It isn’t often that a corporate decision not to bring a stock
offering to market generates news. So it was no great surprise that the
Financial Times of London gave only a few paragraphs to the announcement by
the Russian oil conglomerate, Lukoil, that it would forego its planned share issue on the New York Stock Exchange valued at roughly $680 million.

Yet this development is of momentous significance. It marks the
second time in recent months that a major fund-raiser engaged in dubious
international activities has declined to try to secure large sums from the
U.S. capital markets.

Earlier this year, Communist China decided to offer a sovereign bond
it had long planned to issue in New York in Europe’s financial markets only.
Now, Lukoil has chosen to follow suit, pursuing instead what it calls a
“full listing on the London Stock Exchange.”

Lukoil vice president Leonid Fedun explained the reasoning behind
his company’s action – a logic that likely applied to the Chinese
transaction as well: According to the FT, Fedun said the “move on to the
London market was made ‘in order to avoid the political risk that exists [in
the U.S.].’ He cited sanctions against Iraq, where Lukoil has been involved
in oil-for-food contracts, and other countries such as Sudan and Iran where
it has business.”

Fedun added, “It is completely possible that [U.S. officials] could
ban companies carrying out an issue from working in those regions, so we
have decided to work in a better political environment” – namely, in the
London exchange.

Translation: Bad actors in Moscow and Beijing and other capitals
around the world are waking up to a stunning new fact of life. It is no
longer possible for them to exploit the lack of transparency that has
heretofore enabled their ilk to solicit funds from unsuspecting American
investors in U.S. capital markets without disclosing where their companies,
their parent firms and subsidiaries are doing business – and with whom.

This sea-change in the American stock and bond markets has come
about as a result of changes adopted on May 8 by the Securities and Exchange
Commission affecting the filing requirements and other procedures that apply
to foreign would-be registrants. These changes were catalyzed by one of the
leading congressional champions of human rights and national security, Rep.
Frank Wolf, R-Va., and the William J. Casey Institute’s Roger W. Robinson.

Lukoil had even more reason to fear a financial debacle had it
brought its share offering to Wall Street in the aftermath of the House of
Representatives’ adoption two weeks ago of the Sudan Peace Act. That
legislation, passed 422-2, includes a provision introduced by
Rep. Spencer Bachus, R-Ala., that would bar access to the
U.S. capital markets to foreign oil firms involved in Sudan, as well as
trading of the securities of those firms already listed on U.S. exchanges.

It seems reasonable to believe that opponents of the Bachus
amendment to the Sudan Peace Act – and, indeed, of the SEC’s efforts to
ensure that American investors understand fully the risks associated with
prospective investments – will seize upon the placement in foreign markets
of the Lukoil share and Chinese bond offerings to oppose such legislative
and/or regulatory initiatives. Wall Street firms and those responsive to
their well-heeled lobbying in the Bush administration and in the Senate will
raise the specter of capital controls, engendering capital flight and lost
business opportunities, unless such measures are spurned.

This is, of course, utter nonsense. The only foreign governments,
firms and other entities who have anything to fear from the kind of
transparency long required of American market entrants – and that is now
being sought from foreign ones, as well – are those doing business in
countries subjected to U.S. sanctions. Even if the Sudan Peace Act were to
be adopted unchanged by the Senate, however, they could still do business in
every rogue state on the planet except for Sudan, although informed
investors may not respond to such offerings once it is clear that the
ultimate beneficiaries of the dollars thus generated could include countries
like Iran, Iraq, and Libya.

Rather than seek to undo the laudable American market transparency
initiatives that are currently frustrating the likes of Lukoil’s executives,
Chinese sovereign borrowers and the U.S. investment houses hoping to garner
lucrative fees from hawking their stock and bond offerings, the Bush
administration and legislators would be well advised to encourage foreign
exchanges to ensure that their investors are afforded comparable “material
risk” information. Just as the right answer to inequitable application of
national security-minded export controls is not to dumb down ours to the
lowest common denominator applied by others, our approach on capital markets
transparency ought to be to bring others’ exchanges up to our new, higher

If the only result of these developments in the U.S. capital markets
is to make it more difficult for global bad actors to get the funds with
which to finance their odious operations around the world, the effort would
be worthwhile. If it has the added effect of bringing greater transparency
and discipline to financial markets worldwide though, the upshot could be
far greater: It might just create powerful incentives for nations and
companies to eschew deals with those engaged in genocide, slave-trading,
terrorism, proliferation and other unsavory activities – a choice they
haven’t had to make to date and that would be very much in the interests of
all freedom-loving people to ensure they must make from now on.

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