[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                     INVESTMENTS TIED TO GENOCIDE: 
                      SUDAN DIVESTMENT AND BEYOND 

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INTERNATIONAL MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 30, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-167

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
        Subcommittee on International Monetary Policy and Trade

                  GREGORY W. MEEKS, New York, Chairman

LUIS V. GUTIERREZ, Illinois          GARY G. MILLER, California
MAXINE WATERS, California            EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GWEN MOORE, Wisconsin                DONALD A. MANZULLO, Illinois
ANDRE CARSON, Indiana                MICHELE BACHMANN, Minnesota
STEVE DRIEHAUS, Ohio                 ERIK PAULSEN, Minnesota
GARY PETERS, Michigan
DAN MAFFEI, New York

























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 30, 2010............................................     1
Appendix:
    November 30, 2010............................................    29

                               WITNESSES
                       Tuesday, November 30, 2010

Cohen, Eric, Chairperson, Investors Against Genocide.............     7
Kanzer, Adam M. Esq., Managing Director and General Counsel, 
  Domini Social Investments LLC..................................     9
Melito, Thomas, Director, International Affairs and Trade, U.S. 
  Government Accountability Office...............................     5
Williamson, Richard S., former Special Envoy to Sudan............    11

                                APPENDIX

Prepared statements:
    Cohen, Eric..................................................    30
    Kanzer, Adam M. Esq..........................................    57
    Melito, Thomas...............................................    69
    Williamson, Richard S........................................    86


                     INVESTMENTS TIED TO GENOCIDE:
                      SUDAN DIVESTMENT AND BEYOND

                              ----------                              


                     Tuesday, November 30, 2010I03

             U.S. House of Representatives,
                      Subcommittee on International
                         Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2128, Rayburn House Office Building, Hon. Gregory W. Meeks 
[chairman of the subcommittee] presiding.
    Members present: Representatives Meeks, Driehaus, Maffei; 
Miller of California and Paulsen.
    Also present: Representatives Capuano, McGovern, and Lee of 
California.
    Chairman Meeks. This hearing of the Subcommittee on 
International Monetary Policy and Trade will come to order.
    We will have opening statements. And, without objection, 
all members' opening statements will be made a part of the 
record.
    We are waiting for the arrival--I want to note that he is 
going to appear shortly--of the ranking member, Mr. Miller, but 
we will begin so that we can hear the testimony of our 
witnesses and get opening statements in prior to us having a 
vote.
    But before I begin, let me first--I would like to thank the 
ranking member, Mr. Miller, for working with me to organize 
this critical hearing on the humanitarian crisis in Darfur and 
for exploring how we can better empower our capital markets to 
contribute to making a positive change in this crisis.
    And I also want to take note of Mr. Capuano, who is here 
with us today. He is one of the most committed Members of 
Congress on this issue especially. And I want to thank you for 
your dedication and for your commitment in this area.
    Here is Mr. Miller.
    So we are happy to have you with us today. And later on, we 
will be asking for unanimous consent to allow Mr. Capuano to 
have an opening statement.
    I was just saying, Mr. Miller, I wanted to thank you for 
all of your help, for your commitment, and always your 
partnership in organizing and bringing this together, and also 
for your commitment in this very important issue and area. I 
thank you.
    And I also want to thank all of the witnesses, even prior 
to your testimony, for being here today and agreeing to 
testifying before Congress.
    The Sudan has been in conflict, as many of you know, for 
many of the past 54 years since it achieved its independence. 
And civil wars have caused millions to die from violence and 
hunger, displaced millions more, and often destabilize the 
whole region, with neighbors that include Chad, Libya, Egypt, 
Eritrea, Ethiopia, Kenya, Uganda, the Central African Republic, 
and the Democratic Republic of Congo, all of which have been 
caught up in Sudan's civil wars and famines.
    This is also a priority for reasons of our own national 
security. Whether because it is the largest country in Africa 
and a major producer of oil and other natural resources, a 
source of conflict with millions of weapons in circulation, a 
government accused of war crimes and genocide, or because of 
its porous borders, Sudan is not a country that any American 
can ignore, and one that the United States Government monitors 
very closely.
    In 2007, Congress passed the Sudan Accountability and 
Divestment Act, or SADA. SADA helped empower a growing movement 
by authorizing States and investment managers to formally 
establish a policy to divest from or prohibit investment in 
companies that are seen as supporting the Government of 
Khartoum. In particular, SADA gave investment managers safe 
harbor from prosecution if they decided to divest from 
countries that conflict with such a policy. Surveys show that 
nearly all Americans support such initiatives and do not want 
their investments supporting genocide in any way.
    As Mr. Melito will testify, a recent GAO study found that 
SADA and other such initiatives at the State level have led to 
an outflow of American capital from the targeted companies and 
Sudan in general. What is more, targeted companies have indeed 
been prevented from government contracting opportunities.
    As we engage in the discussion today, it will matter also 
to explore what happens when American investors and companies 
exit such regions and whether less scrupulous players enter and 
merely make matters worse. While we want to keep up the 
pressure on American capital to not contribute to supporting 
governments that would allow atrocities such as the situation 
in Darfur, there is also no doubt that American companies 
generally operate with a higher ethical standard and 
understanding of civic engagement than do many other companies 
from around the world.
    As we discuss and debate the merits of speaking with our 
wallet and empowering investors to direct their savings away 
investments that conflict with their values, we must also be 
mindful to consider what happens in the absence of American 
capital and companies, what we do to mitigate unintended 
consequences, and how we can also empower these same companies 
and investors to re-engage when the situation on the ground 
improves, looking at it from a wholistic point of view.
    And I know that we are going to have some interesting 
testimony and some enlightening questions to come in this 
matter. So, again, let me thank the witnesses for being here to 
testify. I look forward to hearing your testimony and having 
the opportunity to ask you some questions in a very short 
while.
    And I now will turn it over, I yield to my friend, the 
ranking member, Mr. Miller, for an opening statement.
    Mr. Miller of California. Thank you, Chairman Meeks, for 
holding this hearing today.
    It is interesting to focus on what impact the effectiveness 
of the Sudan Accountability and Divestment Act of 2007 had on 
the divestment of assets from Sudan and how that affected the 
country and government regime.
    I thank the witnesses for being here today. It is very nice 
of you to all show up. I really look forward to the testimony. 
We have a very brief period of time for you to speak, but I 
know you have a lot to say, and I hope you will make that 
concise so we can get as much as we can on the record.
    Appropriately, this body is concerned with the actions and 
policies pursued by the Government of Sudan. The people of 
Sudan have long suffered through civil war and economic 
hardship while policies of the government have led to 
widespread human rights abuses and genocide in the Darfur 
region.
    For this reason, in 2007 this House unanimously passed the 
Sudan Accountability and Divestment Act--and it is nice to say 
``unanimous;'' when we do something like that on a bipartisan 
approach, it is very nice to see, because that means what we 
were dealing with was very important and we were trying to have 
a significant impact--allowing State and local governments to 
divest their assets from companies with business operations in 
Sudan.
    While the law is only a few years old, I am interested in 
hearing the panelists' thoughts on the effectiveness of 
divestment and whether the policy has any hope of effecting a 
sustainable change in the region.
    Again, Mr. Chairman, thank you for holding this hearing. We 
have widespread support for this, for what we have done in the 
past, and I am looking forward to hearing the testimony.
    I yield back the balance of my time.
    Chairman Meeks. I now ask unanimous consent to allow Mr. 
Capuano to have an opening statement.
    Mr. Miller of California. We need to debate who is 
speaking, but I guess we will allow him to go ahead and talk.
    Mr. Capuano. Thank you, Mr. Chairman.
    I just want to be very brief myself. I want to thank the 
chairman and ranking member for having this meeting, and to 
make it clear to anybody who might be listening what this is 
about.
    This is not about Sudan, per se. To me, it is not. It is 
not about civil wars. This is about genocide, clear and simple. 
There is a difference between a civil war and a genocide. A 
civil war is when two equal parties have disagreements and bad 
things happen. A genocide is when an innocent, unarmed 
population is massacred, particularly, in this case, by its own 
government. So that is what this is about, to me.
    And this particular hearing is to determine how well, if at 
all, our law has worked, where the holes might be, what we 
might be able to do to close them up, to see if the action we 
took is sufficient and if it is having any impact. And I think 
that is the way it should be.
    And I also want to underscore exactly what Mr. Miller said. 
I have not met anybody in this Congress or anywhere who is in 
favor of genocide. Every good human being--not Democrat, not 
Republican, not even American--every good human being should 
stand as tall as they can against genocide anywhere in the 
world, whether it be people next door to us or people we will 
probably never meet. And that is what this is about. It is 
about being a human being and being responsible to our fellow 
human beings.
    And, again, I want to thank the chairman and the ranking 
member.
    I particularly want to thank the chairman for the kindest 
words that have ever been spoken by a Yankees fan to a Red Sox 
fan. And I just want to return the favor. You have done a great 
job, Mr. Meeks, and I appreciate very, very much your 
leadership on this issue and so many other things.
    Thank you.
    Chairman Meeks. Now I yield to Mr. Paulsen for an opening 
statement.
    Mr. Paulsen. Thank you, Mr. Chairman.
    I also want to thank the chairman and the ranking member 
for holding the hearing today and for your leadership on this 
issue, as well.
    Some of my constituents, especially a group of students 
from Edina High School who have been part of a group called 
STAND, have been very vocal and concerned about issues 
surrounding Sudan and genocide in particular. And these 
students have been active in informing the community on the 
crisis in Sudan. And I also became a member of, actually, the 
Sudan Caucus at their urging.
    As we approach the 3-year anniversary now of the Sudan 
divestment legislation being signed into law, I believe it is 
important for us to examine the impact that the legislation has 
had on the situation in Sudan. And while the upcoming 
referendum on southern Sudanese independence will be extremely 
telling, Sudan is far from where we would like it to be. And I 
would hope that this hearing can provide some insight on how we 
can have a more effective policy toward Sudan.
    I am also interested in hearing, in particular, the effects 
the legislation have had over the last 3 years. I was a strong 
proponent of the Iran divestment legislation that, of course, 
passed Congress, and I am interested to see how the lessons 
from Sudan can also be applied to Iran.
    I want to thank the witnesses for being here today, and I 
look forward to your testimony.
    Thank you, Mr. Chairman. I yield back.
    Chairman Meeks. I now ask unanimous consent to allow Mr. 
McGovern to speak for purposes of an opening statement.
    Mr. McGovern. I appreciate it. Thank you, Mr. Chairman.
    And I want to thank those who are here to testify.
    This is an important hearing. So many States, like my home 
State of Massachusetts, and public and private institutions are 
reviewing their investment funds and portfolios and looking for 
ways to ensure that they do not directly or inadvertently 
invest in companies whose activities and capital help enrich 
genocidal regimes.
    A little over 2 years ago, in September 2008, the then-
Congressional Human Rights Caucus, in coordination with the 
House Sudan Caucus, held a hearing to explore genocide-free 
investing: who was successful at managing such investment 
portfolios; what were the reasons that other investment 
companies gave for not carrying out this type of scrutiny of 
their own portfolios; what type of guidance for investment 
managers might be helpful; and whether obstacles existed in 
laws or regulations that inhibited firms from making sure that 
their investment portfolios were genocide-free. Today's hearing 
more formally builds on that earlier hearing, and I look 
forward to hearing from the witnesses.
    And let me finally say--and I want to associate myself with 
the remarks of my colleague from Massachusetts, Mr. Capuano. We 
are talking about genocide here. And what frustrates me is 
sometimes when you hear people say, that is something for 
governments to deal with. Yes, it is something for governments 
to deal with, but it is something for financial institutions 
and businesses to deal with, as well. Those who knowingly 
continue to invest in ways that help enrich genocidal regimes 
are, in essence, complicit. There is no excuse. And if you want 
to stop genocide, then you have to stop the investments in 
these genocidal regimes.
    I tried to go to Darfur. The Sudanese Government wouldn't 
give me a visa to go, wouldn't allow me in the country. So I 
went and I visited the camps, refugee camps, in Chad, along the 
Sudanese border. It breaks your heart. And the stories that I 
heard, I can't even describe how horrific they were.
    And I sit here frustrated that the world community has not 
done enough to stop the killing that goes on in places like 
Sudan, and we need to figure out a way to do it. And we are all 
in this, not just governments but the private sector, as well. 
And so I appreciate your being here and look forward to your 
testimony. Thank you.
    Thank you, Mr. Chairman.
    Chairman Meeks. Thank you.
    And, with that, I am going to forgo formal introductions, 
because I want to make sure that we have as much time as we 
possibly can with the testimony and questions prior to any 
votes being called.
    So I will start with Mr. Thomas Melito, who is a Director 
of International Affairs and Trade at the United States 
Government Accountability Office.
    Welcome, Mr. Melito.

