Capital Markets Transparency and Security: The Nexus Between U.S.-China Security Relations and America's Capital Markets

SYSTEMIC SHORTCOMINGS

The U.S. financial system is ill-prepared at this time to address adequately the concerns raised by "bad actors" accessing the U.S. capital markets. In addition to governmental inattention to this new security issue area, there are a number of systemic shortcomings that merit review in the context of "capital markets security" including government oversight, the purchasing process and the evaluation of risk in the marketplace.

The three case studies reviewed in the previous section provide examples of controversial foreign offerings that have been perceived by many market activists as higher risk securities, or "bad actors," in the U.S. debt and equity markets. The Gazprom, PetroChina/CNPC and Talisman examples also highlight a number of the systemic shortcomings. Of primary concern have been: 1) disclosure exemptions; 2) the adequacy of transparency and disclosure requirements; and 3) institutional investor attention to new material risk factors in the markets.

Capital Raising "Loopholes"

The U.S. capital markets are regulated by the Securities and Exchange Commission (SEC), which has been provided the broad mandate of "investor protection." A central component of its mandate is to ensure the proper disclosure by registrants and listed companies of material risks to investors. The SEC also determines what constitutes a material risk. With the exception of cases involving fraud, insider trading and other forms of market manipulation, it is largely left to investors to gauge the risks and invest accordingly.

This oversight becomes more complicated when considering foreign entities. When overseas companies or state-owned firms seek to list on American stock exchanges or raise capital in the U.S. debt markets (including the issuance of sovereign debt), they are subject to many of the same disclosure rules as domestic entities. There are, however, alternative means by which foreign firms or governments can attract U.S. capital without adhering to otherwise rigorous U.S. disclosure requirements. For example, a Chinese company can list in Hong Kong and sell its securities to larger U.S. institutional investors through certain established channels (i.e., exemptions).

On the "demand side," institutional investors seek to mitigate risks attendant to a globally integrated financial system by diversifying their holdings.²²⁶ This may be accomplished by owning various types of financial instruments (e.g., stocks, bonds, government debt, derivatives, etc.). They might also hold securities from regional markets and companies of varying sizes and industries. For example, a large public pension fund might have domestic portfolios for small-cap, mid-cap and large-cap companies. It might also own an "emerging market" portfolio as well as other investment categories divided by region or level of risk.

U.S. investors primarily invest in the securities of overseas entities by purchasing American Depository Receipts (ADR's). ADR's are certificates for shares in foreign companies that are held in the foreign branches of U.S. banks. In practice, if a U.S. entity were to purchase one thousand shares of a Chinese "red chip," its broker in Hong Kong would buy the shares and deposit them into a Hong Kong branch of a U.S. bank. The American buyer would then receive an ADR certificate indicating ownership.²²⁷ Similarly, institutional investors can take on the debt of foreign governments and companies through global debt offerings.

Regrettably, those ADR's not actively traded on U.S. exchanges are not required to meet U.S. disclosure requirements before being marketed to American investors. For example, "Level I" ADR's are traded in the so-called "over-the-counter" market after providing what JP Morgan's ADR Reference Guide terms "minimal SEC registration" (i.e., summaries of public reporting documents required by the firm's home market).²²⁸ This investment process allows small- to mid-sized foreign firms to float stock on marginal exchanges, "test the waters" of the global investor community and access U.S. investors seeking more exciting returns through riskier portfolios. In the absence of robust reporting requirements, however, this process may also allow front companies, firms engaged in dubious activities and other questionable foreign firms to more easily navigate the international investment pool.

In 1990, an important new SEC regulation was promulgated that further facilitated the purchase of unregistered foreign securities. Rule 144 (a) enables unregistered securities to be sold to Qualified Institutional Buyers (QIB's) through private placements without SEC oversight. ²²⁹ These QIB's are subject to a "holding period" before fund managers are allowed to resell the instruments to other U.S. investors.

Accordingly, if a foreign company lists on the Luxembourg Exchange, for example, it can still access U.S. capital by exercising SEC exemptions without having to disclose any one of a number of items that the SEC considers to be material for domestic and foreign registrants.²³¹ Through what some view as the Rule 144 (a) "loophole," an element of non-transparency is introduced to the portfolios of large U.S. institutional investors.

