Capital Markets Transparency and Security: The Nexus Between U.S.-China Security Relations and America's Capital Markets

"Bad Actors" In The Markets

Due largely to the engineering of more efficient financing methods in the 1980's and 1990's, the global funding patterns of "bad actors" have evolved over the past quarter century. Specifically, beginning in the 1980's, Western securities markets began to replace traditional commercial bank syndicated loans and Western government credits as the preferred venue for securing large-scale capital requirements.⁷³

It is important to note that the appearance of higher risk foreign entities, or so-called "bad actors," in the securities markets is, therefore, a relatively new phenomenon. Indeed, the penetration of the U.S. capital markets by riskier foreign enterprises and governments was only identified some five years ago. Put simply, U.S. regulators, policy-makers and those American financial institutions that make up the consumer base for foreign securities (i.e., the "demand side") have limited experience with the potentially volatile nexus between national security and human rights and the markets. While this 21st century security challenge has generated wide-spread media attention and repeated attempts to forge legislative remedies in the past few years, America's capital markets and financial institutions remain vulnerable.

The Soviet Example

Prior to the proliferation of securities offerings by foreign entities, prospective and actual U.S. adversaries sought to tap into the global financial system through alternative means in order to fund themselves and their overseas activities. For example, the Soviets were deft at borrowing in the syndicated loan market in the 1970's and 1980's. These loans were primarily "general purpose" credits to be used in any way the borrower deemed indicated (i.e., not tied to any underlying trade transactions or projects). In exchange for undisciplined, large-scale borrowings, Moscow had to pay a small premium -- but it was a modest trade-off for sizable hard-currency infusions for its anemic economy. The result was a steady stream of funds that Moscow could use at its discretion and a substantial build-up of what eventually would become unpayable debt.⁷⁴

Another example of creative fundraising occurred during the twilight of the former Soviet Union. By having developed a network of subsidiary banks (which blur ownership more than branches) located in Western capitals in the 1970's and early 1980's, Moscow was able to attract billions of dollars in so-called interbank deposits. Due to loopholes in global reporting requirements, the transfer of funds to Moscow from these wholly-owned Soviet subsidiary banks was difficult to trace. ⁷⁵ Ultimately, this complicated, subterranean gambit created, in effect, the equivalent of an estimated $10 billion reserve checking account for Moscow. Moreover, by establishing subsidiaries in Western capitals, Moscow successfully transferred the associated sovereign credit risk of the debt to the countries in which the banks were located, thereby bolstering artificially the Soviet Union's credit rating.⁷⁶

In addition to illustrating the sophistication with which global "bad actors" have navigated the global financial system, these examples underscore the increased challenge these funding activities pose to regulatory regimes and the internal review mechanisms of commercial and investment banks. In short, financial institutions and fund managers are often ill-equipped to detect these abuses. Moreover, due to the fee-generating structure of financial transactions, a conflict of interest may arise from self-oversight.

Finally, the Soviet interbank deposit example presents an interesting corollary to the funding patterns of today's questionable foreign firms and governments. Specifically, the creation of subsidiaries to serve as funding vehicles has become an art form of global "bad actors" seeking to obfuscate their identities and activities. Such "carve-outs" also help blur the ownership of the parent company and, in some cases, government agencies. This approach provides a ready opportunity for Western fund managers to claim they are investing in a benign, commercial entity purchased on a "safe" exchange (e.g., Hong Kong) when, in fact, the firm is owned primarily by a foreign government engaged in certain activities or strategies that are anything but benign. This process also expands substantially the base of funding opportunities available to China or other countries of concern.⁷⁷

Shift To Securities Markets

The shift from Western commercial banks and governments to global capital markets in the mid to late 1980's provided a number of advantages for those foreign entities engaged in malevolent activities.⁷⁸ In the case of bonds, borrowings are often extended with little, if any, conditionality or collateral. Unlike syndicated project loans -- which required detailed repayment analyses (i.e., proceeds directed toward revenue-generating projects to repay the loans) and often staggered disbursements of funds -- the debt markets provide general purpose loans with few questions asked regarding the use of proceeds. Moreover, these borrowings are based only on the full faith and credit of the country or institution guaranteeing the bond.⁷⁹

Western markets also provide emerging market countries like China and Russia with capital at relatively inexpensive rates. When borrowing multi-billion-dollar sums, even a savings of, for example, twenty-five basis points can make securities a more attractive funding source. Moreover, capital markets provide diversification with respect to funding sources. Whereas global entities would, in the past, be forced to rely on the more expensive and disciplined commercial loan market and Western governments, the advent of issuing securities generated several new classes of lenders and investors.⁸⁰ Regrettably, the benefits of these markets also quickly came to the attention of global "bad actors."⁸¹