STATEMENT OF THOMAS MELITO, DIRECTOR, INTERNATIONAL AFFAIRS AND 
          TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Melito. Thank you, Mr. Chairman. I am pleased to be 
here to discuss our work regarding the Sudan Accountability and 
Divestment Act.
    My testimony is based on our report which was released in 
September. I will focus on three topics: first, actions that 
U.S. States and investment companies have taken regarding their 
Sudan-related assets; second, the factors that these entities 
considered in determining whether to divest; and, third, 
compliance with the Act's contract prohibition provision.
    Regarding the first topic, we found that State fund 
managers have divested or frozen about $3.5 billion in assets 
primarily related to Sudan. Thirty-five U.S. States have 
enacted legislation or adopted policies affecting their Sudan-
related investments. State fund managers we surveyed cited 
compliance with these laws and policies as their primary reason 
for divestment.
    U.S.-based investment companies have also sold Sudan-
related shares. Our analysis shows that the value of U.S. 
holdings in six key foreign companies fell by nearly 60 
percent, or about $8.5 billion, from March 2007 to December 
2009. We have found that this decline in Sudan-related holdings 
cannot be accounted for solely by changes in share price, 
indicating that these investors, on net, sold shares. 
Investment companies generally stated that they adjusted their 
Sudan-related shares for normal business reasons, such as 
maximizing shareholder value.
    Regarding the second topic, we found that U.S. investors 
generally considered three issues when determining whether to 
divest from companies tied to Sudan: first, fiduciary 
responsibility; second, the difficulty in identifying operating 
companies with ties to Sudan; and, third, the possible effects 
of divestment on operating companies and the Sudanese people.
    In terms of fiduciary responsibility, both State fund 
managers and private investment companies told us that any 
decision to divest needs to take into consideration their duty 
to act solely and prudently in the best interest of the client. 
However, investment companies that consider themselves socially 
responsible maintain that divesting from Sudan is consistent 
with fiduciary responsibility as long as the alternative 
equities chosen can compete financially.
    Regarding the identification of operating companies with 
ties to Sudan, the Act requires that, before divesting, 
responsible entities must use credible information to identify 
which companies have prohibited business operations. State fund 
managers we surveyed rely heavily on private-sector lists of 
operating companies with business ties in Sudan. However, our 
analysis of three available lists indicates that they differ 
significantly from one another, finding that of the over 250 
companies identified on one or more of these lists, only 15 
appeared on all three.
    Representatives from the organizations that created these 
lists told us that obtaining information on operating companies 
with business ties to Sudan is difficult. They also said they 
would consider an SEC disclosure filing by operating companies 
to be a particularly reliable source of information. However, 
Federal securities laws do not require companies specifically 
to disclose operations in countries designated as state 
sponsors of terrorism.
    The SEC has suggested to companies that any operations they 
have in state sponsors of terrorism might be considered 
material and that investors would consider this information 
important in making investment decisions. However, in their 
correspondence with the SEC, companies have raised concerns 
about these instructions.
    Regarding the possible effects of divestment, some 
companies that have ceased operating in Sudan warned of a 
negative effect on both companies and people. Because of these 
concerns, some investors and advocacy groups have shifted their 
focus towards engagement, viewing divestment as a last resort. 
U.S. States have also endorsed engagement as a viable 
alternative to divestment, with 19 of the 25 States whose laws 
or policies require divestment also encouraging or requiring 
engagement.
    Regarding the third topic, we found that the U.S. 
Government has complied with the Federal contract prohibition 
provisions of SADA. We did identify one company that received a 
Federal contract and which also had prohibited business 
operations in Sudan. However, the contract was administered 
under simplified acquisition procedures that do not require 
SADA certification.
    In addition, we found that the U.S. Government had awarded 
more than 700 contracts to affiliates and subsidiaries of 
companies identified as having prohibited business ties to 
Sudan. However, SADA does not restrict Federal contracting with 
these affiliates and subsidiaries if they certify that they do 
not have prohibited business operations in Sudan.
    In our report, we recommended that the SEC consider issuing 
a rule requiring companies that trade on U.S. exchanges to 
disclose their business operations related to Sudan as well as 
possibly other U.S.-designated state sponsors of terrorism.
    Mr. Chairman, this concludes my statement.
    [The prepared statement of Director Melito can be found on 
page 69 of the appendix.]
    Chairman Meeks. Thank you very much.
    Now, I will go to Mr. Eric Cohen, who is the chairperson of 
Investors Against Genocide.
    Mr. Cohen, thank you for your work.

