S.E.C. Rethinks Lists Linking Companies and Terrorist States




By Floyd Norris

A month ago, it seemed like a good idea. The Securities and Exchange Commission, at the urging of some lawmakers, released a list of public companies that do business in countries the United States considers to be state sponsors of terrorism.

“No investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state,” the S.E.C. chairman, Christopher Cox, said in announcing that the Web site would include links to the annual reports of any company doing business in Cuba, Iran, North Korea, Sudan or Syria.

“Making it easier to find significant information such as this by tapping the power of technology is central to the S.E.C.’s mission,” Mr. Cox said in the June 25 announcement.

Yesterday, just before 5 p.m., the lists and the links came down from the S.E.C. site. The commission had learned that giving in to Congressional pressure sometimes just produces denunciations from other parts of Capitol Hill.

In a statement late yesterday, Mr. Cox said the commission was “temporarily suspending the availability of the Web tool while it undergoes reconstruction,” in part to ensure that the information reflects any subsequent disclosures, like a company’s statement that it is pulling out of a country. But he added that it was possible the commission would conclude that it did not need to compile such a list at all.

Within the last week, both the chairman and the ranking Republican member of the House Financial Services Committee had written to the S.E.C. criticizing the list.

The chairman, Barney Frank, Democrat of Massachusetts, called the list “unfair and perhaps counterproductive.” He said some companies “apparently have investments that are so negligible they could not be considered material either to investors or the economy of the terrorist financing state.”

The ranking Republican on the committee, Spencer Bachus of Alabama, said “this initiative appears to have been ill-conceived and poorly implemented.”

A few weeks before the list was posted, the Capitol Hill pressure had been in the other direction. Senator Christopher J. Dodd of Connecticut, the chairman of the Banking Committee and a candidate for president, called on the S.E.C. to make it easier for “shareholders to access reliable information regarding publicly traded companies’ business transactions involving Iran and Sudan.”

The S.E.C. list named 29 companies whose 2006 annual reports had mentioned doing business in Cuba, 57 in Iran, 8 in North Korea, 35 in Sudan and 24 in Syria.

The Web site made it easy for anyone to read the portion of the actual disclosure, and presumably to decide whether the involvement was such that it would bother them.

But companies were outraged that they were on the list at all and feared it would be used to tar them without regard to the details.

Deutsche Bank, for example, was listed as doing business in Sudan after it disclosed that it “formerly engaged in a limited amount of business with counterparties in Sudan, but discontinued such activities in 2006.” Reuters, the media company, had reported news-gathering activities in Cuba, Iran and Syria, and made all three lists.

The list was relatively easy to put together because companies are required to disclose activities in countries on the State Department list of terrorist sponsors.

Many of the companies listed were foreign corporations whose securities are registered with the S.E.C., and some of them were upset.

“The list was fraught with distortions that could have actually harmed investors instead of informing them,” said Todd Malan, the president of the Organization for International Investment, which represents such companies. “It was basically just a word search with no context, scale or reference.”

Mr. Cox, in his statement, denied that the list was the result of a simple word search, saying that the S.E.C. made sure that companies had reported activities in the countries and had not just mentioned them in some other context.

Mr. Cox noted that it would still be possible to search S.E.C. filings for the disclosures of such business activities.

Yesterday’s decision was praised by Representative Bachus.

“Retooling this Web site, which previously provided access to incomplete and extraneous information, will enhance its usefulness to citizens seeking to determine whether their investments are being used to finance terrorism or genocide,” he said.