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.