    STATEMENT OF ERIC COHEN, CHAIRPERSON, INVESTORS AGAINST 
                            GENOCIDE

    Mr. Cohen. Thank you, Chairman Meeks, Ranking Member 
Miller, and members of the subcommittee. Thank you for the 
opportunity to discuss the need to empower individual investors 
to choose investments aligned with their desire to avoid 
connections to genocide.
    For the last 4 years, Investors Against Genocide has been 
asking financial institutions to better serve shareholders by 
making an effort to avoid investments in companies that are 
known to substantially contribute to genocide or crimes against 
humanity. We term this approach to investment ``genocide-free 
investing.''
    Our experience highlights two problems. First, although 
U.S. sanctions against Sudan prevent U.S. companies from 
operating in Sudan's oil industry, American financial 
institutions have been major investors in foreign oil companies 
that help the Government of Sudan fund its campaign of genocide 
and crimes against humanity in Darfur. For example, in the last 
few years, well-known financial institutions such as Fidelity, 
Franklin Templeton, and JP Morgan have each had investments in 
PetroChina alone worth over $1 billion.
    Second, research shows that the vast majority of Americans 
are opposed to having their hard-earned savings tied to 
genocide. Nonetheless, because most individuals entrust their 
savings to mutual funds, millions of Americans are investing 
unknowingly, inadvertently, and against their will in companies 
funding genocide.
    Addressing this problem will have enduring value not only 
for the continuing crisis in Sudan but also for humanitarian 
crises in the future. Our recommendations are focused on 
financial institutions becoming more transparent and providing 
customers with the material information needed to make informed 
choices.
    Our recommendations are based on the following 
observations.
    First, according to market research, 88 percent of 
Americans don't want to be connected through their savings to 
egregious human rights abuses. Copies of these studies are 
included in my written testimony. This preference for genocide-
free investing has been further demonstrated in the marketplace 
by strong support for shareholder proposals addressing 
genocide-free investing and by the action of States, colleges, 
and Congress to support divestment from Sudan.
    Second, current reporting requirements for funds provide no 
insight into the funds' human rights policy, depriving 
investors of material facts needed to identify funds with 
connections to the worst human rights abuses and preventing 
investors from making informed choices among investment 
options. Funds' investment policies on human rights, if they 
exist, are rarely disclosed or only vaguely referenced. Few 
investors take on the onerous task of researching fund holdings 
and determining which companies have ties to genocide so that 
they can avoid these companies. Instead, most investors simply 
trust their investment company to make sound choices on their 
behalf.
    Third, financial institutions, in general, resist 
shareholder requests to restrict their investments, even in the 
case of genocide--the ultimate crime against humanity.
    Fourth, through these investments in foreign companies, 
financial firms conflict with and weaken the effect of U.S. 
sanctions that block U.S. companies from doing business while 
U.S. mutual funds make investments that support their 
unrestricted foreign competitors. For example, ExxonMobil is 
precluded from supporting the Government of Sudan by helping in 
its oil industry, but U.S. mutual funds invest billions of 
dollars in PetroChina, ExxonMobil's foreign competitor.
    Investors Against Genocide has developed specific 
legislative recommendations, detailed in the written testimony, 
that would provide useful guidance for financial institutions 
regarding human rights abuses without limiting their ability to 
make the investments they choose. Most importantly, the 
recommendations would make it easier for individual investors 
to be able to choose to avoid connections to the worst human 
rights abuses.
    Regulations should establish a standard framework for 
genocide-free investing and require funds to use simple 
language to disclose whether they have implemented or chosen 
not to implement the framework.
    Regulations should establish transparency and disclosure 
rules so that small investors and the investment marketplace 
can more readily understand the policies of funds and 
investment companies with regard to investments in companies 
tied to serious human rights abuses.
    Regulations should ensure that there is no conflict between 
fiduciary responsibility and avoiding investments in companies 
tied to genocide or crimes against humanity. SADA provided a 
model for the case of Sudan that should be generalized to apply 
to future humanitarian crises without requiring an act of 
Congress for each crisis.
    It has been over 12 years since the U.S.-imposed sanctions 
on Sudan and noted serious human rights abuses, and 6 years 
since Congress declared Darfur a genocide, and yet most 
financial institutions are still investing in the worst 
companies funding the genocide. And through the fund offerings 
of these investment firms, millions of Americans are caught in 
the web of these problem investments.
    Long-term inaction by financial institutions highlights the 
need for Congress to help empower Americans to make investment 
choices that are in line with their personal values. If it is 
important enough for the U.S. Government to impose sanctions 
related to human rights that prevent American companies from 
doing business in a country, then the funds in which America 
saves should have an extra level of due diligence and 
disclosure regarding their related investments.
    Small improvements in disclosure and transparency rules 
related to human rights abuses can have a big effect. By 
acting, Congress will help investors be able to choose to avoid 
connections now and in the future to the worst human rights 
abuses: genocide and crimes against humanity.
    Thank you.
    [The prepared statement of Mr. Cohen can be found on page 
30 of the appendix.]
    Chairman Meeks. Thank you for your testimony.
    We will move on to Mr. Adam Kanzer, who is the managing 
director and general counsel of Domini Social Investment, LLC.

   STATEMENT OF ADAM M. KANZER, ESQ., MANAGING DIRECTOR AND 
         GENERAL COUNSEL, DOMINI SOCIAL INVESTMENTS LLC

    Mr. Kanzer. Thank you very much. It is an honor to address 
this committee and to share Domini's perspective on investor 
and regulatory responses to the genocide in Darfur.
    Domini Social Investments is an investment advisor based in 
New York. We manage funds for individual and institutional 
mutual fund investors who incorporate social and environmental 
standards into their investment decisions.
    We believe investors have an affirmative obligation to 
respect human rights and to seek to do no harm. Domini seeks to 
meet this obligation by implementing a comprehensive set of 
social and environmental standards to guide our investment 
decisions.
    Addressing genocide is first and foremost a moral 
imperative, but it is also an appropriate concern for 
fiduciaries who see their role as exclusively focused on 
financial concerns. Companies that operate in conflict zones 
such as Sudan take on a variety of operational, reputational, 
and legal risks, including risk to their license to operate. 
There are also systemic socioeconomic risks presented.
    Investment policies to address genocide are both warranted 
and achievable and can influence corporate behavior. Investors 
have other tools as well, and direct engagement with portfolio 
holdings is a critically important and effective strategy for 
addressing corporate human rights performance.
    In discussions about the Sudan Accountability and 
Divestment Act, emphasis has been placed on the word 
``divestment.'' I would encourage you, however, to focus on the 
word ``accountability.'' Investors cannot hold companies 
accountable without data. I would therefore like to focus today 
on the need for mandatory corporate human rights disclosure.
    We strongly endorse the GAO's recommendation that the SEC 
require companies to disclose their business operations related 
to Sudan, and encourage Congress to take the recommendation a 
few steps further.
    Domini utilizes a targeted model of divestment and 
engagement. A company's connection to Sudan is merely the first 
step in our analysis and is insufficient to gauge how a company 
is meeting its human rights obligations. We need information to 
distinguish between companies that are helping to finance human 
rights abuses and those that are contributing to solutions. 
Appropriate disclosure should also highlight key areas for 
corporate executives to manage and measure.
    To foster business respect for human rights, Professor John 
Ruggie, the U.N. Secretary-General's Special Representative for 
Business and Human Rights, states that governments should 
encourage and, where appropriate, require business enterprises 
to provide adequate communication on their human rights 
performance. This is an element of the state's duty to protect 
against human rights abuses, one of the three pillars of the 
``protect, respect, and remedy'' framework adopted by the U.N. 
Human Rights Council in 2008.
    In the United States, however, corporations are not 
required to disclose their human rights policies, procedures, 
or performance unless corporate counsel determines that such 
issues present material risk to the company.
    The materiality standard has failed to provide investors 
with necessary information about corporate human rights 
performance in any area of the world, including Sudan, for 
several reasons. First, although materiality is an objective 
standard, in practice materiality is in the eye of the 
beholder: the corporation.
    Second, the materiality standard is generally interpreted 
as financial risks to the issuer, not to stakeholders affected 
by corporate activity. So-called externalities, including human 
rights abuses, are generally not reported.
    And, third, materiality is a broad, ambiguous concept. 
Companies are often uncertain whether an emerging risk should 
be disclosed and, if it is material, how it should be 
disclosed. In Domini's experience, it is rare to find any human 
rights data in securities filings. Management's incentives, 
particularly during a global divestment campaign, are to 
disclose as little as possible. As noted by the GAO, companies 
have generally resisted the SEC's instructions to disclose and, 
at times, have refused to disclose information about their ties 
to Sudan. There appears to be no meaningful sanction for these 
companies.
    The status quo falls short of Professor Ruggie's 
recommendation that the state encourage or require corporate 
reporting and provide clarity about these obligations. A 
mandatory set of tailored indicators--including human rights 
policies, due diligence procedures, risks identified, and 
performance reports--would provide investors with reliable, 
consistent, comparable, and relevant information to make 
prudent investment decisions and monitor corporate human rights 
performance and would further our government's policy goals in 
Sudan and its duty to protect against human rights abuses.
    In addition, if investors are to help avert the next 
Darfur, we need disclosure requirements that apply to 
corporations wherever they operate around the world.
    Thank you again for this opportunity. You will find 
additional recommendations and details in my written testimony. 
I look forward to your questions.
    [The prepared statement of Mr. Kanzer can be found on page 
57 of the appendix.]
    Chairman Meeks. Thank you very, very much.
    And last, but far from least, we have Mr. Richard S. 
Williamson, who is the former special envoy to Sudan.

