Protecting state public portfolios from fundraising by global “bad actors”

Remarks of Hon. Roger W. Robinson, Jr.

Before the National Foundation for Women Legislators

The Ritz Carlton Hotel — New Orleans, Lousiana

20 November 2000

In the midst of our Presidential drama, I’d like to acquaint you with what is rapidly proving to be a deeply troubling new challenge for the states of this country — namely that our public pension funds are increasingly being penetrated by a variety of what we term global "bad actors." Such foreign actors include proliferators of weapons of mass destruction, espionage and technology-theft front companies, human rights abusers, religious persecutors and others.

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Over the course of our four years of research and analysis at the Casey Institute in Washington DC, we’ve determined that neither Wall Street firms — which often purchase the stocks and bonds of foreign firms and governments for the states — nor the state’s public pension funds themselves, have screened these purchases for national security concerns, the abuse of women’s rights and broader human rights, environmental, labor rights, religious freedom or other concerns.

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The root of this urgent new challenge is the fact that adequate disclosure and transparency concerning these foreign entities is simply not required by the Securities and Exchange Commission. What do I mean by disclosure and transparency? It basically means that foreign companies and their investment banks are not required to inform investors, among other key facts, where these firms are doing business in the world and with whom. For example, investors have no way of knowing if a company is doing business in a country that sponsors genocide and slavery. Similarly, investors have no way of checking whether a foreign firm that is a candidate for investment is conducting business with a regime subject to U.S. sanctions.

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The principal reason that this type of information is not required is that firms engaged in harmful activities have not, until the past few years, sought to raise funds from the U.S. investor community, including your state pension funds. We’re persuaded that your constituents would be very troubled — and even alarmed — to learn of this grim reality and would demand that their money not be involved in helping finance activities which contravene this country’s security interests or their own most coveted beliefs and values.

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To illustrate this latter point, I’d like to provide a few brief examples:

• Talisman Energy Inc., the largest private oil company in Canada, is publically listed on the New York Stock Exchange and is currently owned by the California State Teacher’s Retirement System. It’s likely held by a number of your public pension funds as well. So what’s the problem with this Canadian company? Well, Talisman owns a 25% stake in Sudan’s oil consortium which, in turn, is the largest contributor of revenues to that country’s genocide-, slavery- and terrorist- sponsoring regime. Thus far, two million Christians have been killed in Southern Sudan and some five million displaced — many of whom lived in or near that country’s oil fields. Ironically, U.S. company’s and citizens are prohibited by federal law from doing any business in Sudan — but a firm that is aiding and abetting these horrific human rights abuses can raise funds from your state’s public employees.

 

• Take the case of China International Trust and Investment Company (CITIC). The stock and bonds of this huge state-owned enterprise or its affiliates are held by several of this nation’s largest pension funds. The Chairman of this company is Wang Jun, China’s most notorious arms dealer. He is also the Chairman of Poly Technologies, one of the largest companies controlled by China’s People’s Liberation Army. One of Jun’s enterprises was apprehended by Federal agents while seeking to deliver some 2000 AK-47’s assault rifles to California street gangs. Surprisingly, CalPERS still owns stock in Citic Pacific, an affiliated Hong Kong-based company.

 

• Another example — COSCO, a company with reportedly close ties to the Chinese military, was divested last year by the Texas Teacher’s Retirement System when a woman state legislator, Susanna Gratia-Hupp who represents Fort Hood, raised this issue with the Board of TRS and the Texas legislature. Regrettably, this action was the exception, not the norm.

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The good news is that this Capital Markets Transparency Initiative, as we call it, is becoming a major bipartisan issue. To underscore this point, our Institute is actively participating in an ad hoc, but cohesive, Coalition with such politically diverse non-governmental organizations as the AFL-CIO, several human rights and anti-slavery groups, leading environmental and Tibetan freedom groups and security-minded policy organizations. This Coalition currently has combined memberships and outreach of some 20 million Americans. While admittedly pursuing different agendas, all of these groups agree on certain basic principles, among them the need for considerably more information regarding the true identities, involvements and global activities of foreign governments and firms seeking to raise funds in our stock and bond markets. In addition, we’re working toward creating an expanded list of non-financial factors which need to be taken into account by public pension funds and other investment portfolio managers before purchasing international stocks and bonds.

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By this time you might be asking "What can our states do to address this new national security and human rights challenge?" The reason we’re here is our conviction that this should properly be viewed as a state initiative rather than a federal one. After all, your pension funds represent the "demand" side of this equation. Put simply, Wall Street can’t successfully bring bad guys to our markets unless your public employees buy their paper.

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Fortunately, just in the past week California has paved the way for a non-disruptive, market-oriented solution to this political firestorm-in-the-making. The Board of CalPERS — thanks to the strong, principled intervention by State Treasurer Phil Angelidis and his visionary Deputy, Jennifer Ducray-Morill — has voted to include human rights, labor rights and environmental concerns in its overseas investment decision-making process. Although the guidelines adopted by CalPERS don’t, as yet, explicitly include national security considerations, a legislative audit of California’s public pension funds is currently underway to vet these huge portfolios for possible security-related abuses, particularly with regard to the wrong sorts of Chinese firms.

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In conclusion, we believe there a number steps you can initiate in your states while properly avoiding capital controls, undue government intervention or other measurers which could impede the free flow of capital into or out of the United States. Among these recommendations are the following:

1) Establish a Capital Markets Task Force comprised of participants from your state treasurer’s office, public pension funds and relevant legislative oversight committees;

2) Conduct a state-wide audit of your public pension funds in an effort to identify — and potentially divest — global "bad actors";

3) Add national security, human rights, religious freedom, labor rights and environmental concerns to the overseas investment decision-making process of your state;

4) Avoid the purchase of international "index funds" (or baskets of foreign stocks and bonds) in favor of evaluating foreign companies and governments individually (following the California model);

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Finally, it’s useful to remember that in the 1980’s, the divestment decisions of the public pension funds of most of your states played a major role in ending South Africa’s egregious policy of apartheid. Today, the advent of globalization has introduced a more widespread and complex set of challenges for this country and your state’s public portfolio managers. All of us have a right — and indeed a responsibility — to know where our money is going and how it is being used. Women legislators like you can take the lead in guiding and empowering your state’s public pension funds to make both financially and morally sound purchasing decisions that safeguard the portfolios of your state and the security interests of our nation.