Financial weapons can be effective

By Laura Goldman

Since there have already been 3,468 military deaths and countless civilian fatalities in Iraq, shouldn’t we search for non-military solutions before we go to war with Iran?

Former Prime Minister Netanyahu has recently been barnstorming the United States to call on the fiduciaries of America’s largest pension plans. Netanyahu is asking the state and city treasurers to stop investing in companies that do business with Iran.

Netanyahu is concentrating on companies that have ties to Iran, but the US State Department has also designated Sudan, Syria, and North Korea of concern.

Companies such as Bank BNP Paribas, oil producers Total, Repsol, Statoil, and Royal Dutch, car manufacturer Hyundai, Coca Cola, Siemens and Sinopec are on the terror watch list. These companies generate billions of dollars in revenues for these rogue nations. By holding them accountable, we are able to defund terrorism.

"$188 billion from the top 100 pension plans in the United States have been invested in companies that are doing business with states that sponsor terror," said Frank Gaffney, founder of the Center for Security Policy. Gaffney was temporarily Assistant Secretary of Defense in the Reagan administration.

A trade embargo against Iran will not succeed. Iran is home to the world’s second largest oil producing reserves. Their oil revenues were more than $44 billion last year. Our SUV loving world might be willing to give up Cuban cigars but they are not willing to give up their favorite mistress.

Netanyahu’s divestment plan in conjunction with the Center for Security Policy is modeled after the successful South African campaign of the 1980’s. Divestment triumphed where diplomacy, international sanctions, and public condemnation against South Africa had previously failed. Without economic pressure, the government in Cape Town had no reason to oppose apartheid.

Why does divestment work when other campaigns have failed? Unfortunately, most of us are not pure of heart and are motivated by greed. Divestment of stocks hits the decision makers, C-suiters (CEO, CFO etc) where it hurts them the most in their pocket books.

Most senior executives are paid in stock. The stock of a well run profitable company will not go up unless buyers are clamoring for the stock. Divestment policy against the company will limit the number of potential buyers.

The economic and political case for divestment in Iran is compelling. Iran main industry is oil. National Iranian Oil Company Managing Director Gholamhossein Nozari has already admitted at an oil conference that Iran needs $94 billion of foreign investment by 2011 to bolster oil and gas production. There is an urgent need for this money because current output is dropping by 7% a year due to depletion and lack of upkeep at the wells. If Iran does not receive this investment, oil production will decline by 35% in five years.

Without oil, the Iranians will not be able to command the world stage. More importantly, they will be unable to pay for the nuclear reactors that they are now building.

The people of Iran have already expressed their frustration with their president, Mahmoud Ahmadinejad. They voted for the opposition party in the local election. Less oil production may mean fewer votes for Ahmadinejad. He could be removed from office by the force of the voter not the might of the soldier.

There is another reason to avoid companies that does business with Iran. They could be underestimating their global security risk. The SEC asked Ford in a July 5 letter "if its share value and reputation were not being compromised by its activities in Syria, Iran and Sudan." Marathon Oil was also questioned.

Currently, there are two public officials leading the charge for terror free investing New York City Comptroller William C. Thompson Jr. and Missouri State Treasurer Sarah Steelman. Each approaches it differently.

As New York City Comptroller, Mr. Thompson is in charge of $100 billion dollars of pension assets, notably the Police and Fireman Welfare funds. With the help in screening from the Conflicts Security Advisory Group, William Thompson introduced shareholder resolutions to American companies with foreign subsidiaries doing business with states that sponsor terrorism. Even though is legal, the resolution asked why they were doing business in places like Iran? In return for his withdrawal of these resolutions, companies like General Electric, Halliburton, Conoco Phillips, AON, and Cooper Cameron agreed not to do business through the foreign subsidiaries in countries whose governments sponsor terrorism.

Thompson was able to wring major concession from giant companies that will slow the pace of terrorism and save human lives.

Treasurer Steelman said at a Washington press conference, "It seems strange to me that we send men and women to defend freedom some of whom pay the ultimate sacrifice however, we have not yet used our most powerful weapon, America’s financial markets."

Steelman has answered the critics of terror free investing and shown it is a fiscally sound choice to make for both governments and individuals. In July of last year, the state of Missouri under Sarah Steelman became the first public agency to implement a terror free investment fund called the Missouri Investment Trust. Although it is a new fund, the returns are 74 basis points over the benchmark index for international equities in developed Asia and Europe. A back tested portfolio for five years showed that there would no impairment to performance. A terror free portfolio would match the benchmarks.

An individual can participate in terror free investment by purchasing the world’s only certified terror free mutual fund, Roosevelt Anti Terror Multi Cap fund. The macroeconomic fund has a five-star rating and is considered low risk by Morningstar. The fund company in some variation has been managing money since 1971. This fund has achieved a 13.75% annualized return since inception two years ago.

Adam Pener, COO of Conflicts Security Advisory Group, reminded me, "This is not like other types of socially responsible investing. Anti-tobacco investing eliminates all the tobacco stocks. Terror free investing, however, cross-cuts several sectors leaving room for using peer companies to replace "noncompliant" firms. Early terror-free portfolios have clearly demonstrated that the impact on return is de minimis — the investor does not have to lose return."

Critics of the movement in the United States fear that this will isolate the United States even more from Europe and do irreparable harm to an already fragile relationship. I disagree. Nobody is for terrorism.

Exercise your shareholder rights and vote stocks with terror links off your investment island. Be drafted in the economic war on terrorism.

This article was originally published in Globes [online], Israel business news – https://www.globes.co.il/ – on March 20, 2007 and it is reprinted here by permission of the author.