  STATEMENT OF RICHARD S. WILLIAMSON, FORMER SPECIAL ENVOY TO 
                             SUDAN

    Mr. Williamson. Thank you, Chairman Meeks, Congressman 
Miller, and other members of the subcommittee.
    During 30 years in various diplomatic posts, I have been a 
skeptic of economic sanctions and divestiture campaigns. They 
are blunt instruments, difficult to quantify. They have 
collateral damage to innocents. And regimes most often hunker 
down and endure, giving people a sense of having taken action 
but not getting the desired results.
    Having said that, I strongly support the continued 
application and strengthening of the Sudan Accountability and 
Divestment Act. I am not an expert on the intricacies or 
application of SADA, but I would like to make a few comments 
about the situation in Sudan which frames this debate.
    We are approaching the north-south referendum on January 
9th. This follows the longest civil war in Africa, in which 
over 2 million died and 4 million people were displaced. The 
CPA, the Comprehensive Peace Agreement, largely negotiated by 
the United States 6 years ago, put an end to the worst 
fighting. And there is hopes that the referendum, which will 
give the south a chance to determine whether to have 
independence or remain part of Sudan, will be successful.
    Having said that, there are many significant areas that 
have not been adequately addressed, particularly the contested 
border areas, Abyei, oil revenue, citizenship, freedom of 
movement, and treaties. Neighbors and China have begun to tilt 
their behavior, hedge their bets, with the possibility of 
independence. There are no observers who disagree that the will 
of the people will be independent.
    However, the post-referendum commission, which is dealing 
with these difficult issues, reflects a pattern used by the 
Government of Sudan over the last decades of developing an 
elaborate machinery, followed by extensive discussions, 
deliberations, delay, eventually for denial. The point is, more 
will need to be done after the referendum during the 6-month 
period to independence. And this is not the time to look at 
just incentives, but coercive pressure is necessary, tied to 
concrete steps.
    With respect to Darfur, as you well know, and the target of 
this particular law, we have had one of the worst genocides in 
the last 30 years. While it is less vigorous today, it 
continues with low-intensity conflict. And the degree to which 
there is less violence is not because of a change of heart but 
because there are fewer targets of opportunity, with over 
300,000 people dead and more than 2 million displaced--
displaced and nowhere to go, no hope, their lives ruined, their 
families killed.
    Meanwhile, aerial bombings by the Government of Sudan 
continue. The Qatar negotiations have not been productive. The 
International Criminal Court has issued arrest warrants for 
President al-Bashir regarding his actions on Darfur for war 
crimes, crimes against humanity, and genocide.
    Finally, if the north-south does proceed, you should be 
aware that it may make more difficult progress in Darfur, the 
Nuba Mountains, and the Blue Nile, as Khartoum is worried that 
it may lead to further dismemberment.
    Bottom line, I think that SADA provides a useful purpose, 
that coercive steps are required to get action. And having 
negotiated with all the prominent personalities in Khartoum, in 
Juba, in Darfur, I believe the only way to make progress is to 
go beyond what the current envoy has referred to as ``gold 
stars and cookies,'' i.e., incentives for the north, and to use 
pressure and tie it to concrete, verifiable steps for progress. 
That is the only way this genocide in slow motion will end.
    Thank you.
    [The prepared statement of Mr. Williamson can be found on 
page 86 of the appendix.]
    Chairman Meeks. Thank you very much for your testimony.
    And I do see, for the first time in a long time, and as 
indicated by just about anybody here, we all are united in that 
we want the genocide to stop. We have to make sure that we are 
doing everything that we can to have that done. And one method 
is the divestment.
    What I want to make sure, and I think the reason for you 
being here is, what else do we need to do?
    For example, Mr. Melito, in your testimony you talked about 
how exchanges between the SEC and companies and even investors 
at times as to whether or not their activities in the Sudan can 
be considered material--yet, a lot of those issues just remain 
unresolved. And the SEC has not given, I think, the real 
guidance or made the guidance clear here.
    I was wondering, are there other comparable examples to 
using a starting point where the SEC did decide to give a clear 
guidance as to what might constitute material information or 
something else that we can then try to push to the SEC so that 
we don't have these unresolved issues?
    Mr. Melito. Mr. Chairman, I don't believe there is an 
example. Part of our discussions with SEC is that they have 
generally left the materiality decision to the operating 
company to decide, within the broad parameters which were 
partly established by the Supreme Court, which is, if the 
information is important to investors, it should be disclosed.
    That said, in our dialogues with them and in response to 
our report, they seem quite open to our recommendation. The way 
it would work, though, is the SEC staff would present it to the 
Commissioners. Then it is up to the Commissioners to either 
approve it or not. If it does get approved by the Commission, 
then it would become a rule, which would have to go through the 
regulatory process.
    Sudan has been designated by the U.S. State Department to 
be a state sponsor of terrorism. The SEC can then say, in that 
case and potentially for the other three state sponsors, you, 
as an operating company, should disclose your activities.
    It doesn't mean that everyone would divest, because, as 
other witnesses have mentioned, it is possible that you are 
involved purely in humanitarian activities or you are 
conducting activities that SADA approves of. But putting the 
information out to the public would then greatly increase the 
credibility of available information.
    Chairman Meeks. Let me ask another question then, because I 
am trying to--I would like to make sure that we accomplish our 
goals. And in your opening statement, you indicated that your 
data showed that the United States did, in fact, withdraw 
capital from the Sudan.
    I am concerned about other folks coming in or, you know--so 
we withdraw, but other folks are still coming in, and we are 
not stopping this genocide because there is no real effect that 
we are having here, and there may be--we have to do something.
    I am wondering whether or not you have any additional data 
that will show who is stepping in when we are leaving. And 
maybe there should be--because I am going to look at it from 
the point that some pressure point may be put on some other 
individuals also. Because I like more pressure on multilateral 
sanctions also, as opposed to just the sanctions that we may 
have from the United States.
    Mr. Melito. Our analysis of both the private sector and the 
States were on holdings in publicly traded companies. So they 
sold their shares, and it is unclear who bought them, but it is 
obvious that the holdings of State governments and private 
sector investment companies have gone down.
    The issue of operating companies is very tricky, though. 
There are a number of operating companies; some are Western, 
some are Asian. There are no U.S. companies operating in the 4 
sectors because that would be against our sanctions law.
    Some of the companies we spoke with try to engage the 
Government of Sudan to change its behavior; they try to provide 
humanitarian or social programs. At least one of the companies 
we spoke with said, as they left Sudan that the company that 
bought them said they would not continue those activities. So 
there are some real concerns.
    Though divestment is a blunt instrument, but it is having 
an effect in terms of changing investor behavior. So there are 
a number of tradeoffs that need to be considered.
    Chairman Meeks. Mr. Cohen, I would like for you to respond 
to this. It is similar. We need to stop it. And I don't know if 
we have sufficient data about who is moving in. You indicated 
in your testimony how some American companies are investing and 
others who are still doing business. Do you have any or have 
you done any research or anything in that regard? Any 
suggestions?
    Mr. Cohen. I agree with Mr. Melito that it would be helpful 
to have a really good, deep list of who is operating in Sudan.
    But one thing we know is who the worst players are, because 
universally everyone recognizes that the worst players are the 
oil companies helping the regime. So in our work at Investors 
Against Genocide, we focused on those oil companies, because 
they most substantially contribute to the problem. So if you 
just think about leverage, who is the worst problem, and then 
it doesn't take you long to focus on the CNPC group, of which 
PetroChina is a part, because it is the largest partner with 
the Government of Sudan.
    So if you just look at PetroChina and its holdings, what we 
see is, as recently as October 11th of this year, Franklin 
Templeton owned over a billion shares of PetroChina. This is 
worth about $1.3 billion, in that one company alone. So there 
could be really big voices that could be used if the Franklin 
Templetons of the world didn't think that it was okay to invest 
their shareholders' money in the very worst companies.
    I use them as an example, but I don't want to use them 
alone because it is not like they are the only one. It is many 
financial institutions who are the biggest holders. It was 
never the colleges and universities, and it was never the 
States. The biggest holders of the worst companies were 
