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Jewish World Review Feb. 8, 2008 / 2 Adar I 5768 Why is AIPAC undermining attempts to financially isolate terror supporters? By Caroline B. Glick
As his bill made its way through the various committees, Mandel's initiative
received a body blow from an unexpected direction. AIPAC representatives
approached him and asked him to pare down his bill's divestment requirements
to include only companies that invest more than $20 million in Iran's oil
and gas sector.
Mandel was surprised. Why should companies that invest in Iran's defense,
telecommunications and other sectors be immune from divestment? AIPAC went
over his head to Ohio's House Speaker Jon Hustead. Hustead amended the bill
along AIPAC's suggested lines.
Mandel's experience is not unique.
Christopher Holton works as the Director of the Divest Terror Initiative at
the Washington-based Center for Security Policy where I also serve as a
senior fellow. In August 2004, the CSP launched its campaign to divest
public employee pension funds from companies that do business with countries
listed as state sponsors of terror by the US State Department. The decision
was inspired by a study of companies invested in states which sponsor
terrorism undertaken by Roger Robinson, the founder and president of the
Conflict Securities Advisory Group.
Working from Robinson's research, the CSP discovered that on average, 15-23
percent of American state employee pension funds were invested in companies
that do business with state sponsors of terrorism. In 2004, the estimated
value of those total investments was $188 billion. Some $70 billion were
invested in companies which did business with Iran, Syria and North Korea.
After coming across the CSP's research, in 2005 Missouri State Treasurer
Sarah Steelman divested a portion of Missouri's pension plans from companies
which do business with state sponsors of terror.
In late 2006, the terror divestment campaign received a major boost when
Likud leader Binyamin Netanyahu embraced it as a means of slowing down
Iran's race to nuclear capabilities. Encouraged by Netanyahu, Republican
presidential hopefuls John McCain, Mitt Romney, and Newt Gingrich announced
their support for the plan in late 2006. Their announcements induced state
legislators around the US to introduce bills that would follow the Missouri
example and make their pension funds free of investments in countries that
sponsor terror. Working with Robinson, the FTSE financial index announced
last November that it would begin providing a series of terror-free screened
indexes which will allow public and private investors to easily screen their
portfolios and divest from countries that do business with state sponsors of
terrorism.
And then, AIPAC moved in.
Holton assists state legislators in their bid to introduce divestment bills.
He explains that in Texas and California, AIPAC lobbyists led by AIPAC's
policy director Brad Gordon, advocated that divest terror bill sponsors take
North Korea and Syria off their bills. As they did in Ohio, they also
strongly recommended that divestiture from companies invested in Iran be
limited to companies that invest more than $20 million in Iran's oil and gas
sector.
In Texas, AIPAC's interference so frustrated the bill's sponsor, State
Senator Dan Patrick, that he allowed the initiative to fizzle out. In
California, the bill passed into law reflected AIPAC's view except that at
the insistence of the bill's sponsor Assemblyman Joel Anderson, it also
divested California from companies involved in Iran's defense and nuclear
sectors.
In Florida, AIPAC pre-empted supporters of broad-based terror divestment. It
advocated its pared-down, Iran only, oil and gas sector only divestment plan
before a broader-based initiative could get off the ground.
Currently, AIPAC is working to pare down proposed divestment bills in
Massachusetts, Maryland, Pennsylvania and Georgia. In the meantime, without
AIPAC's intervention, the Louisiana legislature moved towards a broad-based
divestment policy by establishing a terror-free investment index last year.
Mississippi and Utah are also considering broad-based bills.
A message to Gordon's office this week requesting his comments on AIPAC's
actions went unanswered. Ron Dermer, who as Israel's economic minister at
the Washington embassy works on the issue with AIPAC provided three general
explanations for AIPAC's actions. As Dermer explained, first, AIPAC wishes
to limit divestment to large investors in Iran's oil and gas sector because
that sector - which makes up at least 80 percent of Iran's exports and 40
percent of its governmental revenues -- is the engine of Iran's economy and
its Achilles heel.
Second, AIPAC argues that it is unconstitutional for states to divest from
companies that do business with terror sponsoring states.
Third, AIPAC believes that by limiting the divestment program to Iran's oil
and gas sector, they will mitigate opposition from pension and hedge fund
managers and so enable more divestment laws to be passed than would be
passed if states tried to adopt a broader approach.