These and other disclosure exemptions are designed to enhance the efficiency of the markets. With respect to global "bad actors," however, the advantages of these looser regulations governing the purchase of overseas securities are apparent. As Randolf Quon stated in Congressional testimony in 1997,

"Many of the Chinese and Russian securities and bonds are unable to meet the rather strict registration requirements of the SEC. That is why they are being sold to U.S. institutional investors through the exemptions under existing securities laws."²³²

By listing on a foreign exchange, a "bad actor" can blur the investors' understanding of its corporate identity and overseas activities of potential concern. It can, nonetheless, still raise substantial funds from U.S. investors by privately placing its securities with QIB's.²³³ In choosing this strategy, foreign companies and/or governments can also help avoid the type of U.S. political opposition encountered in the Gazprom and PetroChina cases.

In 1998, a $1 billion Chinese government "yankee bond" illustrated this point. Although listed in Luxembourg and Hong Kong, the offering was dollar-denominated and offered to U.S. institutional investors through 144 (a).²³⁴ What the prospectus likely failed to reference were a number of security- and human rights-related issues associated with the PRC that American investors (on whose behalf "QIB's" were purchasing the debt) may have considered material to their willingness to subscribe to the offering. For example, would the funds be used to advance China's military modernization? Would it free up funds that Beijing could then use to suppress religious freedoms? With respect to financial considerations, were repayment risks associated, for example, with a possible future flare-up in the Taiwan Straits adequately disclosed? It is not difficult to envision how complicated the process could become when subsidiaries, affiliates and parent companies are added to the mix.

Another troubling systemic process involves the use of indices by QIB's to purchase debt and equity on a mass scale. "Passive management," as it is known in the industry, is the practice by which large institutional investors buy baskets of stocks and bonds that have been chosen by indexing agencies such as Morgan Stanley Capital International (MSCI) to serve as a benchmark for an exchange or region. Rather than reviewing each Chinese stock it plans to purchase, for example, a large public pension fund could simply invest in MSCI's "China Free" index to increase its exposure to that country.²³⁵

MSCI's most important Asian index is the AC Far-East Free Ex-Japan index. Recently, the MSCI decided to introduce fifteen new Chinese companies, some of which were "red-chips," to the index.²³⁶ Almost instantly, these Chinese firms were able to attract scores of U.S. institutional investors that might have otherwise eschewed their purchase. The implications of this investment vehicle are clear. Potentially problematic Chinese "red chips" and other firms can not only list in Hong Kong and access U.S. investors, but are almost automatically integrated into the portfolios of unwitting American investors once added to regional indices. At minimum, the use of indices, especially in the case of foreign firms for which material information may not be readily available, should raise "yellow flags" for U.S. pension and other funds. In an ideal world, U.S. fund managers would actively manage all foreign purchases to ensure that "bad actors" are not slip-streaming into their portfolios.

The broader institutional investing process also adds an element of concern considering the way in which global "bad actors" raise capital. In the case of public pension funds, in particular, fund managers often rely on their "external fund managers" to build and administer diversified portfolios. CalPERS, for example, contracts some ten external fund managers to oversee parts of its portfolio. Contracts are renewed based on financial performance.

Unfortunately, there is, at times, a close connection between external fund managers and the Wall Street firms that underwrite foreign offerings. For example, many Wall Street firms have subsidiary corporations that manage assets and often contract to do so for large institutional investors. This corporate linkage between underwriters and the external fund managers of this nations' larger public pension funds can result in a conflict of interest. Much like Wall Street firms have a financial incentive to minimize the possibility that its client may be engaged in activities inimical to U.S. security and human rights interests, the closely-connected asset management firms would presumably have little reason to object to a foreign offering -- especially one underwritten by its parent company -- on these grounds. This often symbiotic relationship makes it unlikely that external fund managers will serve as reliable industry watchdogs with respect to material national security, human rights and religious freedom concerns in the future.

It is appropriate to note, however, that external fund managers are not given unlimited latitude when it comes to purchasing foreign securities for large pension systems. For example, CalPERS sets investment parameters with respect to "permissible countries" to be brought into its portfolio. According to Section D, part VI (c) of a report by CalPERS in 2000,

"The [external fund] Manager(s) shall operate under a set of specific guidelines that shall outline the Manager(s)í investment philosophy and approach, representative portfolio characteristics, permissible and restricted securities and procedures, and performance objective.