financial institutions.
    Chairman Meeks. What about divestment also from other OECD 
countries?
    Mr. Cohen. If you look at U.S. sanctions and included just 
the biggest, most prominent ones--let's take Burma, Sudan, and 
Iran, all of which are sanctioned against U.S. companies doing 
business in the oil industry--there is a heavy correlation of 
the companies in Sudan being in the other countries, as well.
    So pressure on the CNPC group, on Sinopec, on PETRONAS, on 
ONGC would be helpful not just in Sudan but helpful across the 
board in the places where the worst human rights abuses are 
happening and where the United States has already identified 
sanctions are worth having because of those terrible human 
rights abuses.
    Chairman Meeks. Thank you.
    I am going to turn it over to Mr. Miller. Just saying this 
from my point of view, because that is tremendously important. 
I believe Mr. Williamson talked about South Africa. South 
Africa because successful when everybody--we happened to be one 
of the last joining in, but when we joined in and everybody 
else joined in, then we were able to make a difference. And to 
the degree that we can put the pressure on everybody so that we 
can stop this creep, if you will, that I think goes on--as we 
leave out, somebody else comes in, and it keeps this regime in 
Khartoum up and continues the genocide. We have to focus how we 
can put the same kind of multilateral pressure on the financial 
institutions and the other countries so that we can join in, 
because this is an atrocity to all of us.
    Mr. Miller?
    Mr. Miller of California. Yes. If you look at the way GSEs 
bundle their mortgage-backed securities, if they have a 
nonperforming loan within the bundle, they can remove that and 
replace it with a performing loan. So the investors are held 
harmless.
    But if you look at the way the private sector did it, which 
got us in many of the problems we face today, they weren't 
bundled that way. And the problem you have is the servicer, if 
they try to replace one of the nonperforming loans, they can be 
sued by the investors for all the losses associated with the 
mortgage-backed security.
    Do you believe that the investment advisor who would divest 
in Sudan-related holdings is open to a charge of violating 
fiduciary responsibility if the reinvestment doesn't yield a 
rate that competes? Or do you believe that SADA's safe-harbor 
provision really adds needed protections to that?
    Anybody who wants to address that.
    Mr. Kanzer. One answer, I think, is: It depends. As a 
mutual fund manager, our fiduciary duty is to comply with our 
prospectus. Our prospectus says that we apply human rights 
standards and environmental standards to our holdings. Our 
investors come to us for that; they expect us to do that. If we 
fail to do that, we could be subject to a lawsuit for violation 
of fiduciary duty because we would have a duty to uphold our 
prospectus.
    Mr. Miller of California. But the question was--
    Mr. Kanzer. Yes?
    Mr. Miller of California. I understand, but if you have an 
investor who invests, and their perspective might be something 
they are looking for other than human rights but they are 
looking for an investment they thought was reasonable, and you 
divested of that when they put their money with you, and the 
investment you put it into did not compete as it applies to 
yield, does SADA's safe harbor--I am wondering if we need to 
address it or if it is not adequate. That is my concern.
    Mr. Kanzer. Possibly, yes. Possibly. And I think it is a 
real problem.
    Mr. Miller of California. Because that was discussed during 
the presentations, and that raised a big flag to me of who is 
going to be liable if we placed a situation in the private 
sector where investment advisors are open to litigation because 
of what we have asked them to do and the consequence of good 
faith on their part has put them in court.
    Mr. Kanzer. Generally, a trustee is accorded pretty wide 
discretion in making those kinds of decisions, the business 
judgment rule. So it would be, I think, difficult to bring a 
successful lawsuit because you made a couple of decisions that 
were wrong and impaired the performance of the fund. Look how 
many funds underperform their benchmarks and don't get sued. I 
don't think it is a high risk.
    But there is a theoretical risk, and I think--
    Mr. Miller of California. Mr. Melito's comments are why I 
brought it up. I think in your statement you said that. And 
when you said that, that was a concern for me.
    Mr. Melito. It is a theoretical risk, as Mr. Kanzer is 
saying.
    We interviewed a number of investment companies, and all of 
them said that their decisions were based on market reasons. 
And they held to that very, very closely.
    That said, at the time we issued our report, two companies 
had applied for safe harbor. Now three companies have in fact 
applied for safe harbor. So I think there is ambiguity here. 
But I do think it would be difficult to discern why an 
investment company sold its shares if it didn't say it was to 
divest.
    Mr. Miller of California. But Mr. Kanzer would have stated 
that publicly was the reason for the sell. And that is the 
concern I am having. I am just wondering if we have a loophole 
out there that needs to be dealt with or addressed or not. And 
I am not trying to debate you. I am trying to see if we can 
open this can up and there is something there that we don't 
want to have in it.
    Yes, sir?
    Mr. Cohen. Yes, on this point, when we have dealt with 
financial institutions about this problem, some, like TIAA-
CREF, publicly spoke out against the genocide, said they would 
do more, and divested, and they took advantage of the safe-
harbor provision of SADA.
    Mr. Miller of California. So it was adequate for them.
    Mr. Cohen. Yes. So they used it because it helped them.
    When American funds decided to sell 100 percent of their 
PetroChina, $200 million worth, they did what you heard Mr. 
Melito describe, which is, ``We don't discuss why we do 
things.''
    Mr. Miller of California. Okay.
    Mr. Cohen. The less said, the better, because they don't 
want to increase the risks Mr. Kanzer is talking about, about 
getting sued for whatever reasons.
    When we talked to Fidelity, Fidelity at shareholder 
meetings would say, ``We are just following our prospectus,'' 
and they want to say as little as possible.
    The thing they can do, though, is, if Congress acts and 
provides an ongoing safe-harbor provision, then that can 
provide protection for fiduciaries who choose to use it such as 
TIAA-CREF did.
    Mr. Miller of California. Okay.
    Mr. Cohen. The second thing that any financial institution 
could do with a prospectus is to disclose that they cared 
enough that they would try to avoid investments in companies. 
And the Fidelity general counsel agreed with us that that was 
all they would have to do to eliminate any of these theoretical 
risks.
    The problem the lawyers in these financial institutions 
have is they want to minimize risk so they will do the most 
conservative thing so they will talk the least about it, they 
will do the least they can in this direction, even if they--
    Mr. Miller of California. So they are being proactive in 
their approach. They are not being extremely candid on what 
they are really doing--
    Mr. Cohen. Yes. So if we give them reasons and give them 
tools, then we will have a chance that they will use them.
    Mr. Miller of California. Okay. Looking at the continuing 
unrest in the Sudan, does it contribute to destabilizing nearby 
African countries, or is there the opposite occurring in some 
cases?
    Mr. Williamson. I am sorry. Could you repeat that?
    Mr. Miller of California. The destabilization that has 
occurred in Sudan, has that had a negative or positive impact 
on surrounding countries?
    Mr. Williamson. Oh, no question, it has had a significant 
bleeding effect, especially in Chad, which has to deal with a 
rebel group which is given safe harbor in Darfur by the 
Government of Sudan to make attacks on N'Djamena, the capital 
of Chad, because they fear that Chad gives safe harbor to the 
Justice and Equality Movement. So there is a destabilization 
there.
    There is also a bleed of refugees into Egypt. There is some 
bleed into Ethiopia. There is unquestionably a link between the 
LRA in southern Sudan, again enhanced by the Government of 
Khartoum, to cause destabilization down there.
    So, of the nine neighbors, all of whom have an interest in 
Sudan, all of whom play a role, not always constructive, and 
the potential from Somalia all the way to the Congo of a bleed 
of destability is real. And the consequences would be 
catastrophic, both on the war on terror and for the people who 
live there.
    Mr. Miller of California. Has anybody seen any changing of 
behavior in the Khartoum regime based on what we have done so 
far?
    Mr. Williamson. Congressman, if I could just comment. And 
it certainly came out in my discussions and negotiations with 
the senior level of the Government of Khartoum, or the 
Government of Sudan, but also in discussions with other 
regimes.
    I think it is safe to say that those who have done the 
least to earn legitimacy, either because of their action or 
lack of expression of the will of the people, hold a claim of 
legitimacy most dearly. And among other consequences, beyond 
what Chairman Meeks had raised earlier, the financial one, it 
goes to the issue of legitimacy. That is a heavy burden.
    And the divestment act contributes to that questioning and 
reinforces that the behavior in which they are engaged is 
unacceptable to the international community and to the United 
States of America.
    Mr. Miller of California. Thank you very much for your 
candid response and for your testimony. I appreciate it.
    Chairman Meeks. Mr. Maffei?
    Mr. Maffei. Thank you, Mr. Chairman.