Yet, AIPAC's arguments -- as explained by Dermer who does not work for AIPAC
-- fail to stand up to scrutiny. While it is true that oil and gas are the
anchor of Iran's economy, it is also true that Iran's ability to function
economically, support terror and build nuclear bombs is dependent on many
other economic sectors as well. It is also clear that the strength of Iran's
fuel economy is not dependent only on direct investments in oil and gas but
also on indirect investments from other sectors.
Take Iran's dependence on imported refined fuel products for instance.
Although Iran is the second largest exporter of oil and gas after Saudi
Arabia, it lacks refining capabilities and so is dependent on imported fuel
products. Last week one source of that refined fuel disappeared. India's oil
refiner, Reliance decided to end its supply of refined oil products to Iran
after the French bank BNP Paribus announced that it would no longer issue
letters of credit for Iran. BNP Paribus and its cohort Calyon bank stopped
offering Iran letters of credit due to political pressure from the US
Treasury which sanctions financial institutions that deal with Iran. So in
the BNP Paribus example, financial sanctions from the US government on the
banking sector, is making it more difficult for Iran to run its oil and gas
sector.
Many other firms not involved in oil and gas similarly contribute to the
viability of the Iranian regime and its rogue activities. For instance,
Alcatel SA, a French telecommunications firm has operations valued at $300
million in Iran, Sudan and Libya. Much of its technology is inherently
dual-use with major civilian and military applications. Alcatel's militarily
relevant operations in Iran include the provision of data transmission and
switching network capabilities to state-owned companies. Alcatel is also
installing an undersea telecommunications cable in Iran. It is undertaking
similar activities in Sudan and Libya.
Germany's Siemens has operations in Iran valued in excess of a half a
billion dollars. They include the development of Iran's mobile telephone
network, its power plants, and its transportation sector. All of these
projects have enormous military implications. Austria's Steyr-Mannlicher
arms manufacturer sold Iran sniper rifles in 2006. None of these companies
are targeted in AIPAC's limited divestment plan.
Beyond that, as Holton explains, most of the major companies invested in
Iran's oil and gas sector like France's Total SA and Norway's Statoil and
China's Petro China invested in Iran's oil and gas sector after Iran was
declared a state-sponsor of terrorism. That is, they made a conscious
decision to invest in Iran in spite of its behavior and irrespective of the
financial implications for doing so in their trade with the US. The
likelihood that these companies will end their operations in Iran as a
result of the divestiture movement is not large. In contrast, many companies
whose investments in Iran are below $20 million would be more likely to pull
out their investments if maintaining them cost them US investment capital.
So AIPAC's plan targets companies that are less likely to change their
behavior while giving a free pass to companies that are more likely to be
convinced by the divestiture movement to pull out from Iran.
AIPAC has informed state legislators who push for broad divestment that it
would be unconstitutional for individual US states to divest from companies
that do business with Syria. Their contention is based on Supreme Court
decision from 2000 relating to a Massachusetts' statute that prohibited the
state from signing business deals with companies that also do business with
Burma.
But according to Prof. Orde Kittrie, who served for years as an attorney at
the State Department working on issues related to international sanctions,
there is a distinction between divestment and taking direct action against
foreign firms. A state is within its constitutional rights to decide where
to invest its funds.
Finally, AIPAC's argument that broad-based divestment bills cannot expect to
pass is troubling on two different levels. First, objectively, this is
untrue. Louisiana's law is broad-based. Currently broad-based divestment
bills are moving through the Utah and Mississippi legislatures.
But even if AIPAC is right, and these broad-based divestment bills lack
sufficient political support, why AIPAC is actively working to undermine
them is a mystery.
There is a legitimate debate regarding the capacity of financial tools to
compel governments to change their behavior. Generally speaking when dealing
with ideologically motivated, terror sponsoring regimes like Iran, Syria and
North Korea, financial tools will be insufficient to force a consistent and
credible change of behavior. But they can make it more difficult for such
states to conduct their nefarious business as usual.
In the case of Iran, these extra difficulties can conceivably buy the West
more time to either strike Iran's nuclear facilities militarily, or induce
regime overthrow by backing regime opponents, or both. What is absolutely
clear is that the broader a divestment plan the worse for Iran and its
fellow state sponsors of terrorism.
AIPAC's arguments are not without merit. It is not the contentions that are
strange but their source. It is simply bizarre that of all the organizations
in the US, the organization dedicated to strengthening America's alliance
with Israel is leading the effort to shield the North Korean, Syrian and
Sudanese economies from divestment and to limit the damage the divest terror
movement can exact on Iran's economy.
JWR contributor Caroline B. Glick is the senior Middle East Fellow at the Center for Security Policy in Washington, DC and the deputy managing editor of The Jerusalem Post. Comment by clicking here.
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