Russia Frames The Debate

At the beginning of the 1990's, this country's securities markets catered primarily to U.S. firms and multinational corporations. Although less financially sophisticated countries floated sovereign bonds, the markets maintained a "club" mentality, especially with respect to emerging market entrants. This mind-set began to change around 1995, when foreign companies pressed to enter the U.S. and other Western capital markets in record numbers. It was also around this time that entities engaged in activities harmful to U.S. security interests were first identified seeking to attract funds in the U.S. markets.

For example, despite having some $130 billion in Soviet-era debt (the majority of which had to be repeatedly rescheduled) and continually making late payments on $19 billion in international loans acquired since 1991, Russia made an auspicious return to the global debt markets in November of 1996.⁸² From the credit rating agencies, such as Moody's and Standard and Poor's (which accorded a financially troubled Russia a more favorable risk rating than that of Brazil, Argentina and Venezuela), to the bond traders whose enthusiastic response led to a 100 percent oversubscribed offering, Russia's inaugural international bond offering in 1996 was deemed an historic success. In all, some 44 percent of the Eurobond offering -- which was yielding a mere 3.5 percent above U.S. Treasury bills -- was purchased by U.S. fund managers.⁸³

Russia's floatation, however, was not met with enthusiasm by all concerned. Indeed, the borrowing raised a number of concerns that still underpin the "bad actors" debate some five years later. For example, at the time of the offering, the Russian government was engaged in proliferation activities -- including ballistic missile and nuclear component sales to Iran -- and was actively seeking to destabilize the oil-rich Chtmian region.⁸⁴ The country was also nearing deployment of the Topil-M mobile inter-continental ballistic missile and undertaking an ambitious and costly strategic modernization program.⁸⁵ These troubling activities raised the prospect that the undisciplined funds raised by Moscow in its Eurobond offering could be going to fund the wrong types of Russian projects. At minimum, as money is fungible, the $1 billion raised by Moscow would free up other government funds.⁸⁶

The offering also raised a number of financial concerns. In addition to the unduly favorable credit rating Russia received at the time (especially considering the country's severe structural inefficiencies), international bond offerings are generally not rescheduable due to the nature of the market. Were financial adversity to strike Moscow and the country was rendered unable to service the debt, the roughly $440 million held by Americans in various portfolios would be at risk. The offering also created a U.S. investor constituency with a vested financial interest in opposing U.S. policies toward Russia that might affect that country's repayment capability. Moreover, any future default by Moscow on these loans would introduce the prospect of U.S. taxpayer-funded bailouts.⁸⁷

Political and financial advocates of Russia's return to the global markets would argue that Moscow would be "disciplined" by the markets. In order to continue to access international funders, Russia, according to these advocates, would be required to implement more prudent financial and political policies. Unfortunately, history proves that supposedly "financially disciplined" governments -- such as those of South Korea and Mexico in the 1990's -- are not immune from debt crises. Moreover, governments such as Russia and China are more likely to engage in serious foreign policy disputes with the United States.

Other analysts dismissed any political concerns about the use of investor proceeds by emphasizing the relatively small amount of funds involved in the Russian offering. While $1 billion is of little concern in the multi-trillion-dollar global economy, the precedent set by Russia's successful return to the markets set the stage for accelerated borrowiIndeed, Russia went on to issue some $13 billion in U.S. dollar-denominated bonds over the next few years.⁸⁹ The country also experienced a financial meltdown in 1998 and was compelled to reschedule tens of billions of dollars in international debt obligations to the Paris and London Clubs of creditors.⁹⁰

China's Financial Breakout

Building on the case of Russia, in 1997 the William J. Casey Institute of the Center for Security Policy (Casey Institute) began alerting the policy and financial communities to the funding activities and patterns of perceived global "bad actors.⁹¹ Due to the scale of China's financial requirements and its status as the largest emerging market economy in the late 1990's, several of the companies that elicited concern were Chinese. Although Capitol Hill, the Securities and Exchange Commission and other agencies of the U.S. government were not engaged in evaluating this new market phenomenon at the time, this public policy initiative gained momentum following the appearance of articles on this subject in USA Today and Insight Magazine in late 1997.⁹²

