, puts it simply: "[Ohio] should not be investing people’s hard-earned dollars in countries that are sworn to America’s destruction."

The second article, which appeared on the front page of the paper’s "Money and Investing" section, details Missouri Treasurer Sarah Steelman’s spearheading of terror-free investing initiatives in her own state and around the country.  

Center’s President Frank Gaffney comments: "Yesterday’s Wall Street Journal articles demonstrate that the Center for Security Policy’s three-year effort to promote the concept and utilization of Terror-Free Investment as an instrument of warfare against terror-sponsoring nations is achieving ‘critical mass.’   It is increasingly clear that, as more and more Americans and their elected representatives learn of the risks associated with investing in publicly traded companies that do business with our enemies, they will act to terminate such exposure.  In so doing, millions of our countrymen and women can be empowered to help fight and win the current War for the Free World."

The efforts in Ohio and Missouri are just part of a burgeoning nationwide campaign.  Currently, there are 15 state governments looking to pass similar legislation.  For example, in just the past week, the following progress has been made:

  • Florida Governor Charlie Crist signed the nation’s first Iran-divestment measure into law.  It had previously passed both houses of the legislature unanimously.
  • The California Assembly passed a bill mandating divestment from Iran’senergy sector by the state’s public pension funds – including the Nation’s two largest, CALPERS and CALSTERS.  The vote was 68-0.
  • In Louisiana, the House of Representatives passed a bill by a vote of 100-0 that mandates the creation of a terror-free stock index.

Importantly, while some institutional investors and asset managers have strongly opposed terror-free investing, as the Wall Street Journal observes, that has not been the case with all public pension systems.   For instance, the $12.5 billion Ohio Police and Fire Pension Fund has not objected to legislation there aimed at divestment from Iran.  Moreover, Louisiana’s pension systems, led by the Firefighters and Sheriffs Pension funds, have banded together with a veteran terror-free advocate who chairs the House Retirement Committee, Representative Pete Schneider, to support legislation to create a terror-free index – a key missing piece to the divestment puzzle.

If these pension systems can push forward with terror-free investing without violating their fiduciary duty, the question occurs: How can it be that other pension funds can get away with refusing to honor the desire of their beneficiaries and state legislators who do not want to provide, through theiri nvestments, corporate life support to enemies seeking to kill Americans — and, in the case of Iran, doing so every day.

The strength of such feelings was underscored in a recent survey by Luntz- Maslansky Strategic Research.  That poll indicated that 81 percent of Americans believe that the public pension funds of fire fighters, police officers, teachers and other government employees "definitely should not" invest in companies that do business with countries that sponsor terrorism.

It is gratifying that the attention being garnered by the terror-free investment movement extends beyond the printmedia.  Yesterday, Christopher Holton, Director of the Center’s Divest Terror Initiative, appeared on CNBC’s "Power Lunch" to discuss the contribution this campaign can make to the war effort and the specifics of the bill under consideration in Ohio. 

Speaking of those doing business in terror-sponsoring states, Mr. Holton remarked: "They used to call this trading with the enemy, now it’s just called business.  But it’s still wrong."  He added, "When government bureaucrats put our taxpayer and retirees’ investment dollars into the war-making capabilities of the world’s foremost sponsor of terrorism, they’re making outrageously horrible public policy and elected officials have a moral duty to put an end to it."

Information about the exposure of state pension funds with respect to companies that do business in or with terror-sponsoring states can be found in the Center for Security Policy’s report, Terrorism Investments of the 50 States. The report reveals that, as of 2004, the 100-largest state pension funds had, on average, roughly 23 percent of their portfolios made up of publicly traded companies that have business activities in terrorist sponsoring states. Taken together, those activities were estimated at the time to be worth more than $73 billion.

It is high time that public pension funds across this country invest terror-free.   If they do not undertake to do so voluntarily, state legislatures should make such a policy mandatory.  And the time has come for Wall Street to join the war effort by making it as financially attractive and easy as possible for other institutional and private investors to do the same.  Our victory in the War for the Free World, and indeed our survival, may depend on it.

