Curbs Urged on Foreign Firms’ Wall Street Access

In another backlash against globalization, activists are pressuring the U.S. government to restrict foreign access to the powerful U.S. stock and bond markets.

Their target is the growing practice by foreign firms with questionable ties to rogue nations of raising money on Wall Street.

Though the United States has banned trade and other financial dealings with some nations over the years, its capital markets have always been accessible to any foreign companies that meet investment standards.

The number of foreign firms registered with the U.S. Securities and Exchange Commission has tripled in the past decade to more than 1,200. Last year, overall foreign activity in U.S. securities markets exceeded $14 trillion, twice the level of 1995.

Now critics are trying to block this month’s planned sale on the New York Stock Exchange of a hoped-for billions of dollars in shares of a subsidiary of China National Petroleum Co.

CNPC has a major oil project in Sudan, the African country whose regime is accused of waging a religious war in which millions were killed over the last 16 years. Since 1997, the U.S. has banned trade, loans or aid to Sudan because of the government’s support of terrorism and its poor human rights record.

The proposed CNPC stock offering--in PetroChina Co.--has attracted the attention of critics on the left and the right, and from members of Congress and religious groups to the California Public Employees’ Retirement System.

Rep. Frank R. Wolf (R-Va.), a leading critic of Sudan, argues that letting PetroChina list on the NYSE would be akin to allowing a Nazi-affiliated company to raise money on Wall Street while its government was sending millions of Jews to death camps.

“The poor people in southern Sudan are being told their value is not as important as open markets and the free flow of capital,” Wolf said.

But the anti-investment campaign goes beyond Sudan. Legislation has been introduced in Congress to screen any foreign-based company that wants to sell shares here for questionable activities or ownership ties.

The campaign is dominated by religious and human-rights groups, including the U.S. Committee for Refugees, the American Anti-Slavery Group, the Center for Religious Freedom, the Institute for Religion and Democracy and the Southern Baptist Convention. So far, the Clinton administration has resisted such pressures, citing concern that restricting access would raise doubts about the U.S. commitment to free markets and the open flow of capital.

But the effort has triggered a debate over the appropriate role of financial markets in a global economy and whether society can afford to turn a blind eye to the social or political consequences of unrestricted flows of money.

“There is a growing national concern over the funding efforts in the U.S. capital markets of foreign entities which may be engaged in activities contrary to the values and security interests of this country,” said Roger W. Robinson, a top National Security Council aide in the Reagan administration who is now at the Washington-based Center for Security Policy.

The U.S. has never barred a foreign company from its capital markets for political or human rights reasons, according to market observers, although congressional pressure prompted the Russian energy firm Gazprom to abandon a proposed U.S. bond sale in 1997. The firm was planning an energy project in Iran.

Under a 1997 law, the president can bar a foreign company from doing business in the U.S. if it poses a threat to national security or to the U.S. economy. And the United States has cut off trade, aid and investment to Cuba, Libya, Myanmar and other countries.

But U.S. officials and financiers argue that tampering with capital markets could backfire. Companies can take their business to dozens of other stock exchanges, from London’s and Tokyo’s to Hong Kong’s. And foreign governments could retaliate, banning U.S. firms from their markets.

“I don’t want to see capital markets becoming the next battleground of the next cold war,” said Chris Orndorff, head of equities for Payden & Rygel, a Los Angeles-based investment banking firm.

Moreover, the line between U.S. and foreign investment is becoming increasingly blurred, through global alliances that allow multiple, transnational stock listings and complex ventures that join dozens of companies at the hip.

A global economy offers companies many ways to mask their alliances and the source of their funding, notes David DeRosa, an adjunct professor at the Yale School of Management.

“While the cause may be just, trying to do it is just impossible,” he said.

But critics of laissez-faire capitalism argue that ignoring the background of foreign firms operating in the U.S.--whether they are Chinese firms with military ties, Russian organized crime groups or firms with outlaw environmental practices--is morally bankrupt.

Indeed, the capital markets in the globalized economy have become so important “that this is a new ballgame,” says Nina Shea, director of the Center for Religious Freedom and a member of the U.S. Commission on International Religious Freedom, an advisory committee to the White House. “This new sanctions approach didn’t make sense back in the South Africa days.”

In December, the commission formed a task force to examine possible “capital-market sanctions” against countries that restrict religious freedom. It will hold a hearing on the Sudan issue Tuesday in Washington.

The commission’s first target is CNPC, a partner in the Greater Nile Petroleum Operating Co., whose oil pipeline is expected to generate more than $200 million a year for Sudan. The Chinese oil giant hopes to raise more than $5 billion this month on the New York and Hong Kong stock exchanges through the Hong Kong-based subsidiary PetroChina.

The lead investment bank, Goldman Sachs International--which stands to make millions of dollars in commissions on the deal--insists that legal “firewalls” ensure that proceeds from PetroChina’s sale will be used only for domestic Chinese projects.

“No one is saying there aren’t problems there” in Sudan, says Robert Hormats, vice chairman of Goldman Sachs International and a former assistant secretary of State. “But . . . this particular transaction should not be affected by concerns about Sudan or other parts of the world.”

But many critics disagree. In December, 200 prominent religious and conservative leaders, including former Treasury Secretary William Simon and former National Security Advisor William Clark, urged President Clinton to bar CNPC from U.S. capital markets. Last month, some of those same leaders wrote dozens of fund managers, bank executives and state treasurers, asking them not to invest in CNPC or its Sudan partner, Canada’s Talisman Energy Inc.

Secretary of State Madeleine Albright voiced support for groups trying to convince U.S. investors to divest Talisman Energy. She wrote to the Canadian government last fall criticizing Talisman’s role in the project. Canada is investigating.

Dave Mann, a Talisman spokesman, said the Sudanese government has promised to use its oil revenues to boost farming and build infrastructure in the south.

However, since last fall, CalPERS and teachers pension funds in New York and Texas have sold their shares in Talisman and the company’s share price has plummeted.

But the Clinton administration remains reluctant to close the doors to Wall Street. Assistant Treasury Secretary Linda Robertson told Wolf that further U.S. restrictions on foreign stock listings “would create serious uncertainties about our commitment to open markets and the free flow of capital.”

To list their shares on U.S. stock exchanges, foreign firms are required to meet disclosure standards comparable to those required of domestic companies.

China critics argue that the CNPC case is symptomatic of a greater problem. A congressional report last year, for example, accused Chinese state-owned firms of raising funds in the U.S. to conduct covert activities.

“We can invest in activities which make the world a safer, secure and more prosperous place, or which make it a more dangerous place,” said Rep. Spencer Bachus (R-Ala.), co-sponsor of a measure in Congress to screen foreign firms.

California State Treasurer Phil Angelides has likewise called on CalPERS, the $164-billion state pension fund, and CalSTRS, the state teachers’ pension fund, to consider such issues as democratization, human rights, labor standards and national security concerns before committing funds overseas.

“Many in the investment world want to erect a wall between investment policy and political policy, when in fact prudent investors have to look at the political reality in judging the worthiness of an investment,” said Angelides, a CalPERS board member.

CalPERS officials have agreed to review their investing standards, though the fund has previously resisted efforts to extend its shareholder activism to include social or political concerns.

“The trustees’ job is to make sure they’re investing the money prudently,” said Patricia Macht, a CalPERS spokeswoman.