Posted on 08/25/2004 11:40:18 PM PDT by F14 Pilot
WASHINGTON - The biggest public pension funds in the U.S., having wrestled with everything from apartheid to tobacco to corporate governance, have a new issue to worry over: Should they invest in companies that do business in countries that support terrorism or with companies that facilitate terrorist activities?
This isn't just academic. Washington, D.C.-based Riggs National ( nasdaq RIGS) , for example, recently paid a $25 million civil money-laundering penalty for its failure over at least the last two years to monitor suspect financial transfers through Saudi and Equatorial Guinean accounts at its Riggs Bank.
Riggs executives might face even harsher sanctions depending on the course of a U.S. Justice Department-led investigation of accounts connected to former Chilean dictator Augusto Pinochet. What if the Pinochet accounts were involved with abetting terrorist activities? Pinochet was indicted in 1998 on an international warrant for torture, genocide and terrorism.
Riggs is set to be acquired by PNC Financial Services (nyse: PNC - news - people ), but this issue isn't going away for the banks. Earlier this summer in hearings, Banking Committee chairman Sen. Richard C. Shelby (R-Ala.) said: "There is very deep concern here in the Congress about the effectiveness of the war on terrorist financing."
Then there's the congressional investigation into the activities of a Halliburton (nyse: HAL - news - people ) subsidiary in Iran. Arizona Treasurer David Peterson, who runs the state's $22 billion retirement fund, has asked its investment managers, Mellon Financial (nyse: MEL - news - people ), Fidelity Investments, Goldman Sachs Group (nyse: GS - news - people ) and JPMorgan Chase (nyse: JPM - news - people ) to disclose any companies the state's money is invested in that operate in Iran, Syria and North Korea. New York state Comptroller William C. Thompson, Jr. and his counterparts in Pennsylvania and Connecticut are heading similar queries to prevent the sudden share losses that would result from negative publicity should a company be found associating with a country or foreign leader involved with terrorism-related activities.
The Washington, D.C.-based think tank Center for Security Policy (CSP) disclosed earlier this month that the California Public Employees Retirement System has nearly $17.5 billion invested in shares of such companies. The center's president, Frank Gaffney, says that this effectively props up regimes that finance terrorism. But CalPERS told the Los Angeles Times that it lacks the resources necessary to track companies' activities abroad.
And not all pension fund directors even believe tracking such activities is a good idea. After all, just because a company does business in places that suffer from terrorist activity doesn't mean it supports terrorism. Gary Findlay, executive director of the Missouri State Employees' Retirement System, has stated publicly that he and his counterparts in other states shouldn't pretend to be foreign policy experts.
The U.S. Securities and Exchange Commission doesn't require companies trading on U.S. markets to disclose the level of investments and operations in countries deemed as terrorist hotbeds. It does have an Office of Global Security Risk, created under the direction of Congress in the SEC's 2003 budget bill, which monitors voluntary disclosure of activities in countries linked to terrorism and human-rights abuses.
A 2004 CSP study using data from the Conflict Securities Advisory Group, an investment research firm, shows that pension funds own shares of more than 400 publicly traded companies that have done business in countries labeled by the State Department as terrorist sponsors. Of this batch, only a dozen companies, all of them foreign, were actually named by the Center. They include Switzerland's UBS (nyse: UBS - news - people ) and France's Alcatel (nyse: ALA - news - people ). The report can be found on divestterror.org.
So far, however, action on this issue has been mostly symbolic. In 2003, Montana sold $15 million in stock of French-owned companies in response to France's opposition to the Iraq war and in anticipation of a backlash against French products. (It has since suspended the ban.)
PINGING!
THANK YOU for the ping pilot.
Wouldn't it be great if a private watchdog group published the relevant info for investors?
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