Why Would the Bush Team Eschew Use of Capital Markets Sanctions When a Potential Target Agrees They Would Work?

(Washington, D.C.): Notwithstanding mounting official U.S. concern about the devastating war the government of Sudan is waging against its own people, the situation on the ground has continued to worsen during the first six months of Bush Administration. It is, therefore, stunning that the Bush team — which has made alleviating the Khartoum regime’s genocidal attacks and slave-trading a priority — has explicitly rejected the use of one tool that could actually help: selective capital markets sanctions.

In its first public statement since the near-unanimous passage on June 13 of the Sudan Peace Act by the House of Representatives — legislation which, if signed into law in its current form, would exercise capital markets leverage to dissuade foreign oil firms from operating in Sudan — the Administration resolutely rejected the prospective use of this potent new policy tool. According to an Associated Press report of July 11, Assistant Secretary of State for African Affairs Walter Kansteiner declared that “Capital market sanctions…where we, the government, would start putting filters on who [could] and who couldn’t use the New York Stock Exchange and NASDAQ, that is unacceptable.” [Emphasis added.]

Read Buckee’s Lips

This act of preemptive, unilateral disarmament in the struggle to stop Khartoum from effectively underwriting its genocidal attacks on and enslavement of the people of southern Sudan via the revenues generated by foreign oil firms, as well as its support for international terrorism and the proliferation of weapons of mass destruction, is all the more troubling in light of fresh evidence that capital market sanctions would work.

On 18 June 2001, the Toronto Globe and Mail, published parts of an interview with Talisman Energy Inc. President and CEO James Buckee — an oil industry leader doing business in Sudan who has, heretofore, shown himself to be singularly impervious to moral suasion or even divestment campaigns that have depressed his company’s share value. In the aftermath of the Sudan Sanctions Act’s passage in the House, Buckee made it clear that his company would sooner pull up stakes from Sudan than risk losing access to the U.S. capital markets: “I don’t think anybody could afford not to have access to the U.S. capital markets. No asset is worth that.”

In short, were Talisman, China National Petroleum Company/PetroChina and other firms operating in Sudan left to choose between, in effect, delisting (i.e., having U.S. entities proscribed from holding their stock) on the one hand and remaining in Sudan on the other, there is strong reason to believe that they would choose the former. At the very least, these companies would have a powerful incentive — currently lacking — to exert pressure on Khartoum to negotiate a legitimate and verifiable peace settlement with the people of southern Sudan.

Either way, capital market sanctions would allow the Bush Administration to do what it says it wishes to do — namely, according to the AP, to “assume a more active role in [Sudan] — in a way that will be not simply visible, but effective.” If the Bush team is serious about ending the carnage in Sudan it cannot responsibly ignore the fact that, in the absence of such effective tools, the Khartoum regime is likely to become even more resilient to American diplomacy as its war chest (literally) continues to grow thanks to expanding oil revenues and its patrons become ever-more- invested, and implicated, in its misdeeds.

The Bottom Line

There is a growing awareness among the community that seeks an end to the crimes against humanity being perpetrated by the Islamist government of Sudan — including the U.S. Commission on International Religious Freedom and numerous other organizations concerned with religious liberty, human rights and national security and, most recently, the U.S. House of Representatives — that the targeted use of capital markets sanctions against foreign oil firms operating in Sudan is both necessary and justified.

Perhaps the most important question that might be asked of the Bush Administration is whether the American people should be helping finance — often unwittingly — the activities of those foreign oil companies that step forward to take over contracts in rogue nations, like Sudan, that are off limits to U.S. companies.¹ It is debatable whether U.S. investors would choose to fund Lukoil, for example, had it pressed ahead with a U.S. listing and that company’s overseas activities in Sudan, Iraq, Iran and elsewhere were fully disclosed. There is no question that the free flow of capital into and out of the United States is a crucial pillar of this nation’s global competitiveness and leadership. So too, however, is a principled foreign policy and the prudent disclosure of material risks that will hopefully discourage U.S. investors from directly or indirectly funding foreign governments, like that of Sudan, engaged in genocide, slavery, terrorism and proliferation.

Far from labeling as “unacceptable” techniques designed to avert such a travesty, the Administration would be well-advised to establish an effective and disciplined mechanism for reviewing questionable foreign entities in the U.S. capital markets — or seeking access to them — and the nature of their activities. For this purpose, the Bush team should create a new interagency capital markets working group, perhaps calling it the Committee on Foreign Financing and Borrowing (COFFAB). Such an organization, modeled after the Committee on Foreign Investment in the United States (CFIUS), whose deliberations are informed by the expertise of the Departments of Justice, Defense, State and the intelligence community, should be co-chaired by the Treasury Department and the NSC. COFFAB should convene on rare, but increasingly important, occasions when national security, human rights and religious freedom concerns collide with the U.S. capital markets. Such an interagency group would constitute a prudent response to the complex comingling of the markets and potentially overriding U.S. security and human rights interests.

¹Fortunately, the new SEC disclosure requirements of May 8, 2001 have addressed the matter of foreign registrants in our markets having to disclose the scope of their involvements in U.S.-sanctioned countries.