At the time, the PRC government had raised some $3.2 billion in dollar-denominated sovereign debt. In total, the country attracted roughly $6.75 billion through dollar-denominated offerings between 1993 and 1997 and another $5 billion in yen-denominated debt during this period.⁹³ China's borrowing activity then accelerated -- the country issued another $7 billion in global debt offerings in 1998 and 1999.⁹⁴

Many of the concerns present with respect to some of China's funding efforts were similar to those involved in the case of Russian borrowings. Specifically, questions were raised as to whether sovereign bond proceeds were contributing to China's purchase of advanced military hardware from Russia (e.g., SU-27 and SU-30 fighter planes, KILO-class submarines, air-to-air missiles, etc.), Beijing's robust military build-up, the country's burgeoning nuclear weapon and ballistic missile programs or new "theater" weaponry with which to threaten Taiwan.⁹⁵ In broader terms, the question to some became: Should the U.S. be underwriting a potential adversary through those types of undisciplined loans?⁹⁶

In addition to some of the concerns applicable to the Russian case (e.g., the diversification of funding sources, the potential creation of a "lobby" of bond holders, a lack of conditionality and discipline, etc.), several new ones have emerged with respect to the funding efforts of Chinese entities. For example, a major differentiating factor in the case of China was the "privatization" of state-owned enterprises (SOE's) as an important global fund-raising devise. Regrettably, a number of these SOE's may be connected, directly or indirectly, to China's People's Liberation Army (PLA) or otherwise engaged in activities -- either within China or internationally -- that conflict with important U.S. security, human rights and religious freedom interests.

PLA-Affiliated Companies


One of the primary challenges in identifying "bad actors" in China is navigating successfully the intricate web of affiliates, subsidiaries and financial flows that are integral to the Chinese economy. (See Appendix 1.) For example, despite a well-advertised campaign by the Chinese government calling for the divestment of businesses owned and operated by the country's military apparatus in 1998, it is still believed that the PRC possesses an impressive network of companies with military connections that merit additional scrutiny before being taken into U.S. investor portfolios.⁹⁷ According to a 1997 AFL-CIO report,

"While the true extent of military commercialization in the PRC - including PLA-non-military enterprises as well as defense industry operations - is difficult to discern, estimates suggest that China's commercial-military complex has some 50,000 companies employing as many as two million people. In 1993, these companies are thought to have earned more than $5 billion. Taken as a whole, the combined earnings of these activities would place China's s commercial-military operations among the ranks of the top 100 corporations of the Fortune 500...

Whatever the true extent of PLA activities, production from recognized PLA commercial enterprises is said to have made up more than 90 percent of the PLA's annual output during the last five years, with proceeds from PLA commercial activities making up as much as 20 percent of the PLA's official budget."⁹⁸

Given the extent to which the PLA is likely still linked to the commercial activities of a number of China's SOE's, it is reasonable to suspect that at least some Chinese "red chips" and other listed entities are also either directly controlled by -- or closely affiliated with -- the PLA. As Representative Spencer Bachus (R-AL) stated in 1999, "There is little doubt that some of this [U.S. investor] money has gone to finance military and intelligence operations [in China]."⁹⁹

Although a complete list of those Chinese companies that are still connected to -- or owned by -- China's military apparatus is unavailable, a brief review of suspected PLA-associated companies underscores the concern that some military-operated enterprises are tapping the global capital markets to fund military-related activities. (See Appendix 2.) For example, China National Aero-Technology Import/Export Corporation (CATIC) owns a number of subsidiaries, including CATIC Industries, Inc. (U.S.), CATIC Industrial Ltd. (Hong Kong) and others. Were it to be determined that a CATIC subsidiary was listed -- or planning to list -- on the Hang Seng and marketed to U.S. institutional investors, it would likely present a security-related challenge. After all, CATIC reportedly "sells aircraft and missiles and is a key player in upgrading domestic aircraft production through technology transfer."¹⁰⁰

A similar scenario could involve China Great Wall Industry Corporation (CGWIC). This company is under the direction of China's Ministry of Aeronautics and Astronautics. More importantly, Great Wall has been linked to -- and, indeed, sanctioned by the U.S. government for -- the exporting of nuclear-capable missile technology to Pakistan.¹⁰¹ This company also owns a Hong Kong subsidiary.

