Tuesday, May 15, 2001

Each year, this column recognizes valiant service on behalf of the nations security and vital interests by bestowing the coveted “Horatio at the Bridge” Award. During this cycle, as usual, there has been fierce competition for this distinction, named for the legendary Roman whose single-handed defense of a bridge against huge odds is said to have saved his city.
The award this year goes to two individuals my friend and colleague, Roger W. Robinson Jr. and Rep. Frank Wolfe, an 11-term Republican congressman from Virginia whose longstanding struggles on behalf of national security, human rights and religious freedom have just borne important fruit in an unlikely, but enormously important, arena: the Securities and Exchange Commission (SEC).
A bit of background is in order. Some five years ago, Mr. Robinson turned the skills he had honed as an international banker with Chase Manhattan Bank and as a senior economist on President Reagans National Security Council staff to a serious, and growing, problem: the penetration of the U.S. capital markets by foreign governments and companies engaged in activities inimical to American security interests and values.
Such penetration has been made possible, in no small measure, by the relative lack of transparency required of foreign entities by the SEC compared to that demanded of domestic concerns seeking to raise funds in the U.S. debt and equity markets. American investors have, as a result, been unwittingly putting billions of dollars into the hands of certain unsavory Communist Chinese, Russian and other entities who Mr. Robinson calls “global bad actors” via the formers pension plans, mutual funds, life insurance and personal portfolios, etc. that hold benign-sounding “Pacific growth,” “emerging market” and other investments.
Mr. Robinson and his colleagues at the Center for Security Policys William J. Casey Institute have tried to raise an alarm about this problem and to encourage market-oriented corrective action by federal regulators. The recently departed SEC chairman, Arthur Levitt, assiduously refused to address the issue. The Clinton administration wanted no part of any initiative that might restrict funds flowing to its so-called “strategic partner,” China, or others wanting to access some $30 trillion in the U.S. capital markets. And, in the face of suppressing fire from prestigious Wall Street firms who lust after the sizable fees associated with bringing even dubious foreign offerings to market, interest on Capital Hill has been episodic, at best. This poor performance stood in sharp contrast to the concern about such transactions Mr. Robinsons work engendered among non-federal officials and pension funds in California and other states.
The Casey Institutes Capital Markets Transparency Initiative reached critical mass recently with the convergence of two developments: First, the growing determination to halt the government of Sudans involvement in genocide, slave-trading, proliferation of weapons of mass destruction and support for terrorism created an insistent demand for new sources of U.S. leverage. An attractive option would be to curtail the access to the American stock and bond markets enjoyed by Chinese, Canadian and other foreign oil companies engaged in the development and exploitation of Sudans energy reserves. After all, the Khartoum government has publicly stated that the revenues generated by such activity are paying for its brutal war against Christians and animists in southern Sudan.
Second, this year Mr. Wolf one of the Congress most active opponents of the Sudanese regime and the horror it is inflicting on its own people became the chairman of the House Appropriations subcommittee that funds the Securities and Exchange Commission. Messrs. Wolf and Robinson teamed up to get something done about Sudan and, in the process, to create systemic changes that would strengthen transparency and discipline in the U.S. capital markets.
With the commendable cooperation of Arthur Levitts interim replacement, Acting SEC Chairman Laura Unger, and the director of the SECs Division of Corporation Finance, David Martin, our two Horatios sought and secured fundamental changes in the way foreign countries, governments and entities do business on Wall Street. These changes were described in an extraordinary letter sent by Ms. Unger to Mr. Wolf on May 8. They include: greater transparency as to where and with whom foreigners seeking to bring offerings to market are doing business; mandatory electronic filing by such offerers, affording far greater opportunity for investors and market monitors to detect bad actors; and intensified SEC oversight of foreign registrants in the U.S. markets.
Such regulatory changes by the SEC will not, in and of themselves, preclude those providing financial life-support to the government of Sudan, Chinese missile manufacturers, the Russian mafia, drug dealers, proliferators, foreign intelligence services, terrorists or other undesirables from securing large sums on Wall Street. The SECs actions do make these efforts much more difficult, however, simply by allowing investors to make informed decisions.
For helping create what might be called the Unger Standards for transparency and discipline at the SEC, Roger Robinson and Frank Wolf are worthy not only of the 2001 “Horatio at the Bridge” award. They deserve the thanks of all of us whose security and values may be less imperiled by the bad actors who would otherwise have been enabled to gain access to private American capital. It will now fall to President Bush and his newly announced nominee to chair the Security and Exchange Commission, Harvey Pitts, to consider ways in which such transparency and discipline can be further strengthened to the advantage of both investors and the nation as a whole.

Frank J. Gaffney Jr. is the president of the Center for Security Policy and a columnist for The Washington Times.

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