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.