'Terror-free' investing gains ground in US

Some state officials are promoting divestment from companies that deal with countries the US considers sponsors of terror.

from the March 26, 2007 edition

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"Terror-free investment is a train that we believe is picking up steam," says Frank Gaffney, president of the Center for Security Policy in Washington and a force behind the effort. He says analysis of the largest pension funds in the US shows that about a fifth of their portfolios are in companies doing business in countries listed by the US as state sponsors of terrorism: Cuba, Iran, North Korea, Sudan, and Syria.

While that may be true, it is not a movement without critics. Promoters' references to "hitting back at the terrorists who hit us" give the false impression that divestment is aimed at the perpetrators of 9/11, some observers say. Yet as a nonstate actor, Al Qaeda is more difficult (though not impossible) to target, financial analysts say.

In addition, the US government is not enthusiastic about the effort. That's because the United States has adopted a strategy of working with allies and partners to go after specific companies involved in the targeted countries and activities. Officials in the State and Treasury departments fear that broad divestment efforts could cause a backlash if these cooperating countries feel a wide range of their companies are under attack.

Indeed, the bulk of the companies targeted by such divestment initiatives are foreign. US companies are already barred from dealing with Iran, for example. But Missouri's Steelman says she has pulled the plug on investments in US firms whose foreign subsidiaries work in the listed countries. "It seems strange to me that we send young men and women to defend our freedom, [but] we have not yet used our most powerful weapon – America's financial markets," she says.

Beyond concerns about a potential backlash from cooperating countries, some officials believe the divestment effort is aimed at closing down negotiating channels that have opened up with Iran recently.

Still, such criticisms have not deterred supporters.

Despite the complexities of managing about $20 billion in state revenues, Ms. Steelman says she has been able to certify that Missouri is not investing in companies doing business with the five countries listed as state sponsors of terrorism.

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