To find out how you can join the terror-free investing movement, contact us at info@centerforsecuritypolicy.org

 

Gaffney testifies about financial warfare

On Thursday, May 24, the Center’s President, Frank Gaffney, testified before the House Foreign Affairs Committee’s Subcommittee on Terrorism, Non-Proliferation, and Trade.

Mr. Gaffney spoke about the strategic benefits that could accrue to the U.S. were it to begin using "financial weapons against the states that sponsor terrorism."

This idea of economic warfare lies behind the Center’s Divest Terror initiative, the goal of which is to encourage U.S. states to remove from their pension funds any and all companies that do business with terror-sponsoring countries 

View Mr. Gaffney’s testimony here (PDF)

 

 

Gaffney testifies on financial warfare

The following testimony, entitled "The Financial Dimensions of the ‘War for the Free World,’" was given by CSP President Frank Gaffney on May 24, 2007 in front of the House Foreign Affairs Committee’s Subcommittee on Terrorism, Non-Proliferation, and Trade.

Mr. Chairman, last September, I had the privilege of appearing before this distinguished Subcommittee to address the nature of the conflict in which we find ourselves and what it will take for us to prevail in it. I call that conflict the "War for the Free World" as I believe this moniker best describes the magnitude of the challenge confronting us and what is at stake – the Free World, itself – should we fail to meet the present danger, and those in prospect.

[More]I am sorry to report that, in significant ways, this war has become more dangerous since my last appearance before you. And the risks associated with our failure have only grown concomitantly.

Time for an Intensified Effort

It behooves us, therefore, to be making a redoubled effort to counter our immediate enemies: adherents to a totalitarian ideology bent on world domination and the destruction of all who stand in the way of that goal. I believe they are best described as Islamofascists – a term that permits an important distinction to be made between such ideologues, who pursue political goals under the guise of a religion, from those hundreds of millions of Muslims the world over who are peaceably and tolerantly practicing their faith.

What makes these ideologues so dangerous is the fact that they are abetted in their often violent activities and political purposes by state-sponsors: notably, Iran, Syria, Sudan and North Korea. Fortunately, this vital relationship between rogue regimes and terrorist organizations – by which the former provide the latter with funding, safe-havens, logistical support, intelligence and other forms of material assistance and protection – also creates an opportunity for us: To use, among other instruments, financial weapons against the states that sponsor terrorism.

All of these instruments and how best to apply them are described at length in our book, War Footing: Ten Steps America Must Take to Prevail in the War for the Free World. For the present purpose, however, permit me to focus narrowly on ways in which financial means – over and above the existing sanctions currently imposed by the U.S. government – can be used to hurt our enemies.

Terror-Free Investing

As you know, Mr. Chairman, the Center for Security Policy has for several years now been urging institutional and private investors to engage in what we call "terror-free investing." By assessing whether public pension funds, mutual funds, 401k plans, college savings programs, university endowments and personal portfolios are, generally unwittingly, investing in publicly traded companies that do business with terrorist-sponsoring regimes – and, if so, divesting such stocks – we believe a formidable force-multiplier can be brought to bear in the War for the Free World.

Thanks to our government’s sanctions on state-sponsors of terror, American companies (with very few exceptions) are not doing business directly with regimes so designated by the State Department. As a result, terror-free investing can bring pressure to bear on foreign-owned and -operated companies on what might otherwise be described as an "extraterritorial" basis. Such pressure can cause these companies to desist from working with, and thereby assisting, our foes.

I am pleased to report that several prominent firms – UBS, Credit Suisse and Daimler-Benz – have already taken this step with respect to Iran. A more comprehensive effort to encourage terror-free investing would likely prompt many other corporations to reach a similar conclusion: Corporate reputation, share value and profits are better served by doing business with America than with her enemies.

