Mo. Treasurer Crusades to Deny Funds to Terrorists
By Joshua Brockman, Staff Writer
Missouri State Treasurer
Sarah Steelman (R)
Missouri State Treasurer Sarah Steelman may be far from the front lines in the war on terrorism but she's on the cutting edge of efforts to fight it with the power of the U.S. dollar.
Elected as Missouri's chief financial officer in 2004, Steelman is leading a campaign in the Show Me State and beyond to get state and local governments to stop investing publicly managed funds in companies that do business in countries believed to sponsor terrorism.
"Whether you're for or against the war, there are Americans sacrificing their lives on a daily basis for the protection and security of the U.S. And yet we don't move our most powerful weapon - our financial markets - to help and make sure that we are not funding terrorists. I'm not going to wait for the federal government. It's my job as state treasurer to do what I can here in Missouri," Steelman, a 48-year-old Republican, said in a telephone interview.
After taking office as treasurer in January 2005, the former professor, broker and state senator severed her office's business relationships with foreign broker dealers such as BNP Paribas because of financial ties to Iran. In July 2005, she persuaded fellow board members of the Missouri State Employee Retirement System, which oversees $7 billion in investments, to adopt a process to screen and divest from companies associated with governments sanctioned by the U.S. government.
Last July, Steelman engineered the first public fund to become "terror-free" in the United States. The international fund filters out companies with ties to four countries - Iran, North Korean, Sudan and Syria - on the State Department's list of state sponsors of terrorism. In December 2006, she helped to make Missouri the first state to approve a plan to offer a "terror-free" 529 college-savings program that will be offered to all state residents in late 2007.
Steelman has made her case in a letter to all 49 other state treasurers, in an Op-Ed article in The Wall Street Journal and on CNBC . The investment policy changes she made in Missouri also have attracted the attention of U.S. Sen. Joseph Lieberman (I-Conn.) and two Republican 2008 presidential candidates, U.S. Sen. John McCain (R-Ariz.) and former Massachusetts Gov. Mitt Romney (R), she said.
With the United States' engagement in Iraq and Afghanistan, a growing number of legislatures have responded to the call for anti-terrorism investment policies. Legislation was introduced this year in nine states - California, Florida, Georgia, Kansas, Maryland, Missouri, New Jersey, Oregon and Texas - to prohibit state funds from being investing in companies doing business in Iran. And 27 states saw bills this year aimed at divesting from companies that do business with one or more of the countries named as sponsors of terrorism, according to the National Conference of State Legislatures.
Most of the legislation that has passed to date has been focused on divesting from Sudan, fueled by concerns over the genocide in Darfur. Socially conscious Hollywood celebrities also have taken up that cause.
Seven states - California, Connecticut, Illinois, Iowa, New Jersey, Maine and Oregon - have passed laws to divest from Sudan, according to the Sudan Divestment Task Force. Legislation is pending in 13 additional states. Several colleges and universities now restrict investments in companies linked to Sudan.
The legality of state divestment laws is in doubt, though. In February, a district court in Illinois ruled that the state's 2005 Sudan divestment law was unconstitutional because it interferes with the federal government's authority to conduct foreign affairs and commerce. The Illinois Senate already has passed a new Sudan investment ban proposed by state Sen. Jacqueline Collins (D).
"We've written other states that have already passed Sudan laws and asked them to review their law in light of the Illinois court's ruling because we have concerns that other laws might be constitutionally defective," said William Reinsch, president of the National Foreign Trade Council (NFTC), a Washington, D.C-based advocacy group. NFTC represented international companies that brought the lawsuit against Illinois in conjunction with eight Illinois pension funds and other beneficiaries.
State pension fund directors are among those to cite problems with divestment laws, claiming they interfere with their job to seek the highest possible returns and are ineffective at forcing social change.
Keith Brainard, research director for the National Association of State Retirement Administrators, a nonprofit group representing pension fund directors, also said it is "unreasonable to expect states and pension funds to sort out which companies are in violation and which are not."
Vermont's state treasurer also has taken a similar approach to Missouri's Steelman. Vermont has a targeted divestment policy for the state's pension funds that restricts investments in companies linked with Sudan, Iran and Syria. But so far it has enforced the policy only on Sudan, using a model developed by the Sudan Divestment Task Force. State Treasurer Jeb Spaulding said he is now searching for screening models to follow for the other countries.
"We are not strong proponents of divestment except in extreme situations," explained Spaulding, who sits on the board of the Vermont Pension Investment Committee, which manages three state funds valued at $3 billion. "Having an international presence through corporations can be a force for positive change in some of these countries."
One fund in Louisiana - the $1.5 billion Sheriff's Pension and Relief Fund - also has moved towards an anti-terrorism investment strategy akin to Missouri's.
The movement to scrutinize state investments began after Sept. 11, 2001, and accelerated after a 2004 report, "Terrorism Investments of the 50 States," by the Center for Security Policy , a nonprofit think-tank in Washington, D.C.
Christopher Holton, director of the Divest Terror initiative at the center, said Steelman "carried this whole initiative on her back" in Missouri.
Missouri's "terror-free" fund is small but ground-breaking. Separate from the $3 billion in state operating funds that Steelman manages, the Missouri Investment Trust's international fund has assets of $7.6 million that are part of the overall $30.5 million trust, which funds some of the state's cultural groups. State Street Global Advisors, a Boston-based investment firm, manages the fund and filters investments through a process provided by the Conflict Securities Advisory Group , a Washington, D.C., research company that screens out companies based on a client's investment policy.
Steelman, who taught economics at Lincoln University in Jefferson City, Mo., and was a broker for A.G. Edwards, said Missouri's example shows that institutional investors can screen for terrorism links and still attain "improved performance." Steelman's office said the international fund had a non-annualized return of 19.2 percent through February, compared with 15.3 percent for the comparable Europe, Australia , and Far East index from Morgan Stanley.
Using political savvy gleaned from two terms as a state senator, Steelman this year lobbied leaders of the Missouri House and Senate to introduce nonbinding resolutions to encourage all public pension funds in the state to consider divesting from companies involved with state sponsors of terrorism. Steelman's office estimates that $1 billion of Missouri's public funds are invested in foreign companies doing business with one of the nations sanctioned by the United States.
But political resistance could stymie the resolutions Steelman fought for. State Sen. Scott T. Rupp (R), who introduced one of the resolutions, said the proposals may not advance beyond committee hearings.
"There's a lot of talk in the hallways: 'Is she or isn't she going to run against our incumbent governor, Matt Blunt?'" Rupp said.
Steelman's four-year term runs through 2008, the year of the next gubernatorial election. She said she remains focused on her responsibilities as state treasurer but added: "You never know what the future might hold."