Funding-related concerns are also warranted when suspected PLA entities are cross-checked against select "red chip" families that have Hang Seng-listed subsidiaries. (See Appendix 3.) China Everbright Holdings is one such organization that has been linked to the PLA and, therefore, may require attention. According to the AFL-CIO report, Everbright Industrial Corporation is "affiliated with the PLA General Staff Department." China Everbright International is a subsidiary of this entity listed on the Hang Seng and presumably held in the portfolios of some American pension and mutual funds.¹⁰² Similarly, China Aerospace Group, which reportedly controls China's satellite, missile and other militarily-relevant programs, could at some point seek to attract foreign capital through its listed arm, CASIL.¹⁰³

Although it is beyond the scope of this report to explore known PLA companies, trading corporations and investment trusts to determine whether "red chips" or other funding vehicles have been employed to attract funds on behalf of PLA-affiliated parent companies, these examples point to the need to conduct more rigorous assessments of China's "red chips." Moreover, were it determined that suspected PLA-owned or -operated firms have indeed been privatized, a number of these entities (i.e., those that are engaged in militarily-relevant activities or doing business with terrorist-sponsoring regimes, etc.) would likely still merit review given the nature of their operations.

Specific Entity Review

In addition to the conceptual concerns referenced in the previous section, a number of questions have been raised with respect to the funding activities of a few specific Chinese entities. This section will give priority to five Chinese entities (and/or their subsidiaries) that are likely held -- or have been held in the past -- in portfolio by one or more U.S. institutional investors: 1) CITIC; 2) Polytechnologies; 3) Cosco; 4) China Resources; and 5) Bank of China and other "big four" banks.

CITIC: China International Trust and Investment Corporation, or CITIC, is one of the largest and most influential of China's ITIC's. Between 1993 and 1994, the company launched four dollar-denominated debt offerings that attracted some $800 million.¹⁰⁴ According to a 1997 USA Today article, CITIC "is actually run by the general staff of China's Military Commission."¹⁰⁵ The California-based Rand Corporation was more explicit in a 1997 report, reportedly stating that CITIC served "as a conduit for military sales and acquisition."¹⁰⁶

The activities of CITIC's Chairman, Wang Jun, have also elicited concern. According to
a 1998 U.S. House of Representative Select Committee (or so-called "Cox Committee") report entitled, "U.S. National Security and Military/Commercial Concerns With the People's Republic of China:"

"Wang Jun is the son of the late PRC President Wang Zhen. Wang simultaneously holds two powerful positions in the PRC. He is Chairman of China International Trust and Investment Corporation (CITIC), the most powerful and visible corporate conglomerate of the PRC. He is also the President of Polytechnologies Corporation, an arms trading company and the largest and most profitable of the corporate structures owned by the PLA..."¹⁰⁷

Mr. Wang was also implicated in the campaign finance scandal. According to the Financial Times, Wang "was also connected to over $600,000 in illegal campaign donations made to the DNC (in 1996) through Charlie Trie."¹⁰⁸

CITIC Pacific and CITIC Ka Wah Bank: Although these entities purport to be independent, commercial entities, the true identity of these companies remains questionable. A 1998 book entitled "Red Chips and the Globalization of China's Enterprises" determined CITIC Pacific to be "CITIC's publically-listed arm."¹⁰⁹ The thorough review of "red chips" and their mainland connections undertaken by Mr. Charles de Trenck of Credit Suisse First Boston and four other Hong Kong-based financial analysts went on to state that CITIC has a "controlling interest in the company" and that the subsidiary "appear[s] to bow to political pressure from Beijing."¹¹⁰ The book also touches on CITIC Ka Wah Bank which it observes "has remained directly in the hands of CITIC Beijing."¹¹¹ The stock of both of these Hang Sang-listed funding vehicles were held in portfolio by the California Public Employees Retirement System (CalPERS) as of 1999 as well as other U.S. public pension funds and private mutual funds.¹¹²

Polytechnologies (Poly): The AFL-CIO report on PLA companies referenced earlier lists this company as a "military-related foreign trading company," citing the firm's role as "a procurement arm of the PLA, General Staff Department."¹¹³ The Financial Times also underscored the PLA-related activities of Poly, noting "[Mr. Wang is] chairman of Polytechnologies, an arms trading company..."¹¹⁴ "The Year of the Rat," a 1998 book by China experts Ed Timperlake and Bill Triplett more bluntly defined Poly's corporate activities. "Poly is China's leading arms smuggler and the conduit for Russian arms transfers to China."¹¹⁵ The company's stock has reportedly been held by the Arkansas State Teachers Fund and possibly other U.S. public pension firms.