Toward this end, I believe that every effort should be made, at the federal as well as state and local levels, to raise awareness of this financial warfare opportunity and to encourage both government pension systems and the market to help with the war effort by facilitating terror-free investing. In that connection, I want in particular, to commend you, Mr. Chairman, for the support you have shown for this initiative – both in the hearing you recently held on the subject and in your legislative efforts. I very much hope that, for example, your idea of eliminating capital gains penalties associated with shifting funds from investment vehicles that include terrorist state-partnering companies to ones that do not will become law this year.

Other Financial Warfare Opportunities

I was asked today to explore other ways in which the U.S. government might further discourage businesses from providing what amounts to life-support to terrorist-sponsoring states, through their investments in and business dealings with rogue regimes. Let me quickly address three areas worthy of your consideration in that regard:

The Overseas Private Investment Corporation (OPIC): As you know, OPIC provides such assistance as financing and political risk insurance that enables companies and private equity funds to support infrastructure projects and other investments in developing countries. I understand that OPIC assistance has been provided to the relatively small number of American corporations – including, for example, General Electric – that do business (usually through foreign subsidiaries) in Iran and/or in other officially designated state-sponsors of terror.

OPIC is also involved in facilitating joint ventures and projects in which American firms participate as members of consortia with foreign corporations, even though such consortia may be engaged in business dealings with our enemies. It is hard to calculate the precise value to terrorist-sponsoring states of this sort of indirect U.S. assistance. Suffice it to say, though, that any taxpayer-enabled aid to the financial wherewithal of those trying to kill Americans is too much aid.

If, as I believe it should, Congress wants to maximize the pressure on the world’s most dangerous governments – in particular, that of Iran – it should consider ways in which to constrict OPIC insurance and other assistance, whether direct or indirect, available to those doing business with such regimes. This is especially important insofar as the U.S. government has been seeking ways in which to encourage our allies to cut back their counterpart programs, which are enabling vast enterprises like Total, ENI, Elf, Statoil and Siemens to do extensive business with state-sponsors of terror.

The Export-Import Bank: A similar review is in order with respect to the lending and other export-facilitation programs of the Export-Import Bank. I would encourage the Subcommittee to evaluate Ex-Im’s exposure in the form of loans or guarantees associated with ventures doing business in or with state-sponsors of terror. At a minimum, any involvement on the part of such ventures with Iran and other terrorist-sponsors should be taken into account when the funding decisions are being made by the Bank.

Foreign Supplier Assessment: A little-known fact is that there are today some 15,000 foreign suppliers to the Department of Defense. They provide everything from advanced military hardware and components to relatively prosaic materials and supplies. I do not have a precise estimate of the value of these transactions, but it seems safe to assume they run to the many billions of dollars.

A topic for another day is the strategic inadvisability of so great a reliance on such suppliers for products essential for our armed forces and their missions. For the present purpose, it is enough to note that at least some of these foreign suppliers to the Pentagon also provide valuable goods and services to Iran and/or other state-sponsors of terror. To my knowledge, until now, little attention has been paid to the extent to which financial pressure in the form of U.S. procurement decisions could be brought to bear on our adversaries by forcing such suppliers to choose between doing business with our Defense Department or with rogue states.

As it happens, there is a relatively small and largely unknown unit within the Defense Security Service (DSS), known as the Foreign Supplier Assessment Center (FSAC). FSAC is charged with evaluating the Pentagon’s foreign suppliers in terms of their reliability, quality control, price competitiveness, etc. To date, however, this organization has not been charged with examining these suppliers’ business ties to hostile governments.

I believe Congress should consider directing FSAC to create a screening mechanism that would bar foreign companies that do business, for example, in Iran from receiving Pentagon contracts. The mere prospect of such an exclusion, let alone its implementation, may well compel such companies to forego any future transactions in the country in question, rather than lose access to so important (both symbolically and financially) a U.S. customer.

