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Az. pension funds tied to terrorist allies

The Associated Press, Tucson Citizen

March 17, 2003

The stock and bond holdings of seven Arizona public retirement systems and the State Compensation Fund have at least $1.1 billion invested in companies doing business in countries identified by the U.S. State Department as sponsoring terrorism, the East Valley Tribune reported.

The investments were checked against a list of 52 companies with ties to terrorist-sponsoring countries, compiled by the Mesa- based newspaper.

The U.S. government has prohibited American companies from doing business in Iran, Iraq, Syria, Sudan, Libya and North Korea because their governments have funded terrorist activities.

Nonetheless, U.S. firms, some of them among the largest and most respected in the country, sell products and services legally in one or more of those countries through subsidiaries.

The result: Many large investors are discovering they own millions of dollars in stocks and bonds from those firms, and from foreign companies, which are not subject to U.S. sanctions.

"There is a lot of exposure," said Tom Karako, director of national security programs at The Claremont Institute, a California public policy think tank. "It's almost a certainty that a significant pension system will have some of these companies."

Arizona lawmakers have proposed legislation requiring managers of public money to disclose the companies they invest in that do business in terrorist-sponsoring countries.

But determining the risk of such investments, and what to do with those stock and bond holdings, is the bigger problem, retirement system officials said.

The Arizona State Retirement System board opposes the legislation, saying the reporting requirements would be too onerous, costly and would not provide the right information.

Companies with Arizona investments identified by the Tribune ranged from General Electric Co., which has foreign subsidiaries that sell medical and oil equipment to Iran, to ExxonMobil, which has lubricant and chemical sales in Syria.

Alan Maguire, chairman of the Arizona retirement system board, said the proposal forcing the systems to list such companies could open the funds to legal liabilities.

Just one company, Conflict Securities Advisory Group, can provide a list of companies involved in the six prohibited nations and it may not be complete, he said.

It's unclear what kind of business activities should be listed.

"There is no reasonable way to say with any kind of certainty that you've met those standards," Maguire said.

Maguire also has expressed concern that changing the board's investment strategy would cause the portfolio to lose money, hurting the investment public employees make in the system.

State Treasurer David Petersen, who pushed the investment-reporting legislation, said it's just a matter of time before public investment funds are affected by concerns over companies doing businesses in terrorist-sponsoring countries.

"If war does break out, you can imagine the aftermath of war as these details come out," he said. "When all these details become public, our shareholders are going to demand action."