COSCO: China Ocean Shipping Company, or Cosco, was deemed by the U.S. House of Representatives Task Force on Terrorism and Unconventional Warfare to be a military-related entity. According to the Task Force report, "Although presented as a commercial entity, Cosco is actually an arm of the Chinese Military."¹¹⁶ The shipping firm was reportedly denied its request to lease a Long Beach naval base due primarily to national security considerations according to an Investor's Business Daily report and was implicated in the delivery of advanced weaponry and, possibly, proscribed proliferation-related materials from China to Pakistan and Iran.¹¹⁷ A Cosco ship was also involved in the failed 1996 attempt by China to smuggle automatic weapons to California street gangs.¹¹⁸ More recently, the company was cited by the Washington Times for its role in transporting weapons to Cuba.¹¹⁹

The stock of Cosco Pacific, the "red chip" funding vehicle of Cosco, is held by a number of U.S. funds. According to Cosco Pacific's web-site, the company "enjoys strong business ties and a high degree of synergy with its parent, the China Ocean Shipping Company."¹²⁰ In September 1999, the Texas State Teachers Retirement System (TRS) divested its shares in Cosco Pacific shortly after concerns with respect to the company were raised by a Texas state legislator.¹²¹ TRS recently renewed its investment in Cosco Pacific, purchasing some 2 million shares in the first half of this year.¹²²

China Resources: In a letter from Congressman Spencer Bachus to Texas State Representative Suzanna Gratia Hupp in 1999 regarding specific Chinese entities held in portfolio by the Texas State Teacher Retirement System, the Representative stated,
"[China Resources] has been cited by Senator Fred Thompson, Chairman of the Senate Government Affairs Committee, and a former Defense Intelligence officer as being used as a conduit for Chinese intelligence-gathering activities. According to Senator Thompson, the company is "an agent of espionage ñ economic, military and political ñ for China." Former Defense Intelligence officer Nicholas Eftimiades states, "For example, a vice president of China Resource Holding Company in Hong Kong [China Resources' Hong Kong "red chip"] is traditionally a military case officer for Guangzhou. This officer coordinates the collection activities of other intelligence personnel operating under Hwa Ren [Chinese military intelligence] cover."¹²³

The company's subsidiary, China Resources Holding, is owned by a number of U.S. funds.

China's "Big Four" Banks: Bank of China, China Construction Bank (now Construction Bank of China) and China Development Bank (now Industrial and Commercial Bank of China) have together attracted some $4 billion in U.S. dollar-denominated bond offerings since 1985. While the banks have not been directly implicated in security-related matters (notwithstanding allegations that Bank of China served as the banking intermediary for fund transfers made to Johnny Chun and Charlie Trie during the campaign finance scandal), there remains little transparency or disclosure regarding the loan portfolios of these banks or the end-use of bond proceeds.¹²⁴

Given the "enabling" role played by these banks in underwriting the country's SOE's, it is likely that funds raised by the banks could find their way to military-related activities and/or PLA-affiliated companies. As Peter Schweizer opined in a 1997 USA Today editorial, "The trouble is, this money can be diverted to modernize the armed forces, acquire military-related technologies or even serve as supplier credits [by Chinese banks] for missile sales to Iran and Pakistan."¹²⁵

An example of this type of diversion of Western funds -- albeit not in a security-related area -- to potentially troubling projects was evident in 1999 when environmental organizations protested a $500 million China Development Bank bond offering that they claimed would channel proceeds to the controversial Three Gorges Dam project. In a letter to the lead U.S. underwriter, the groups cited the precedent set by the 1998 Chinese sovereign bond case. In that case, $200 million of the bond proceeds allegedly "found its way to the project" according to the correspondence.¹²⁶ The underlying message from the group was that it remains difficult to ensure that general purpose borrowings will be "firewalled" from undesirable Chinese activities.

The Bank of China is now reportedly constructing a Hong Kong subsidiary to serve as the listing vehicle for a proposed multi-billion NYSE and Hang Seng initial public offering later this year.¹²⁷

Governmental Confirmation

In 1998, two bipartisan, government reports cited the risk that select Chinese or other "bad actors" have penetrated the U.S. markets or will seek to do so. According to the so-called Cox Committee report on China:

"The Securities and Exchange Commission collects little information helpful in monitoring PRC commercial activity in the United States. This lack of information is due only in part to the fact that many PRC front companies are privately-held and ultimately ñ if indirectly ñ wholly-owned by the PRC and the CCP itself. Increasingly, the PRC is using U.S. capital markets both as a source of central government funding for military and commercial development and as a means of cloaking U.S. technology acquisition efforts by its front companies with a patina of regularity and respectability."¹²⁸

