Casey Symposium Affirms Emerging Importance of Capital Markets Transparency, Leverage on Global 'Bad Actors'

(Washington, D.C.): On 27 June, the William J. Casey Institute of the Center for Security Policy convened a half-day symposium replete with intellectual horsepower, political vision and market savvy for the purpose of addressing a most topical issue: “Safeguarding America’s Capital Markets: Lessons from PetroChina.” This event, which was held in the beautiful “Members Room”of the Library of Congress, brought together over 100 participants. Among them were influential Senators and congressional staff, eminent Wall Street analysts and journalists and leaders of the informal coalition that mounted the campaign against the initial public offering (IPO) of China’s “flag ship” energy company, PetroChina, on the New York Stock Exchange this past April.

The Casey Symposium featured two panels and keynote remarks by Senators Sam Brownback (R-KS) and Fred Thompson (R-TN). The first of the panels was made up of the leadership of organizations that formed what has been dubbed the “PetroChina Coalition” including: Michelle Chan-Fishel of Friends of the Earth, Nina Shea, Director of Freedom House’s Center for Religious Freedom, Dr. Charles Jacobs, Director of the American Anti-Slavery Group, Bill Patterson, Director of Investment for the AFL-CIO, John Ackerly, President of the International Campaign for Tibet, and William Hawkins, Visiting Fellow at the U.S. Business and Industrial Council. These lead discussants recounted the role their organizations played in opposing the PetroChina IPO and an earlier effort to come to the U.S. equity market by its parent company, China National Petroleum Company (CNPC), which raised serious concerns due to its energy development activities in Sudan and Tibet.

A summary of the Coalition’s experiences took the form of “A Dozen Lessons of PetroChina” (see attached), many of whose points were underscored by panel members. There was general agreement among the PetroChina Coalition participants that enhanced SEC disclosure and reporting requirements would provide vital “early warning” with respect to prospective “bad actors” that are among the emerging-market entities increasingly tapping the American debt and equity markets.

Senator Sam Brownback, one of the earliest opponents of the PetroChina listing due to CNPC’s enabling role in the malevolent activities of the Khartoum regime, praised the diverse “grassroots” dimension of the PetroChina campaign. He also expressed strong personal support for strengthened disclosure requirements for prospective foreign entrants to our markets.

The second panel of the symposium focused on the use of U.S. capital markets as a source of leverage to help thwart the proliferation of weapons of mass destruction and ballistic missile delivery systems. Senator Fred Thompson underscored the need for legislation he has introduced called “The China Non-Proliferation Act” (co-sponsored by Sen. Robert Torricelli, D-NY) — a bill that would offer for the first time in U.S. legislative history, the selective denial of access to the U.S. capital markets by Chinese proliferators as policy options for the President. In addition, the bill would require mandatory SEC disclosure of the names of Chinese entities identified as proliferators.

Other members of the second panel were Mark Melcher, the Director of Prudential Securities’ Washington Research, who has been recognized by Institutional Investor as Wall Street’s best Washington analyst for seven years running. He emphasized that securing more information regarding foreign securities — far from constituting capital controls — is the essence of true “free market” capitalism. The last lead discussant was Hon. Roger W. Robinson, Jr., Chairman of the Casey Institute, who also served as the Symposium’s moderator.

Concluding remarks about the epic nature of the PetroChina campaign and its implications for, among others, the Securities and Exchange Commission were forcefully made by Owen Smith, the son-in-law and long-time colleague of William J. Casey, a former SEC Chairman. These themes were some of those captured in the attached report on the Symposium that appeared in today’s Wall Street Journal.

The William J. Casey Institute of the Center for Security Policy

“Safeguarding America’s Capital Markets: A Dozen Lessons From PetroChina”

The lack of adequate disclosure and transparency was a fundamental cause of the global emerging market financial crisis of 1997-1998;

Enhanced disclosure and transparency are good for our markets and investors and are consistent with free market forces;

U.S. investors have a right to know where their money is going and how it is being used as well as the true identity of the prospective foreign entrants (and their subsidiaries, affiliates and parent companies) and their global activities;

U.S. firms often face greater requirements to disclose relevant information about their corporate identities and activities than their foreign counterparts;

Debilitating losses can be incurred by U.S. investors in the event that there are material omissions or inaccuracies in relevant prospectuses and other informational documents;

It is prudent, wherever possible, to eschew capital controls, undue government intervention in the U.S. capital markets and other measures that could impede the free flow of capital into or out of the United States;

The rapidly growing number of Americans in our debt and equity markets are increasingly insisting on having their investments reflect their fundamental beliefs, values and perceptions of our national security interests;

We are confronting a new challenge of global “bad actors” seeking to enter the U.S. debt and equity markets, among them proliferators, intelligence and technology-theft front companies, foreign firms inordinately assisting terrorist-sponsoring regimes, organized crime syndicates, arms smugglers, religious persecutors and human rights abusers;

Certain of these “bad actors” have already established a significant presence in our markets;

The globally-dominant U.S. capital markets are becoming ever-more-preferred as a source of funding by problematic foreign governments and enterprises;

Divestment campaigns and financial sanctions are emerging as more prominent public policy tools and areas of leverage for both the governmental and non-governmental sectors and thus can more frequently damage stock and/or bond values;

American fund managers and purchasers of foreign securities should expand “due diligence” to include national security, human rights and other non-financial concerns.