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December 02, 2010
Investors Testify Before Congress on Sudan
    by Robert Kropp

Eric Cohen of Investors Against Genocide and Adam Kanzer of Domini Social Investments speak before the House of Representatives on divestment from Sudan.


Seven long years after genocide in Sudan became an international issue, the country is preparing for a January 9th referendum on independence for the south. Barring widespread fraud or violence, the south, where an estimated 2 million people have died and 4 million displaced in the region of Darfur, is expected to vote in favor of secession from the north.

Responding to the genocide occurring in Sudan, the US Congress in 2007 unanimously passed the Sudan Accountability and Divestment Act (SADA). Speaking at a Congressional hearing yesterday, Congressman Gregory Meeks of New York, the Chairman of the House Committee on Financial Services, said, "Whether because it is the largest country in Africa, a major producer of oil and other natural resources, a source of conflict with millions of weapons in circulation, a government accused of war crimes and genocide, or because of its porous borders, Sudan is not a country that any American can ignore."

Referring to SADA, Meeks said, "SADA helped empower a growing movement by authorizing states and investment managers to formally establish a policy to divest from or prohibit investment in companies that are seen as supporting the government of Khartoum."

"SADA gave investment managers a safe harbor from prosecution if they choose to divest from companies that conflict such a policy," he continued.

The hearing included testimony from two representatives of investor groups that have called for divestment from companies whose operations in Sudan provide funds for the Khartoum government's campaign of genocide against the south. Eric Cohen is Chairperson of
Investors Against Genocide (IAG), an organization engaged in pressuring investment firms to end their investment in companies that contribute to genocide or crimes against humanity.

Adam Kanzer, who also spoke before the Committee, is the General Counsel at
Domini Social Investments. Domini is a member of the Conflict Risk Network (CRN), which advocates for responsible corporate behavior and responsible foreign investment in Sudan and other conflict zones.

In his
remarks, Cohen highlighted two problems that have persisted in efforts to pressure US companies to divest from Sudan.

"Although US sanctions against Sudan prevent US companies from operating in Sudan's oil industry," Cohen said, "American financial institutions have been major investors in foreign oil companies that help the repressive government of Sudan fund its campaign of genocide and crimes against humanity in Darfur. Well-known financial institutions such as Fidelity, Franklin Templeton, and JP Morgan have each had investments in PetroChina alone worth over one billion dollars."

"Research shows that the vast majority of Americans are opposed to having their hard-earned savings tied to genocide," Cohen continued. "Nonetheless, because most individuals entrust their savings to mutual funds, millions of Americans are investing, unknowingly, inadvertently, and against their will, in companies funding genocide."

In response to questions from the Committee, Cohen outlined some of the ways US-based financial institutions avoid transparency in disclosing their holding in PetroChina and other companies complicit in genocide.

"What we've seen from investigating financial institutions that are investing in the worst companies helping the regime in Khartoum, is that most of their holdings are in Hong Kong," Cohen said. "For instance, I know that Franklin Templeton is a five percent shareholder in PetroChina, not because of any SEC filing but because of one in Hong Kong. They own zero shares of PetroChina in New York."

In his
testimony, Kanzer stated that the "legal and regulatory environment…does not provide investors with the tools needed to fulfill…(their) obligation as investors to respect human rights, and to seek to do no harm."

In addition to such "risks to the financial value of the company" as operational risks, reputational risks, legal risks, and loss of license to operate, Kanzer continued, "Investors should be mindful of broader systemic risks that are exacerbated by egregious human rights violations such as genocide."

Kanzer said at the hearing, "There are a lot of mainstream investors that still simply view these issues, regardless of how egregious they are, as off the table, which I do consider to be a breach of fiduciary duty."

Referring to the 2009 decision by
Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), a financial services company with over $402 billion in combined assets under management, to divest its holdings in four of the five major Asian state-owned oil companies with significant operations in Sudan, Cohen said, "When TIAA-CREF divested, they used the Safe Harbor provision of SADA as protection."

According to the
testimony of Thomas Melito, the Director International Affairs and Trade at the US Government Accountability Office (GAO), "As of May 2010, two companies that sold their Sudan-related assets had relied upon the safe harbor provision in SADA."

"Requiring companies to disclose their own operations in Sudan (as well as other state sponsors of terrorism) would provide more accurate and transparent information to investors carefully weighing whether and how to divest from Sudan," Melito continued. "Furthermore, the strong demand for this information from states that require divestment, as well as from other investors, indicates that this information could be considered material—a judgment that the SEC has suggested in its correspondence with operating companies."

"We recommend that, in order to enhance the investing public's access to information needed to make well-informed decisions when determining whether and how to divest Sudan-related assets, the SEC consider issuing a rule requiring companies that trade on US exchanges to disclose their business operations related to Sudan, as well as possibly other US-designated state sponsors of terrorism," Melito said.

Kanzer said, "The SEC does have the authority to add a specific item of disclosure that could relate to Sudan, but they need to step outside the materiality framework."

A significant emphasis that emerged during the hearings was the necessity of applying the provisions of SADA to future acts of genocide that occur elsewhere. Cohen said, "It's now seven years or more since the genocide started. Something is wrong with our system if we are here seven years later, trying to find ways to incent people who are ignoring the problem."

 

 
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