Capital Markets Transparency and
Security: The Nexus Between U.S.-China Security Relations and
America's Capital Markets
FOREWARD
As this report for the Commission was completed in late June, it may be useful
to review a key development that has taken place in the intervening period.
Before doing so, however, the reader should be aware of the professional activities
that have helped shape the preparation of this report. Over the past four years,
I have served as Senior Analyst of the William J. Casey Institute of the Center
for Security Policy, chaired by Roger Robinson, former Senior Director of International
Economic Affairs at the National Security Council and a former Vice President
in the International Department of the Chase Manhattan Bank. He presently serves
as a Commissioner on the U.S.-China Commission.
For some five years, the Casey Institute has pursued its so-called "Capital
Markets Transparency Initiative" to strengthen SEC disclosure requirements
with regard to questionable, higher risk foreign firms and governments that
are increasingly raising funds in the U.S. capital markets. The Institute has
likewise called upon funds managers, investment banks and other purchasers
and/or underwriters of select foreign securities (particularly those of emerging
market countries) to expand voluntarily their "due diligence" risk
assessments to include national security, human rights and religious freedom
concerns that could constitute material risks to investors. Such risks are
especially prevalent with respect to foreign entities doing significant business
with terrorist-sponsoring countries and other nations under U.S. sanctions
regimes. In a few extreme cases, the Institute has opposed specific foreign
securities offerings or listings that it believed could not be treated adequately
by enhanced disclosure.
For update purposes, it is important that the new Chairman of the Securities
and Exchange Commission (SEC), Harvey Pitt, has sided with former Acting-Chairman
Laura Unger and the SEC professional staff with respect to the agency's determinations
and interpretations embodied in its lengthy correspondence of May 8, 2001 from
then-Acting Chairman Unger to Representative Frank Wolf (R-VA). Earlier, there
were some questions raised regarding the durability of these new SEC disclosure
requirements that addressed risks deemed to be "material" in the
context of foreign entities doing business with countries under U.S. sanctions
regimes. (See "Systematic Shortcomings".) Those questions were properly
resolved in favor of enhanced investor protection.
As the national security dimensions of foreign access to the U.S. capital markets,
including the access of Chinese entities, is a new field of inquiry, there
was no real alternative but to draw from my direct professional experiences
with respect to a number of the matters covered in this report. In so doing,
I thought it indicated to describe forthrightly the nature of those professional
activities. I have also tried to remain balanced and factual and to document,
wherever possible, the analyses, assertions and recommendations provided the
Commission.
Adam M. Pener
Washington DC
September 24, 2001