When New Jersey legislators introduced a bill this month that would ban state pension funds from investing in companies doing business with Iran, it was part of an emerging battle cry across the country for "terror-free investing."
Surveys show that most Americans like the idea of deploying investment dollars to assist in the war on terror. And so a growing number of state officials – and a few at the national level – are promoting divestment from companies dealing with countries that the US considers state sponsors of terror.
"This is an empowering action for Americans who have looked for a way to do their part about terrorism and the countries sponsoring it," says Missouri state treasurer, Sarah Steelman, whose efforts have resulted in what is considered the first state-level "terror-free" financial-management program.
The push for terror-free investing has gained intensity over the past year – both as attention to Iran has grown and as the investing technique has ridden on the coattails of a successful grass-roots campaign to encourage divestment from Sudan.
Local steps to divest from companies doing business with Iran mirror efforts of the international community to isolate Iran over its nuclear ambitions. Just this weekend, the United Nations Security Council approved new sanctions intended to force Iran to stop enriching uranium.
And ever since 2004, when the US government implicated the Sudanese government in what it calls genocide in the province of Darfur, human rights groups have pressed states and funds to get out of business with Sudan.
A half-dozen states, including New Jersey, last year adopted measures divesting billions of dollars from companies doing business in Sudan.
The idea of using divestment as a grass-roots political tool has deeper origins. Starting with apartheid in the 1980s, divestment drives spawned by social movements have targeted everything from guns and gambling to global warming. Besides Darfur, international targets include Israel over its settlements in the occupied territories.
"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.
Other states considering adopting terror-free investment criteria include California, Georgia, Ohio, and Texas. A move is also under way to give federal employees the option of choosing terror-free investing for their pension funds and savings.
"Federal employees have a choice, and one of those choices should be a fund that does not invest in terrorist states," says US Rep. Brad Sherman (D) of California, who wants federal employees to have the option of a terror-free savings program similar to the one in Missouri.
Proponents of divestment cite the example of Libya, which they say was persuaded to give up ambitions of building weapons of mass destruction at least in part because of financial sanctions. The country has been removed from the US list of terror sponsors.
Still, some skeptics doubt the effectiveness of such divestment schemes, insisting that the weight of American funds in companies doing business in terror-sponsoring countries is too small to have much of an impact.
But proponents say that today, most countries are sensitive to anything that would sour their foreign-investment environment. "In particular, the Iranian regime is a very important candidate for this kind of strategy," says Mr. Gaffney.
Secretary of State Condoleezza Rice told a congressional committee last week that Iran is suffering financially from measures resulting from sanctions the UN Security Council approved in December. But her broader point was the government's sensitivity to any hurdles to foreign investment.
"You've seen that there has been a decrease in investment presence for Iran, that they're having trouble getting investment in some of their oil and gas activities," she said. "These are all pressures I think on the Iranian government."
Perhaps the strongest criticism of the movement is that it does nothing to target nonstate sponsors of terrorism, like Al Qaeda. Financial experts say it is not impossible to target such nonstate actors, but that doing so would require action against countries where the organizations' charities and other funding sources operate. And that, they add, would mean action against a different set of countries, including ones the US considers to be key strategic friends.