Properly constructed, such an FSAC screen would have the corollary benefit of establishing a comprehensive data base for over 15,000 foreign companies, one that could monitor their activities in terrorist-sponsoring states (if any), their supply of dual-use equipment and technology to such states and profiles of their Iranian and other problematic business partners. It would likewise cue foreign companies to the importance of implementing a robust security-minded risk-anagement program to oversee projects and transactions in sensitive countries, something already embraced by some leading Japanese and European firms.

Conclusion

Mr. Chairman, let me close by repeating points I made to this Subcommittee nearly nine months ago:

We confront a complex, multifaceted and increasingly dangerous world. Islamofascists are on the march. They benefit from the state-sponsorship of oil-rich regimes that subscribe to one strain or another of this totalitarian ideology. Such wealth and the determination to destroy us that is a central purpose of our enemies makes it – all other things being equal – just a matter of time before their attacks on us and/or our allies are inflicted with weapons of mass destruction.

To make matters worse, governments that are not themselves Islamist (such as that of Vladimir Putin in Russia, the Communist Chinese, Kim Jong Il’s regime in North Korea and Hugo Chavez’s in Venezuela) are aiding and abetting the Islamofascists.

This combination of factors leaves us no choice but to get far more serious about this war than we have been to date. Serious in terms of the nature of the enemy. Serious in terms of what it will take to defeat it – from a vastly larger investment in our military to the mobilization of our people, resources and energies. And serious about adopting the policies and programs, including counter-ideological political warfare-related ones, necessary to ensure that we prevail in this War for the Free World."

As I noted at the outset, a few things have changed since I made those remarks. Notably, the Congress is under new management. Another thing that has changed is the assessment of the imminence of the nuclear threat from Iran. For these reasons, I entreat this Subcommittee and the new leadership of the legislative branch to take to heart the assessment I have offered here – and last year – about the need to put our country on a "war footing" and the specific recommendations I have offered, both then and now, for doing so.

In particular, I hope these remarks will encourage you, Mr. Chairman, and your colleagues to bring to bear all instruments at our government’s disposal that could intensify the financial pressure on our enemies’ and, with luck, encourage an early end to the threat they pose to us and the rest of the Free World.

Frank Gaffney to testify on Divest Terror

Center for Security Policy President, Frank Gaffney, will testify on May 24th before the House Subcommittee on Terrorism, Nonproliferation, and Trade about how the US can use financial means to modify the actions of terrorist sponsoring nations.  Below is a copy of the hearing notice text: 

 

SUB COMMITTEE HEARING NOTICE

Committee on Foreign Affairs

Subcommittee on Terrorism, Nonproliferation, and Trade

U.S. House of Representatives, Washington, D.C. 20515-0128

Brad J. Sherman (D-CA), Chairman

TO:     MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS

You are respectfully requested to attend an OPEN hearing of the Subcommittee on Terrorism, Nonproliferation, and Trade, to be held in Room 2172 of the Rayburn House Office Building: 

DATE:                       Thursday, May 24, 2007

TIME:                        10:00 a.m.       

SUBJECT:              The Reauthorization of OPIC

WITNESSES:            Panel I

The Honorable Robert Mosbacher, Jr.

President and Chief Executive Officer Overseas Private Investment Corporation

 

Panel II

Mr. Frank J. Gaffney, Jr.

President and CEO,Center for Security Policy

Jeff Vogt, Esq.

Global Economic Policy Specialist,AFL-CIO

Mr. Jonathan Sohn

Senior Associate,World Resources Institute

Tim Kane, Ph.D.

Director,Center for International Trade and Economics,The Heritage Foundation

                                                                    

                                                                  By Direction of the Chairman

 

The Committee on Foreign Affairs seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202/225-5021 at least four business days in advance of the event, whenever practicable.  Questions with regard to special accommodations in general (including availability of Committee materials in alternative formats and assistive listening devices) may be directed to the Committee .