The Commission to Assess the Organization of the Federal Government to Combat the Proliferation of Weapons of Mass Destruction, or the so-called Deutch Commission report (named after it's Chairman, former Director of the CIA John Deutch), went further in describing the extent of the problem. In addition to underscoring the concern that proliferating countries, as well as proliferating firms and their subsidiaries, are likely accessing capital from the U.S. markets, the Deutch report raised the prospect of new national security-related risks to investors:

"For example, the Commission is concerned that known proliferators may be raising funds in the U.S. capital markets...Because there is currently no national security-based review of entities seeking to gain access to our capital markets, investors are unlikely to know that they may be assisting in the proliferation of weapons of mass destruction by providing funds to known proliferators. Aside from the moral implications, there are potential financial consequences of proliferation activity ñ such as the possible imposition of trade and financial sanctions ñ which could negatively impact investors.¹²⁹

Early Recommended Solutions

It is important to note that despite mounting evidence that global "bad actors" are accessing the U.S. debt and equity markets, at no time have there been calls for the explicit denial of access to these markets for all Chinese entities or even state-owned enterprises. Indeed, at least in the case of the Casey Institute, the primary focus of recommended steps has always been expanded transparency and disclosure requirements for overseas market registrants. The importance of maintaining the free flow of capital into and out of the U.S. as a pillar of this country's economic growth and financial competitiveness has not been lost on those who have sought to raise attention to this burgeoning national security challenge. Nor have there been calls for capital controls or undue government intervention in the markets. Nevertheless, as the Deutch Committee and others have recommended, more detailed study of this emerging security-related field and possible steps to curtail market access for known, egregious wrongdoers would be useful.

As a leading advocate for national security-related risk assessment, the Casey Institute has recommended a number of non-disruptive, market-oriented remedies since 1997. Among these is the creation of a voluntary public-private sector partnership whereby Wall Street firms seeking to underwrite certain emerging market enterprises -- and/or investment funds considering the purchase of overseas debt and equity offerings -- could work with the appropriate Executive Branch agencies to help ensure that these investments were free of national security-related concerns. Similarly, the Institute has called for an internal SEC review of those rules and regulations that govern the disclosure requirements for foreign entities doing business with U.S. sanctioned countries as well as overseas exemptions that allow qualified U.S. institutional investors to purchase securities offered through foreign markets.¹³⁰

The Casey Institute has also proposed the creation of an interagency working group that could review -- on those rare occasions necessary -- foreign registrants from a national security perspective. This so-called "Committee on Foreign Financing and Borrowing." or COFFAB, could include representatives from the Treasury Department, the National Security Council, the Departments of State, Justice and Defense and the CIA. It was recommended that Treasury and NSC co-chair a COFFAB-like group to ensure the proper integration of global finance and national security. It was also envisioned that this senior inter-governmental working group would be authorized to recommend to the President the denial of access to U.S. markets in cases of especially onerous national security and human rights concerns.¹³¹

In addition to these recommended steps, former Senator Lauch Faircloth (R-NC) and former Rep. Gerald Solomon (R-NY) co-sponsored legislation entitled the U.S. Markets Security Act of 1997. Far from seeking to legislate any steps that would have restricted capital flows, this bill -- which was never acted upon -- would have merely constructed a monitoring capability within the SEC to determine the scope of the problem.¹³² Specifically, the legislation called for the establishment of a one-person Office of National Security at the SEC that would report to relevant Congressional committees the names of those foreign firms seeking to access the U.S. debt and equity markets on a quarterly basis.¹³³ This legislation was resurrected by Representatives Spencer Bachus (R-AL) and Dennis Kucinich (D-OH) in 1999, but also never exited the committees of jurisdiction.

Conclusion

The ascendence of the global securities markets as the primary funding vehicles for those foreign companies and governments that require large-scale, annual capital infusions has, regrettably, given rise to the troubling prospect that some dubious foreign entities may be funding themselves and/or their international activities in our markets. There still remain, however, more questions than answers regarding the extent of this 21st century "financial security" challenge. Regrettably, the U.S. government -- with the exception of the SEC and some on Capitol Hill -- has yet to take the steps necessary to evaluate adequately this new issue area and implement appropriate safeguards. As a result of undue delays in this process, national security, human rights and religious freedom concerns have already collided with the markets in three high-profile cases.