The implementation of this Program shall comply at all times with CalPERS' investment policies including, but not limited to: 1) Permissible Country Debt and Equity Policies..."²³⁷

In the same CalPERS report, the "Permissible Country" debt and equity lists are provided in Section I. China, among other countries, is listed on the "Prohibited" list for both debt and equity. Although reunified with China in 1997, Hong Kong appears separately on the list of appropriate countries.²³⁸ This seeming inconsistency was explained by CalPERS administrators to be a function of their policy bias toward exchanges, rather than companies and governments. Put another way, the "Prohibited" list are those foreign exchanges from which CalPERS will not purchase stocks or bonds.²³⁹

This position raises a number of issues. Does it imply, for example, that CalPERS would purchase Chinese sovereign debt if offered in the Hong Kong debt market, but not if offered in Shanghai? Given the ability of foreign firms and governments to offer their securities through a number of international exchanges, CalPERS' policy seemingly suggests that material political risks related to a foreign company or government are somehow mitigated by the location of the exchange. Moreover, irrespective of their affiliations or business activities, Chinese companies can be held by CalPERS as long as they are listed on the Hang Seng, NYSE or elsewhere. Perhaps this helps explain China's determination to have its SOE's listed internationally. To cite an extreme example, would a public pension fund like CalPERS be willing to hold a suspected proliferator front company in portfolio so long as the firm managed to list in Luxembourg or on another acceptable exchange? As Casey Institute Chairman Roger Robinson stated in a letter dated March 13, 2001 to Wilshire Associates, a consulting firm charged with expanding CalPERS' risk assessment criteria,

"In this connection, it would also be short-sighted of CalPERS to focus on the political conditions of the country or territory in which the relevant stock exchange is located (e.g., Hong Kong), rather than where the company is headquartered and doing the bulk of its business. Simply because a foreign company is able to get itself listed on a "permissible" stock exchange does not mean that the kind of expanded, politically-oriented "due diligence" CalPERS claims to now favor can be given less weight or ignored altogether."²⁴⁰

Transparency and Disclosure

Problems arising from offshore "loopholes," cozy partnerships between Wall Street underwriters and external fund managers and troubling fund policies, while important, are manageable with proper attention. The larger systemic challenge is two-fold: 1) the difficulty in identifying global "bad actors" is exacerbated by inadequate transparency and disclosure requirements; and 2) national security, human rights and religious freedom concerns have yet to be integrated into the risk assessment methodologies of public and private fund managers and were only recently introduced as potentially material risk factors in the markets.

Fortunately, due to the nature of the free market process, it should not be difficult to incorporate these new, value-relevant considerations into the U.S. capital markets. After all, material information is the cornerstone of the markets. Were investors given the information required to include national security, human rights and religious freedom concerns in their due diligence assessments of overseas entities, the markets could, over time, largely self-regulate. If a company were deemed a "bad actor" or politically problematic and the markets were apprised of such evidence, they would likely penalize the company for its activities (e.g., reduce the value and/or marketability of the securities in question). The Talisman "Sudan discount," for example, provides an illustration of how a market adjustment might work.

The existence of these new risk factors and the ability of the market to self-correct has underpinned the aforementioned William J. Casey Institute's five year "Capital Markets Transparency Initiative." Specifically, the Institute has promoted the idea that prior to May 8, 2001, SEC disclosure requirements were not adequate to address the new types of material risks illustrated by the Gazprom, CNPC/PetroChina and Talisman cases. By expanding SEC disclosure requirements to include more information about the global activities and identities of foreign firms and governments, the markets would, in time, begin to factor these considerations into their purchasing decisions. The specific efforts to achieve this important milestone merit review.

As referenced earlier, some in the U.S. government and the media began paying closer attention to "capital markets security" in 1998. At the time, one of the primary concerns that surfaced was the dearth of transparency and disclosure with respect to foreign entities seeking to enter the U.S. debt and equity markets. As Representative Chris Cox stated at the time,

"But we also need to take a look at the degree to which disclosure...by foreign borrowers and foreign users of our capital markets does not measure up to disclosure by our own domestic companies."²⁴¹

Similarly, the Deutch Commission was sufficiently troubled by disclosure shortcomings that it recommended enhanced transparency as a first step to ensure that Americans do not unwittingly underwrite proliferators of weapons of mass destruction and ballistic missile delivery systems:

"[A National Director for combating proliferation should] assess options for denying proliferators access to the U.S. capital markets. Options considered should include ways to enhance transparency, such as requiring more detailed reporting on the individuals or companies seeking access or disclosure of proliferation-related activity, as well as mechanisms to bar entry of such entities into the U.S. capital markets."²⁴²

The insights of Representative Cox and the recommendation of the Deutch Commission reflect a basic concept: in order to thwart attempts by genuine "bad actors" to access unwitting U.S. investors, those in government and the financial community must first be able to identify these entities. In the event that expanded disclosure revealed an actual or prospective "bad actor" in the course of the registration process, institutional investors would play a significant role. For example, were a foreign shipping company forced to disclose its involvement in the transport of proscribed nuclear materials to a rogue nation, investors would be better prepared to evaluate the company's political/financial risks. Barring a U.S. government decision to sanction the company and/or deny it access to the U.S. capital markets, however, this information would be useless if those evaluating the risk simply ignored these types of corporate activities. Strengthened transparency and disclosure is, therefore, a critical first step -- but not a panacea. To be effective, the markets will have to utilize this information in their decision-making processes, including valuation, risk assessment and the willingness to hold such securities in portfolio.

Regrettably, at this time, most institutional investors do not perform such expanded "due diligence" with respect to national security, human rights and religious freedom concerns. Indeed, it can be stated quite authoritatively at this writing that not one pension or mutual fund in this country currently conducts national security-related "due diligence" assessments before purchasing foreign stocks and bonds. Brad Pacheco of CalPERS underscored this point in a 1999 Investor's Business Daily article, ì[National Security] is not screened as part of our review."²⁴³ Human rights-and religious freedom-related risk factors do not fare much better.

While those in the financial industry may argue that this is a problem for the U.S. government, such a view is short-sighted in light of the publicly-available information regarding such suspect companies. Congressional reports, opposition campaigns of the type encountered in the PetroChina case, the company's global activities and partnering arrangements and the print media would be a good place to start in determining whether a company or government is involved in business ventures that could impact adversely upon the value of its securities.

Disclosure Deficiencies

The case of a recent NYSE listing and initial public offering by China's second largest energy concern, China Petroleum and Chemical Corporation, or Sinopec, is emblematic of potential disclosure-oriented problems that may arise with respect to foreign registrants. Some have argued that the company failed to disclose adequately material business activities that may have negatively impacted upon its share price. These alleged omissions are partly due to systemic shortcomings referenced earlier regarding the nature -- and scope -- of political risk disclosure required by the SEC. It is also the case, however, that U.S. institutional investors seemingly did not have national security, human rights and religious freedom risk factors on their "radar screens" when evaluating this offering. As a result of this inaction by both regulators and purchasers, a company deemed questionable by many activists across the political spectrum is held by some of the most influential public and private investment funds in this country.

Sinopec was originally slated to list on the NYSE in June, 2000 and attract some $6 billion following what was expected to be the successful market debut of PetroChina. Likely due, at least in part, to the "adverse market conditions" shaped by the PetroChina controversy, Sinopec postponed its offering until October of last year. The company also scaled-back its expected proceeds and eventually raised some $3.4 billion.

Roughly one week before Sinopec came to market, a troubling Wall Street Journal article by Peter Wonacott appeared that raised awareness of the company's possible ties to Sudan. According to the article,

"China Petroleum & Chemical Corp., which is promoting plans to raise as much as $3.5 billion in a global stock issue, held an investment until June similar to one that nearly sank the initial public offering of its rival [CNPC/PetroChina]: It had business ties to the pariah state of Sudan."²⁴⁴

Although the firm had reportedly transferred its Sudan assets -- which reportedly included a $30 million joint venture to conduct surveys and drill at least four wells in the "Sudan 6î oilfield -- to CNPC in July, 2000 for undisclosed terms, the Journal account exposed inconsistencies between claims that an authentic transfer had taken place and activities on the ground.²⁴⁵ For example, the article observed that Sinopec still maintained an office in Sudan. Moreover, according to both a Chinese embassy official in Sudan and an on-site Sinopec executive, "Sinopec's work has continued on the oil field."²⁴⁶

