[iwar] [fc:Board.Room.Ties.With.Terrorism]

From: Fred Cohen (fc@all.net)
Date: 2002-07-23 07:16:28


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Date: Tue, 23 Jul 2002 07:16:28 -0700 (PDT)
Subject: [iwar] [fc:Board.Room.Ties.With.Terrorism]
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Washington Times
July 23, 2002
Pg. 18
Board Room Ties With Terrorism
By Frank J. Gaffney Jr.
In recent weeks, government officials, business leaders and market analysts
have assured shell-shocked American investors that plummeting indexes are
the fault of just a few corporate "bad apples."
Unfortunately, the loss of confidence so far induced by the lack of
transparency and accountability in a handful of board rooms is likely to
pale beside the problems associated with what might be called Wall Street's
"poisoned apples" - some 300 U.S. and international companies with ties to
terrorist-sponsoring states and/or their commercial enterprises.
The companies in question have recently been identified by a new product
called the Global Security Risk Monitor. It describes the operations of
companies that have links to one or more of six countries (Iran, Iraq,
Syria, Libya, Sudan and North Korea) designated by the State Department as
state sponsors of terrorism. In addition, it profiles companies that have
been publicly linked to proliferation-related concerns.
Subscribers can discern within a few clicks of a computer mouse the kind of
people and enterprises who would benefit from their investments.
This could, and should, have two salutary effects: First, the Global
Security Risk Monitor will enable those Americans who have no interest in
helping to underwrite terrorists or their sponsors - surely a majority of
the roughly 60 percent of our countrymen who now own a piece of Wall Street
- to do the financial equivalent of "voting with their feet." They can
divest their personal portfolios of stocks and bonds of companies and
foreign state-owned and government entities associated with such threats as
terrorism and the proliferation of weapons of mass destruction. Even more
consequential would be if they were to demand that the trillions of dollars
wielded by institutional investors managing their funds (for example,
through pension plans, life insurance companies, mutual funds, etc.) also
desist from holding such financial instruments.
Second, the transparency imposed by the monitor should impress upon
corporate executives and boards of directors, as well as investors, that
there is a real risk to share value if their companies persist in doing
business with countries that wish to do us harm - or who collaborate,
underwrite or otherwise support terrorists who do.
President Bush has made clear the U.S. government's determination to cut off
the financing that enables al Qaeda and other terrorists to operate. Deputy
Secretary of Defense Paul Wolfowitz has metaphorically described the
challenge we face as one in which we must not only swat at the terrorist
"mosquitoes" but "drain the swamps" in which they breed.
The ineluctable logic is that companies "with us" in the war on terrorism
will not be doing business with terrorism sponsors. Those discovered to be
doing otherwise should reasonably expect to suffer in the marketplace a
their activities come to light.
Investors concerned that they may unwittingly be financing threats to this
country have a new front to worry about - one that is, regrettably, not
currently addressed by the Global Security Risk Monitor: China. As recently
noted in this column, a report just issued by the U.S.-China Security Review
Commission expressed concern about China's "use of the U.S. capital markets
as a source of funding for the Chinese military and intelligence services
and for Chinese companies assisting in the proliferation of weapons of mass
destruction or ballistic missile delivery systems."
It is not clear whether American investors, who have thus far shown
commendable willingness to hold onto much of their stock portfolios in the
expectation that the market will come back, will be similarly disposed
toward companies that have allowed their resources to be used by China and
its friends to threaten this country and its interests around the world.
The prospect that they might not so alarmed the Chinese Foreign Ministry
that it took the unusual step last week of formally denouncing the
commission's work on capital markets as "very evil."
China is currently in the midst of what appears to be an increasingly messy
leadership struggle. If past experience is any guide, the principal
beneficiary of the competing factions' bids for power will be the People's
Liberation Army). The Chinese military will give its support to whomever
offers it the greatest amount of resources, advanced weapons technology and
latitude in bringing Taiwan to heel, dominating Asia, driving the United
States out of the region (by force, if necessary), etc.
Even as things stand now, according to the Security Review Commission, the
PLA's build-up may put it in a position as early as 2005-2007 to move
against democratic Taiwan.
The commission served stark notice: China's penetration of U.S. capital
markets "not only poses direct security concerns, but raises issues
regarding investor transparency and material risk as well." The report went
on to say that "given this dynamic, the commission is troubled that neither
the U.S. government nor the U.S. investment community is adequately
evaluating security-related risks related to China's fund-raising in the
U.S. capital markets."
If the federal government and Wall Street truly want to re-establish
investors' confidence in the U.S. financial market, they are going to have
to find ways to address the need for transparency not only with respect to
corporate governance of a few "bad apples" but also with respect to the
"poisoned apples" that could pose mortal threats to us all.
Frank J. Gaffney Jr. is the president of the Center for Security Policy and
a columnist for The Washington Times.

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