Can Shareholders Fight Terrorism?

A right-wing campaign against companies that do business in terror-sponsoring states ignores the most obvious targets.

In the 1980s, few Reaganite Cold Warriors approved of the left-wing divestment campaigns that forced universities to stop investing in companies doing business in South Africa. But 20 years later, divestment is being reborn as a tool of the right in the terror war. The Center for Security Policy, run by former Reagan defense official Frank Gaffney Jr., has started a drive to urge public employee pension funds to sell their shares in companies that do business in or with terrorist-sponsoring states: Iran, Libya, Sudan, North Korea, Syria, and Saddam Hussein’s Iraq.

The DivestTerror report (you have to provide your name and e-mail to read the whole thing) shows that such pension funds have $188 billion invested in the stocks of some 400 companies that provide “critical revenues and advanced equipment and technology,” as well as “moral and political cover to the governments” of terror-sponsoring states. The Center for Security Policy argues that threat of divestment might be enough to get these firms to change their ways. By using the power of the portfolio, funds that invest on behalf of “fire fighters, police officers, teachers, state and local officials and other public employees” could greatly aid in the global war on terror.

While shareholder activists will surely welcome this new recruit to their cause, there are glaring omissions in Gaffney’s report. Of the 400 companies, it names only a dozen—including Alcatel, Hyundai, Siemens, and Total SA. Every one of the dozen is a foreign company, and each is in unquestioned compliance with its home government’s laws and regulations. Gaffney’s report tiptoes around the sleaziness practiced by American companies—including some with strong GOP ties such as Halliburton. While Gaffney’s report mentions that several U.S.-based companies conduct business with rogue states—especially Iran—it never names names of those companies or enumerates the holdings of pension funds in them. It only singles out foreign firms.

Despite U.S. sanctions against terror states, a loophole in the law permits American companies to conduct operations in countries like Iran through foreign-based subsidiaries. Some public pension funds have already been making a stink about U.S. firms—and naming their names. Last spring, I wrote about how the pension fund representing New York City policemen and firefighters was pushing shareholder resolutions to get Halliburton, General Electric, and Conoco Phillips to reconsider doing business in Iran. In one instance, the pressure worked. In February, Conoco Phillips pledged to New York City Comptroller William C. Thompson Jr. that it would not start any new business in a sanctioned country.

But others have continued to resist. General Electric defended its Canadian subsidiary, General Electric Hydro, which works in Iran. For 16 years, Iranian Hamkar Machine Co. has been the exclusive dealer of Caterpillar products in Iran. (It has an agreement with Caterpillar Switzerland.)

Halliburton detailed its activities in terror-sponsoring countries in a report last fall. In undertaking work that contravenes U.S. foreign policy, the government contractor relies on convenient subsidiaries, such as Halliburton Products & Services, Limited, a Cayman Islands subsidiary with headquarters in Dubai. It describes its relationship with the subsidiary in hilariously convoluted terms. “Halliburton has taken care to isolate its entities that continue to work in Iran from contact with U.S. citizens or managers of U.S. companies, so as to insure that all work in Iran is undertaken independently, without any facilitation, authorization or approval from U.S. citizen managers,” it noted. (Hear no evil, speak no evil, see the profits.) Besides, the company noted, everybody else is doing it. “HPSL’s activities are parallel to, and competitive with the activities of the foreign affiliates of Schlumberger, Baker-Hughes, Smith International,” and other firms. Finally, Halliburton said, the subsidiary’s 2003 revenues were only projected to be about $40 million, an amount too small to make a material difference to Halliburton.

But when it comes to doing business in terrorist-sponsoring states, Gaffney says, size doesn’t matter. “Until such time as these countries discontinue their sponsorship of terrorism, it is our view that no company, regardless of the scale of their operations, should be willing to do business with them.”

Which is why Gaffney should put his principles to work and go after the American bad eggs first. Advocating a divestment movement that targets American companies won’t win Gaffney many friends on Wall Street, or even in the White House. His effort to speak truth to power is admirable. It would be more admirable—and more effective—if the call wasn’t addressed directly only to foreign powers.