While the true nature of Sinopec's activities in Sudan, if any, remains unclear, the market implications of this revelation are more difficult to contest: ties to Sudan can disrupt an offering and/or impact upon share value following the float.²⁴⁷ The Journal article, as might have been expected, stimulated a flurry of activity by the Sudan community and other NGO's that had opposed PetroChina on similar grounds. In the week before the Sinopec listing, the SEC reportedly rece ot;a veritable flood of e-mails' seeking disclosure of this business venture in Sinopec's filing.²⁴⁸ The SEC also received a communication from the U.S. Commission on International Religious Freedom (USCIRF) on this matter. The letter recommended that the SEC investigate the "accuracy and adequacy" of Sinopec's material disclosure. According to USCIRF,

"American investors who may be considering investing in Sinopec may consider it material to their investment decisions to know whether the registration statement of Sinopec is adequate and accurate in its disclosure about that company's possible ongoing business interests in Sudan."²⁴⁹

At the time, the SEC did not specifically seek to clarify the overseas business activities of registrants such as Sinopec that could pose national security-, human rights- or religious freedom-related risks to investors. Given the potent impact of Sudan-related operations on the market activities of PetroChina and Talisman, a strong argument was made that this information was material to the investor's consideration of Sinopec. Nevertheless, Sinopec did not reference in its SEC registration statement the firm's recent Sudan activities before going forward with its IPO and NYSE listing.²⁵⁰

In January, 2001 (some 90 days after its IPO), new allegations surfaced regarding the international activities of Sinopec. Specifically, the company signed contracts with the National Iranian Oil Company totaling some $163 million to explore oil in Zavareh, Kashan and upgrade Iran's Tehran and Tabriz refineries. The deal also included assistance in the design and building of the so-called "Nekaî oil port in the Chtmian Sea. The Iran energy development project exceeded the $20 million threshold allowed by the Iran-Libya Sanctions Act (ILSA), technically constituting a violation of U.S. law. If enforced, Sinopec could be subject to sanctions by the U.S. government.²⁵¹

This case highlights a number of disclosure concerns. Any ongoing or former Sudan-related activities should probably have been disclosed given the Talisman and CNPC/PetroChina precedents. If the company had indeed severed its ties with Khartoum, the details of its past business activities and transfer of assets could have been made clear to investors. Equally troubling, Sinopec chose not to disclose an imminent multi-million dollar deal with Iran that eclipsed the ILSA threshhold. It is somewhat difficult to imagine that the company was not aware of the possibility of U.S. government sanctions. It is also doubtful that the company was able to enter into complex negotiations and sign such a sizable energy agreement with Iran in the three month period following its registration with the SEC. Potential sanctions would seem to represent a material risk to investors. It has since been learned that the U.S. State Department discussed this matter with Sinopec prior to its offering. According to a Department official,

"In light of our [Chtmian] policies, we have long been concerned about the Neka project. We have expressed those concerns to the government of China, to Sinopec and to other companies which have been reported to have been interested in the project."²⁵²

Due to SEC policy, it is not known whether the company is currently under investigation for possible material omissions. It is likewise not clear to what degree these political concerns contributed to, what was for a period of time, a roughly 30 percent drop in Sinopec's share price from its IPO level. What is clear is that some U.S. investors are holding in portfolio a Chinese entity that is doing business with at least one State Department-designated terrorist-sponsoring state and could be subject to U.S. sanctions in the future.

Expanding Disclosure Requirements

In the absence of SEC attention to these new categories of material risk, in August, 1999 U.S. Representatives Spencer Bachus and Dennis Kucinich (referenced above in connection to their reintroduction of the U.S. Markets Security Act of 1999) took the unusual step of introducing this new challenge to the fifty states. In a communication to all fifty state treasurers and attorney generals, the Representatives wrote:

"We are writing to bring to your attention a challenge to U.S. national security which may be relevant to your state's management of pension funds and other investment tools...Given the increasingly sophisticated financial engineering employed by potential adversaries, "due diligence" needs to be expanded to encompass these largely unprecedented concerns."²⁵³

In a follow-up letter to those state officials of November 8, 1999, the Representatives went on to recommend that states conduct a national security audit of their existing overseas investments. Regrettably, at the time, the concept of higher risk "bad actors" had not been clearly defined and it was difficult to capture exactly what pension funds and other investment firms might be seeking in such a portfolio review. Put another way, the operative question became "how does one identify a "bad actor?'"

