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Wednesday, March 14, 2007

States look at companies tied to terror

WASHINGTON - The latest front in the war on terror begins on Wall Street. A growing number of states are considering pulling their investments out of companies that conduct business with Iran, North Korea, Sudan and Syria, all of which are on the State Department's list of terror-sponsoring nations.

Missouri led the way last year when it became the first state to order its employee pension funds to dump shares of companies that deal with those four countries. At least five other states — California, Georgia, Maryland, New Jersey and Texas — have similar legislative proposals pending.

During a news conference Tuesday, proponents of the campaign said they want investors to embrace the concept of combatting terror through financial pressure.

"It seems strange to me that we send young men and women to defend our freedom ... however, we have not yet used our most powerful weapon — America's financial markets," said Missouri State Treasurer Sarah Steelman.

Divestment as a means for political change was used successfully against South Africa's apartheid regime during the 1980s. At least six states — California, Connecticut, Illinois, Maine, New Jersey and Oregon — have begun to divest public pension funds from Sudan, where the government and its militia allies are accused of pursuing a genocide campaign in the Darfur region.

More than 400 publicly traded companies have financial dealings with terror-sponsoring nations, according to the research firm Conflict Securities Advisory Group. Most are foreign owned companies like Germany's Siemens AG, Norway's Statoil ASA and France's Alcatel SA and Total SA.

A series of executive orders already restricts U.S. companies from trading or investing in Iran.

The financial impact of divestment can be enormous, said Frank Gaffney, president of the Center for Security Policy in Washington. A report from the center found the top 100 public pension funds invest in 101 companies with business in countries that sponsor terrorism. Those countries, in turn, reap about $73 billion from projects in which the companies are involved.

"It's time for terror-free investing to be made a very important, if not a central part, of what I think is best described as the war for the free world," Gaffney said.

Diplomatic pressure has already persuaded some companies to change their practices. Companies like Credit Suisse Group, UBS AG and Daimler-Benz AG recently have taken steps to curtail their financial dealings with Iran.

Rep. Brad Sherman (news, bio, voting record), D-Calif., said Tuesday he would introduce legislation to force investment fund managers to disclose companies in their portfolios that do business with Iran and require the U.S. federal employee investment fund to divest from those firms. Sherman also called on the managers of the federal Thrift Savings Program to create a terror-free fund similar to Missouri's.

Last year, Steelman helped create the International Alpha Select Fund, managed by State Street Global Advisers, to screen out the stocks of companies tied to countries that sponsor terrorism. She said the fund is getting better returns than a benchmark index.

Steelman also ended Missouri's business with financial institutions like French bank BNP, which lends money to the government of Iran. This year, Missouri will offer investors in the state's 529 college savings plan the option to invest in terror-free mutual funds.
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