Risky Business

By Steven Miller
  • Monday, August 23, 2004

Nevada’s public employee pension fund is heavily invested in companies that do business with terrorist-sponsoring regimes, says a report issued last week by a Washington D.C. defense institute.

According to the Center for Security Policy (CSP), the Public Employee’s Retirement System of Nevada (PERSN) has over 23 percent of its assets in companies tied to states that sponsor terrorists or are publicly associated with the proliferation of weapons of mass destruction or ballistic missile technology.

Over 90 percent of the funds paid into PERSN come from Nevada taxpayers. Less than 10 percent of the money comes system beneficiaries—state and local government employees.

For the purposes of the report, terrorist-sponsoring states were defined as Iran, Saddam Hussein’s Iraq, Libya, North Korea, Sudan and Syria.

Entitled Terrorism Investments of the 50 States, the report is based, said CSP President Frank Gaffney, upon the most recent publicly available investment portfolios for each of the top 100 public pension systems.

“It turns out that the nation’s leading public pension funds are heavily invested in some 400 publicly traded companies that do business with terrorist-sponsoring regimes,” wrote Gaffney in the New York Sun. These companies, he said, provide the regimes “with lifeblood in the form of vital resources, high technology, and cash.”

Gaffney called on public pension funds to disinvest. Doing so, he said, “could hurt the bad guys in material ways.” Senator Frank Lautenberg, D-NJ—writing to governors and fund managers— called such investments “unconscionable.”

According to the Center report, the total assets of PERSN under management in equities was over $9.5 billion as of the system’s last report. Of that sum, over $1.9 billion was reportedly invested in 159 companies that “are involved in projects in terrorist-sponsoring states”—projects “worth at a minimum” of $38 billion.

Some $266 million was also invested by PERSN in companies “with ties to proliferation-related concerns,” the report stated.

Prominent in PERSN’s listed sample holdings were a giant French firm, Alcatel SA, a giant German firm, Siemens AG, and UBS AG, a global financial firm based in Switzerland.

The Wall Street Journal describes Alcatel as “a worldwide provider of a variety of telecommunications equipment and services.” Partially owned by the French government, in the 1980s the company installed Saddam’s national phone system, which was greatly damaged during the Gulf War. In the late 1990s, the company was a primary beneficiary of the UN’s Oil for Food program, now widely acknowledged to have been a conduit for Hussein bribes and illegal rearmaments.

Arms industry investigative journalist Kenneth Timmerman reports that, starting in 1998, the French had begun exploiting the UN system “shamelessly”—pushing hard for Alcatel and other exporters to be “accredited” as approved partners in the UN Oil for Food program.

“Alcatel alone,” writes Timmerman, “signed contracts worth $100 million to upgrade Iraq’s communications infrastructure with fiber optics equipment, which U.S. intelligence agencies complained made Iraq military communications more difficult to monitor.

“Just weeks after his inauguration in January 2001, President George W. Bush ordered U.S. fighter-bombers to strike Iraqi air defense sites that had been enhanced with newly imported fiber optics gear.”

In the run-up to the second Gulf War, says Timmerman, a French subsidiary of Siemens signed a $40 million contract with Hussein to supply unspecified “engineering services.” That contract “was put on hold by the U.S. mission at the UN, because of the potential benefit to Iraq’s proscribed weapons programs.”

The Washington Post reported last month that the U.S. arm of UBS AG had been fined $100 million earlier this year by the Federal Reserve Board. UBS had illegally funneled $5 billion in cash to countries with which U.S. firms were banned from doing business, including Cuba, Iran and Libya. The firm’s secret cash pipeline was revealed when U.S. soldiers in Baghdad had stumbled onto a stash of U.S. bills.

The Center for Security Policy did not itself perform the analyses it reported. Portfolio data from each public pension system was forwarded to Conflict Securities Advisory Group, Inc. (CSAG), an independent, impartial Washington-based risk assessment firm that specializes in identifying and assessing companies tied to terrorist-sponsoring states and proliferation-related activities. CSAG ran the portfolios against their Global Security Risk Monitor, a commercial software product offered on a subscription basis by CSAG and the Investor Responsibility Research Center. Then the results were provided to CSP.

Subscribers to the Global Security Risk Monitor including leading institutional investors, such as New York City’s Police and Fire Fighter Funds, and the governments of the United States and Japan.

Steven Miller is policy director of the Nevada Policy Research Institute

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