    Mr. Williamson, I want to follow up by bringing the 
upcoming referendum into the discussion. The Sudanese people, 
or the southern Sudanese people, are going to be able to vote, 
at least allegedly are going to be able to vote, on whether 
they want to stay part of the Khartoum Government or break 
away. And that vote is supposed to be, I believe, in late 
January?
    Mr. Williamson. January 9th.
    Mr. Maffei. January 9th, earlier in January.
    First, can you give me some sort of sense of your estimate 
about whether that will actually occur on time, whether it will 
be a fair process? I have constituents who are Sudanese 
refugees who are going to be able to vote in that election. 
They have to come down to Washington to vote, but are going to 
be able to vote in that referendum.
    Can you give us some context about that?
    Mr. Williamson. Sure.
    Congressman, as you know, the referendum was part of the 
Comprehensive Peace Agreement. It gave 6 years for the 
Government of Sudan to make unity attractive. Those 6 years 
were not utilized to make unity attractive. The marginalization 
continued--economically, politically, and otherwise. There is 
no observer who does not believe that the will of the people 
will be for independence on the plebiscite.
    The mechanics of the plebiscite are difficult; it goes on 
for 7 days. Many of the mechanics have not been put in place 
because of dragging by the north. And in a country the size of 
Texas, with over 50 inches of rain a year, they only have about 
40 miles of asphalt road--mostly dirt. So the logistical is 
consequential, the logistical handicaps. USAID and others are 
intervening to try to help as best they can.
    Second, there is a cluster of important issues, such as 
citizenship, freedom of movement, treaties, etc., that need to 
be dealt with. And a very able diplomat, Ambassador Princeton 
Lyman, is there now, heading those negotiations. Some progress 
is being made.
    There are more difficult, divisive, and consequential 
issues dealing with contested border areas, the area of Abyei, 
oil revenue sharing. There, the progress has been nonexistent. 
There have been two different mechanisms for the contested 
border area. Both sides agreed to having it arbitrated 
initially by a border commission, second by the International 
Board of Arbitration. Both times, the north reneged on its 
word.
    There is going to be a 6-month period after the vote to try 
to resolve those issues. The south says it should be a firm 
date; the north has said it should be a soft date. And the 
senior presidential advisor for security, former head of 
intelligence for the Government of Sudan, Salah Gosh, just last 
week said that this issue could be resolved by war.
    Mr. Maffei. So you do think, though, that the referendum or 
the plebiscite will occur?
    Mr. Williamson. It will occur. There will be some violence. 
Whether or not it is credible will be a tough call. If it is in 
the least bit credible, it will be a vote for independence. And 
then it is trying to make that a reality.
    Mr. Maffei. And trying to avoid a civil war, hopefully, the 
Khartoum Government.
    Then my question is, for Mr. Cohen and Mr. Kanzer or anyone 
else who wants to chime in: After that process, won't it be a 
lot easier to bring attention to the injustices in Sudan and, 
therefore, make this situation far more comparable to South 
Africa, when there was a massive movement to divest in South 
Africa?
    Mr. Williamson. If I could just make one comment?
    Mr. Maffei. Yes, of course. Of course. Sorry.
    Mr. Williamson. I do think the risk is going to be even 
more intense on Darfur, Nuba Mountains, Blue Nile, other areas. 
And I think if the reaction is an increase in violence, which 
it could well be, there will be repercussions in the 
neighborhood and in the international community, which 
hopefully will further galvanize people on this issue.
    Mr. Maffei. Yes, even for their own self-interest, people 
may want to divest.
    Anyway, sorry, I am almost out of time, but I think I have 
a little time for Mr. Cohen and Mr. Kanzer to respond.
    Mr. Cohen. Just to add to that, one of the things we know 
about the Government of Sudan is that it is constantly testing 
the limit of what it can get away with. And if sanctions are 
weak, if financial pressures are weak, they will sense it. They 
are looking to find what the limits are.
    So the point that Mr. Williamson made about now is the time 
to make the pressures be as great as possible so that they 
believe the pressures will build, build, build, build, build, 
will have perhaps a chance of success; where, even if the south 
secedes peacefully, the challenges in the south don't end and 
the challenges for Darfur may be just beginning.
    So the stronger our measures, the better. The sooner we can 
make them credible and clear, the more powerful.
    Mr. Maffei. So your answer is, yes, it would help, but we 
can't wait for that because our best chance of avoiding civil 
war is to act effectively.
    Mr. Kanzer, I believe other Members took a little bit 
longer, so, please, go ahead.
    Mr. Kanzer. Sure. If I could just add a couple of quick 
comments on that.
    I think, first, you would have thought that calling this a 
genocide would have been sufficient to raise awareness. A civil 
war, a new civil war may be a new opportunity for us to raise--
    Mr. Maffei. In one where a clear plebiscite, a clear 
referendum is ignored.
    Mr. Kanzer. Right. True, but we have that in Burma, as 
well. And although we are part of a movement to divest from 
Burma, it hasn't changed the government yet.
    So, one, I think that we have a problem here where there 
are a lot of traditional, mainstream investors that still 
simply view these issues, regardless of how egregious they are, 
as off the table for them as investors, which I do consider to 
be a breach of fiduciary duty, because these things do raise 
financial issues, they do raise long-term issues, and they do 
raise systemic risks. And we all know how well our financial 
system deals with financial risks.
    So we need to revisit those issues, and we need to put more 
pressure on fiduciaries to think more broadly about their 
obligations to their beneficiaries and what it really, truly 
means to provide benefits to their beneficiaries.
    The other quick thing I just want to note is that we 
haven't been sitting on the sidelines here. And the Conflict 
Risk Network, which is a network of investors and other 
stakeholders--a subscriber base of trillions of dollars--has 
been--and we have been part of this--has been engaging with 
telecommunication companies and oil and gas companies on the 
referenda, to say there has been evidence in the past--the 
Sudatel apparently shut down cell phone communication in timing 
with attacks in the south to ensure that people couldn't warn 
each other that the attacks were coming.
    So we have reached out to the telecommunication companies 
that are operating in Sudan to ensure that they put appropriate 
measures in place to make sure that communication is maintained 
throughout the referendum and that they ensure it is a fair 
process.
    Mr. Maffei. Excellent. Thank you very much.
    I also just want to quickly note, Mr. Chairman, that Mr. 
Williamson mentioned Princeton Lyman. I am familiar with his 
work and we couldn't have a better person there to help observe 
this very challenging situation. But I want to thank all of the 
panelists.
    Chairman Meeks. Thank you. Now, we couldn't have a better 
person here than Mr. Michael Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. First of all, I want 
to thank the witnesses for coming today and helping us out.
    Mr. Williamson, I presume you know the most about Sudan. Is 
there anything, any natural resources in Sudan that are unique 
to Sudan that can't be found anyplace else? I know that oil is 
the major item, but is there gold that can't be found, some 
kind of special diamonds or bauxite or anything that can't be 
found anyplace else?
    Mr. Williamson. Unlike the Eastern Congo that, as you know, 
with cobalt and other things, has unique mineral assets, the 
discovered assets in Sudan don't reflect that. However, let me 
emphasize, when the NCP came to power through a coup in 1989 
there were less than $500 million of exports. Today, there is 
$9.5 billion, principally from oil. Second, that there are 
great agriculture resources in the south and that is the 
opportunity for development.
    Mr. Capuano. I understand. But there is nothing unique that 
can't be replicated someplace else?
    Mr. Williamson. Not that I am aware of.
    Mr. Capuano. Are there any manufacturing techniques that 
can't be replicated anyplace else?
    Mr. Williamson. Not that I am aware of.
    Mr. Capuano. So that basically any investor who is looking 
at an investment opportunity--not necessarily helping out Sudan 
and building Sudan--as an investment opportunity, there is no 
particular reason to invest in Sudan and not someplace else.
    Mr. Williamson. I am not aware of unique attributes that 
would compel an investment, no.
    Mr. Capuano. Fair enough. I was wondering if anybody on the 
panel--are there any other countries, at the moment, that we 
know of that have been designated officially by the United 
States Congress as engaged in committing genocide?
    Mr. Williamson. No.
    Mr. Capuano. So that we have a country that has no 
specifically unique attribute to attract investors, that maybe 
we could say, geez, you can't get it anyplace else. We have the 
only country in the whole world that the United States Congress 
has said, ``You are committing genocide.'' Are there any 
studies anywhere? And maybe, Mr. Kanzer, you might be the best, 
or maybe Mr. Cohen. Are there any studies anywhere that 
indicate that investment in Sudan provides a particularly 
unique or large return on that investment?
    Mr. Kanzer. Not that I am aware of. I think the problem is 