Working with those in Representative Bachus' office and the staff of Senator Sam Brownback, the Casey Institute sought to answer that question in the spring of 2000. A bill, with the working title of "The U.S. Investor Protection Act of 2000,î was envisioned by some on Capitol Hill to legislate expanded disclosure requirements by the SEC for foreign entities. It was determined that new transparency requirements that sought information with respect to a firm's ties to -- or business activities with -- their home country's national military or intelligence services would help indicate whether U.S. investor proceeds could end up benefitting the wrong sorts of activities. Similarly, more detailed disclosure was sought regarding the end-use of proceeds by both foreign firms and governments as was more explicit information with respect to the principal ownership and senior management structures of the foreign entity.

At the core of the draft legislation, however, was the concern that foreign entities may be utilizing funds raised in the U.S. to finance business activities in those countries under U.S. sanctions regimes. To minimize this prospect, it was recommended that the SEC require a detailed accounting of the operations of foreign registrants in countries that fall on the State Department's list of terrorist-sponsoring nations as well as other countries subject to U.S. sanctions. It bears repeating that such disclosure would help reconcile a fundamental contradiction in U.S. foreign policy: namely, that Americans can underwrite the activities of foreign companies that operate in locales that are off-limits by law to U.S. firms.

A second motivation was present as well. Specifically, it was determined that those firms that have been suspected of being "bad actors" were often the same companies that were partnering with those countries cited by the U.S. government for wrong-doing. It is sometimes the case that EU and other Western firms are somewhat reluctant to do business with countries sanctioned by the U.S., even if the efficacy of those sanctions is doubted. Regrettably, it is often Chinese, Russian and other non-Western firms that choose to fill this gap.

There are other advantages associated with strengthened disclosure. In its most basic form, investor's can make more informed decisions when provided additional information about a prospective investment candidate. Moreover, these changes would not require additional bureaucracy and could be, in almost all cases, effected with almost no SEC rule changes. Most importantly, however, is the potential knock-on effect of such transparency enhancements. Taking their cue from the SEC, fund managers would likely begin to assess material national security-, human rights- and religious freedom-related risks when evaluating the securities of foreign firms and governments. In this manner, the "demand side" of the markets could help better discipline the system through its purchasing decisions.

While the "U.S. Investor Protection Act of 2000" was never introduced, this SEC "disclosure scenario" came to a head in April-May of this year. Equipped with empirical evidence of disclosure shortcomings, the faltering share values of certain perceived "bad actors" due to successful divestment campaigns and the impact of negative publicity and Congressional attention on the market activities of foreign companies, Rep. Frank Wolf -- a long-time human rights advocate and Chairman of the House Appropriations Subcommittee on Commerce, Justice, State and the Judiciary -- sent a groundbreaking correspondence to Acting SEC Chairman Laura Unger on April 2, 2001. In addition to seeking an investigation into suspected disclosure omissions by PetroChina and Talisman, the Congressman recommended a series of additional disclosure requirements for foreign firms doing business in Sudan and other countries under U.S. sanctions regimes.²⁵⁵ Stating his case for these new measures, Congressman Wolf noted,

"The PetroChina and Talisman examples underscore the material shortfalls regarding information available to U.S. investors with respect to foreign entities. Not only are material "Risk Factors" often omitted due to inadequate SEC disclosure requirements -- raising the prospect of significant losses for U.S. investors -- but inadequate information flows make it more difficult for investors to judge both risk and whether the firm's operations reflect their values. As a result, investors often end up unwittingly helping finance companies whose global activities are in contravention to American security interests and values.

Specifically, the SEC's disclosure requirements for foreign entities do not currently include: the electronic listing of the foreign entrants" filings; information regarding the operations of parent companies, subsidiaries or affiliates of the prospective entrant (thereby creating the impetus for "cut-out" companies such as PetroChina to serve as funding vehicles); sufficient information with respect to the Board of Directors of the companies and pertinent corporate governance issues; notification of where the company is doing business globally and with whom (e.g., with a country on the State Department's list of terrorist-sponsoring nations, etc.); or sufficient protection of minority shareholder rights."²⁵⁶

Building on research efforts by the Casey Institute and others on Capitol Hill who had previously called for enhanced transparency criteria, Representative Wolf recommended, among other steps, that the SEC require electronic filings for all foreign registrants and more information regarding the activities of those registrants doing business in U.S.-sanctioned countries:

"Global Operations: Foreign companies should disclose their operations -- as well as those of their parent companies, subsidiaries and affiliates -- in countries which are listed on the following U.S. government lists:

• CIA List of Acquiring and Supplying Nations as cited in its annual report to Congress on The Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions