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Rep. Frank Criticizes SEC's Web Site on State Sponsors of Terrorism

Rep. Barney Frank (D-MA) last week wrote to SEC Chairman Christopher Cox about his concerns with the SEC's Web site posting of public companies that have disclosed investments in countries that have been designated as state sponsors of terrorism. The SEC's Web site lists Cuba, Iran, North Korea, Sudan and Syria as state sponsors of terrorism and provides a link to the disclosure made by companies that have business contacts in these countries. Frank said the list does not appear to be based on clear criteria, which makes it less effective. He urged the SEC to adopt a more rigorous methodology for the list that is posted or to remove it altogether.

Frank noted that at least one company on the SEC's posted list has disclosed its divestment from a terrorist financing state. For example, Credit Suisse reported in its latest Form 20-F that it has decided to close its representative office in Tehran and will not enter into new relationships with clients from that country. Some of the companies' investments are so insignificant that they would not be deemed material to investors or to the economy of the listed state, according to Frank.

The House Financial Services Committee is considering legislation to discourage investment in Iran by directing the Treasury Department to identify companies that are active in Iran's energy sector. Frank noted that the legislation establishes a $20 million threshold for inclusion on the list. The disclosure is not a condition to listing shares in the U.S. markets out of consideration for the competitiveness of the U.S. capital markets, he explained.

The SEC's Web site includes a list of 57 companies whose disclosures include a reference to doing business in Iran. Many companies report insignificant sales or limited marketing and licensing agreements in Iran.

Others, such as Royal Dutch Shell plc, reported in its 2007 Form 20-F that its group has investments in Iran, Syria and certain operations in Sudan. The company acknowledged that certain transactions in these companies are banned and that breaking the bans can result in criminal and civil fines and imprisonment. For Iran, the U.S. law sets a limit of $20 million in investments in any 12-month period, and prohibits the provision of goods or services that may contribute materially to weapons capabilities.

Royal Dutch Shell also noted that the compliance with this investment limit by European companies conflicts with the statutes of the Council of the European Union, which prohibit compliance with the U.S. investment limit. The company reported that it has exceeded, and expects to exceed in the future, the U.S.-imposed investment limits in Iran and may be subject to sanctions or other penalties as a result.

ABN AMRO Holding NV discovered in 2004 that certain employees of its Dubai branch were not observing the bank's policies with respect to certain U.S. dollar payment instructions. An independent investigation found that certain U.S. dollar payments were made from and to countries maintained by the Treasury Department's Office of Foreign Assets Control, including Iran and Libya. ABN reported that it is in compliance with the sanction-related requirements of the cease-and-desist and OFAC orders.

ABN established a committee in 2006 to oversee any activities or relationships with Iran and has adopted a conservative approach to any business conducted with Iran. The bank does not initiate new U.S. dollar transactions with an Iranian element and there have been no new U.S. exposures with Iran since February 2006.

Australia & New Zealand Banking Group Ltd. has a small representative office in Tehran. The bank's activities mostly relate to trade financing for commodity import and export, non-U.S. dollar correspondent accounts with Iranian government banks, project finance and foreign exchange services. ANZ reported that it has progressively reduced its Iran country limit from approximately U.S. $310 million in 2005 to U.S. $34 million as of December 2006.

BASF Aktiengesellschaft reported insignificant sales in Iran, constituting less than .01% of consolidated sales, but acknowledged that its dual-use products for both civil and military use could be used as precursors for agents in chemical weapons. Those products, whose customers are stated-owned companies, may lead some customers and investors to avoid doing business with BASF, according to its Form 20-F filing.

Jacquelyn Lumb