that most of the companies that we are speaking about are not 
Sudanese companies. They are global companies that have 
operations in Sudan. So the problem for a fiduciary that 
manages a large mutual fund, for example, that wants to track, 
let's say, a PAC Asia benchmark that has PetroChina as one of 
its largest holdings and is going to be held to performance 
against that benchmark, it might be difficult for them to say, 
I can't hold PetroChina. It is not because of PetroChina's 
investment involvement in Sudan, it is because it is PetroChina 
and it is because it is one of the largest components of their 
benchmark.
    Mr. Capuano. I understand. But I am trying to make sure 
that--it has been argued to me that anytime you add social 
agenda to investment opportunities, it is a slippery slope. 
Today, it is genocide. Tomorrow, it might be because I don't 
like left-handed people. And I understand that argument.
    And my argument in return has always been, unless you can--
I understand the slippery slope argument. I get that, that you 
can't just have an unlimited list of things we don't like. But 
I think in this particular case we have a unique situation: a 
country that is committing genocide, that doesn't offer 
anything in particular, to my knowledge, doesn't offer a 
specifically astronomically high return on investment. So there 
is no real reason for anybody to look me in the eye and say, I 
really have to invest in Sudan and only in Sudan in order to 
fulfill my fiduciary responsibility of providing the highest 
return to my investors. Is that a fair statement to make?
    Mr. Kanzer. I agree that is a fair statement, yes.
    Mr. Capuano. And I understand the difficulties in tracking 
all this. Which brings me to the last point, and this is a 
point to Mr. Melito in particular. I want to be clear. The SEC, 
as you understand the law now, currently has the authority, if 
they choose to exercise it, to require disclosure from various 
companies about the investments they make in Sudan.
    Mr. Melito. As the law is written, they have the authority 
to enforce materiality, which is a rather imprecise designation 
or definition. We were privy to correspondence between the SEC 
and a few companies where the SEC said, given the divestment 
campaign and given your large holdings, you may want to include 
this information on Sudan. But in those cases the company said, 
we don't think so, because even though the holdings may have 
been large as a portion of Sudan, they said it was a small 
portion of their global holdings. That is why our 
recommendation is to clarify the materiality standard to say: 
In the cases where it is state-sponsored terrorism, where Sudan 
is one of them, it is material.
    Mr. Capuano. And in your judgment, the SEC has the 
authority currently to make that clarification pursuant to 
regulation?
    Mr. Melito. The SEC has that authority, but they would have 
to go through the regulatory process, which includes going 
through the Commission.
    Mr. Capuano. So everything is in place. This law, we know, 
has some loopholes. I understand there are some problems in 
definition. I understand there are problems defining exactly 
which company. But according to you, Mr. Melito, there are at 
least 15 companies that everybody agrees is on this list, and 
another several dozen companies that most people will agree. 
And then you will get the debates. That I understand.
    But at least, if nothing else--I don't even know what the 
15 companies are, but these 15 companies that everybody agrees 
fits this materiality, the SEC could require them to disclose 
their investments.
    Mr. Melito. Yes.
    Mr. Kanzer. Can I add to that?
    Mr. Capuano. Sure.
    Mr. Kanzer. Actually, I believe the SEC actually does have 
the authority to add a specific item of disclosure that could 
relate to Sudan or many other items, and they do this all the 
time. There are many items of disclosure, for example, in a 
corporate proxy statement related to executive compensation, 
board composition, etc., etc., that are not material. The SEC 
simply decided this is material that must be disclosed. If a 
company has environmental liabilities that exceed $100,000, you 
are required to disclose it. They decided that was material. 
Now companies ignore the rule, but it is a rule.
    The SEC just decided that you must disclose whether you 
have a policy on board diversity. If you do, how is it 
implemented; not because it is material, because they thought 
it was important. So the SEC can do this, but they need to step 
outside of the materiality framework. Once you are within the 
materiality framework we will never, in my view, resolve this 
problem.
    Mr. Capuano. I would certainly think that--I would love to 
see that disclosure statement from any company saying, ``We 
invest in a genocidal country that is also officially 
sanctioned as a state sponsor of terrorism.'' And then I would 
love to see anyone invest in that company.
    Mr. Melito. In our dialogues with the SEC, they see this as 
possibly consistent with the materiality clause, given SADA, 
given State laws, given interests of certain investment 
companies. So part of the materiality clause is what is 
interesting to an investor. So it can work within or without 
the materiality clause.
    Mr. Capuano. Fair enough. And for me, basically what I take 
out of this hearing, and some of the information that has been 
given by the GAO is, number one, the law that we have is okay, 
could use some improvements, but is okay.
    Number two is we have some further work to do both on 
Sudan, and maybe particularly on some other regimes that might 
attract our attention.
    But number three, in particular, the quickest thing that 
can be done, in my estimation based on this hearing today, is 
to get the SEC to actually take the next step and to demand 
disclosure from companies. And again, I am not ready to argue 
every single company. But there are 15 companies that everybody 
agrees should be on this list. Then at least start with them to 
simply allow disclosure, so that if the American public or the 
people that they invest through want to invest in companies 
that admittedly invest in a genocidal state sponsor of 
terrorism, let them explain that to their neighbors.
    Mr. Cohen. That certainly would be very powerful and very 
helpful. I would just add one thing. It is now 7 years and more 
since the genocide started. We are lucky this is a slow-motion 
genocide or we would have lost count of the number of people 
killed. Something is wrong with our system if we are here, 7 
years after the beginning, arguing, trying to discuss, trying 
to find ways to incent the people who are ignoring the problem.
    So one of the things I hope we can accomplish, beginning 
today, is the kind of rules that you were just describing could 
be put in place not only for Sudan, but looking forward, so 
that we never have to sit 7 years after the event and say, now 
what can we do so that we can have less investment in the very 
worst places?
    Mr. Capuano. I agree. Thank you, gentlemen. I thank the 
Chair for your indulgence.
    Chairman Meeks. Thank you. And the Jets will beat New 
England. All right.
    Now I will call on my friend and colleague, Barbara Lee. 
With unanimous consent, there is no objection.
    Ms. Lee of California. Thank you very much, Mr. Chairman. I 
apologize for being late, so if I ask a couple of questions 
that are redundant, please forgive me. But as the author of the 
original legislation that passed the House, and working with 
Senator Dodd--this was back in 2007--I just want to say thank 
you for getting us this far. And I want to thank Mr. Melito and 
the GAO for your report that came out.
    I guess we didn't really know exactly how the law would 
work, but we knew it would be significant not just for the real 
impact on the regime in Khartoum and its supporters, but also 
for engaging the American public in a sustained commitment and 
campaign to invest with a conscience and to encourage others to 
do the same.
    Of course, I come from California and have been very 
involved in many divestment movements, and it was really a 
challenge here to get this bill passed for many reasons. And 
one of the issues I remember when we tried to get the--when we 
were writing the bill was that the SEC had no information. 
There was no database, no knowledge of what companies were 
actually doing business in the Sudan.
    And so I wanted to just ask about, and following up with 
Mr. Capuano, how, and with the GAO's recommendation in terms of 
a rule, why can't we, why can't the SEC develop a rule that is 
meaningful so that we have that information, we have the 
knowledge of who is doing this? I think it could really provide 
meaningful information to investors. And I don't see why this 
can't be done.
    I know I read just a minute ago the letter that Mr. Cross 
from the SEC wrote, talking about the overall mix of 
information about a company and how this could possibly 
overwhelm investors and possibly obscure other material 
information. And so I don't see how that is possible. These 
companies know what they are doing, and they should be able to 
easily disclose this if the SEC had a rule that would require 
them to do that.
    Mr. Melito. Congresswoman, the SEC, even though it is so 
strangely written, is agreeing with the recommendation. But 
they are agreeing with the great caveat that they don't want 
the rule to be broad. They want the rule to be narrow. So state 
sponsors of terrorism, potentially just Sudan, they agree with.
    And in the dialogue with SEC staff yesterday, my staff said 
that they are preparing the package to present to the 
Commission. So it will go to the Commission. The next step then 
will be whether or not the Commission agrees with the 
recommendation.
    Ms. Lee of California. Okay. Can you define what ``broad'' 
versus ``narrow'' would mean?
    Mr. Melito. In our opinion, the designation of a state 
sponsor of terrorism is an objective finding by our State 
Department. State has determined that four countries are state 
sponsors of terrorism, one of which is Sudan. So we believe 
that designation then should fall within the materiality 
clause. We limit our recommendation to Sudan since our report 
is about Sudan.
    But we say you could possibly go beyond and to the other 
three--Syria, Cuba and Iran--as well and be consistent. So that 
is how we--there is a process that the State Department goes 
through. They make a designation, then, that should then be 
consistent with materiality.
    Mr. Kanzer. Can I just add a couple of comments to that? 
First, in terms of the investors being inundated with 
information, if you look through current securities filings, 
there is plenty of information in there that investors are not 
finding particularly useful, and it does take a lot of time to 
get through it. I would agree with that. We spend most of our 
time looking elsewhere. Most investors want as much quality 
information as they can get, and I don't think that there is a 
risk here, as long as the requirement is carefully drafted.
    The other thing that I want to just stress here is that 
companies face human rights risks all over the world. They are 
profiting from slavery. They are profiting from child labor. 
They are profiting from forced labor. They are profiting from 
horrendous abuses all around the world. We really need to get 
information about how companies are managing these risks 
everywhere.
    And we can engage with our holdings on sweat-shop issues, 
on slavery in Brazil, on child labor around the world. 
Obviously, genocide rises to a different level. But if we are 
going to avoid the next genocide, if we are going to avoid the 
next conflict zone, the next set of problems, we need to make 
sure that the companies we are investing in have the 
appropriate policies in place, that they understand and respect 
human rights, that they know what to do when they are 
confronted with these situations, because sometimes when you 
engage with a company that is doing business in Sudan, they 
don't know what you are talking about. And I think the people 
you talk to are being honest when they say that. They honestly 
don't know what you are talking about.
    And that happens with virtually every human rights issue we 
raise, the first time we raise it. But after we continue to 
raise it, they get smarter about it. And I think it can be 
done. I think the SEC could require companies to disclose, do 
you have a human rights policy? Where can we find it? How do 
you implement it? Who is in charge?
    And then with respect to specific countries where we know 
there are egregious human rights risks or where the U.S. 
Government has designated a state sponsor of terrorism, are you 
operating there, and what are you doing to mitigate those 
risks? I think that is useful information. I don't think it is 
going to bury investors in useless information.
    Ms. Lee of California. Mr. Cohen?
    Mr. Cohen. Just one caveat to add about SEC disclosure. A 
lot of the time, when I read discussions about what the SEC is 
going to do, there is a discussion about what happens on U.S. 
stock exchanges. However, what we have seen in investigating 
financial institutions who are investing in the worst 
companies, helping the regime in Khartoum, is most of their 
holdings are in Hong Kong.
    So, for instance, I know that Franklin Templeton is a 5 
percent shareholder in PetroChina not because of any SEC 
filing, but because of one in Hong Kong. They own zero shares, 
zero shares of PetroChina in New York. So if a rule is written 
that sounds really good, but only dealt with New York holdings, 
it might accomplish nothing; not the intended consequence, 
because they just wouldn't report on PetroChina. After all, 
they don't own it in New York.
    So for anything that goes forward, it would be really 
valuable to be keeping in mind the need to be addressing that 
the financial institutions that we use in America are investing 
globally, global markets, not just in domestic markets.
    Ms. Lee of California. Let me mention one thing. I couldn't 
let this go. In terms of a standard being used, state sponsors 
of terrorism, how do we--if we use that standard, how do we 
address countries that are on that list for political reasons, 
such as Cuba?
    Mr. Melito. Our recommendation is about Sudan, so we say 
perhaps consider the other state sponsors. We know that there 
is a process to designate a country as a state sponsor of 
terrorism. So whether for political reasons, economic reasons 
or such, there is a process, and we considered that to be an 
important objective element in this particular materiality 
clause. If a country is on this list, if a company is working 
in one of these countries, it could potentially be consistent 
with U.S. interests. They could be conducting activities in a 
humanitarian way. So their disclosure wouldn't necessarily be 
brief. It could disclose the activities, and then it would be 
for the investors to decide whether or not these are activities 
that they want to support.
    Ms. Lee of California. Mr. Cohen?
    Mr. Cohen. I would register a concern about using the state 
sponsor of terror list. Just recently, we heard the news that 
the United States Government might trade listing Sudan as a 
state sponsor of terror for having free and fair and relatively 
safe recognized elections in south Sudan, not a determination 
that they weren't anymore, but a political judgment as a chip 
to trade away. So that list is very, very political, and I 
would worry about that.
    In contrast, the sanctions list has a hand, not just from 
the Administration with Executive Orders, but also from 
Congress, so that there is some balance there. So that politics 
may still come into play, but there are more hands getting to 
have a say in what are the really terrible things that are 
happening in the world. So I would encourage a close look in 
that tie-in to sanctions.
    Ms. Lee of California. Mr. Chairman, just one more 
question. When we were writing the legislation, we had some 
concerns about the impact on the south. Of course we were 
naturally targeting the Khartoum regime as it relates to 
Darfur. How has this impacted the south, if it has, or not 
impacted the south? We were very careful to try to carve out 
that type of exemption.
    Mr. Williamson. Unfortunately, the south still remains 
enormously underdeveloped. As I mentioned earlier, in an area 
the size of Texas, it has about 40 kilometers of asphalt roads, 
has a rainy season that gives it over 50 inches of rain a year. 
But to the best of my knowledge, the Divestment Act hasn't had 
a negative impact. And with respect to sanctions, there have 
been waivers given.
    I would suggest the issue with respect to the lack of 
development in the south has to go with both the donor 
community and trying to hold together an area which was divided 
into various competing militias that have fragmented since the 
CPA was signed.
    But bottom line, Madam Congresswoman, I do not think, at 
least in my experience, that the Divestment Act has been a 
significant burden for the development that is necessary, and 
hopefully the United States will redistribute its substantial 
development assistance in the south from just humanitarian to 
actual economic development, good governance, etc.
    Ms. Lee of California. Thank you very much. Thank you, Mr. 
Chairman. And thank you all very much, because not only is this 
important, and I think all of us have been to Darfur and 
witnessed the tremendous tragedy that has and continues to take 
place there. But it is an effort to try to stop the genocide, 
but also trying to figure out ways to prevent future genocides. 
And so your role in that and this oversight hearing has been 
very important. And so I just want to thank you for following 
up and responding.
    Chairman Meeks. Thank you. And I also want to thank you. 
This has been a good hearing, and one of which I think that all 
of you who have testified, I could just look back and see the 
facial expressions and the acknowledgements of one another and 
listening to the points that each other was making, which leads 
to the focus of trying to make sure we stop the genocide. And 
going further than that, we make sure that we don't have an 
opportunity where so much time goes by, where so many people 
die, and we are still trying to figure out what needs to be 
done; that we need to stop this and put something in place so 
that should this ever arise again, we know how to stop it 
before thousands and thousands of lives are lost.
    I heard that sentiment from all four of you and I thank you 
for that, because that is really what this is really about. It 
is about preserving human life and making sure that this never 
happens again. But if it does, it shouldn't take, 7, 8, 9, 10 
years to figure out how do we stop it and put the pressures on 
the government to stop this from happening. Because those are 
lives that are gone. Those are people, those are generations of 
young kids who will never have a chance to enjoy this place 
that we call Earth.
    So your testimony and your work and your commitment is 
something that is much, much appreciated. And again, I thank 
you very much for being here today.
    Let me note that some members may have additional questions 
for the witnesses which they may wish to submit in writing. 
Without objection, the hearing record will remain open for 30 
days for members to submit written questions to these witnesses 
and to place their responses in the record.
    With that, this hearing is now adjourned.
    [Whereupon, at 3:26 p.m., the hearing was adjourned.]



















                            A P P E N D I X



                           November 30, 2010

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