High Quality
Open the downloaded document, and select print from the file menu (PDF reader required).
Tuesday, July 21, 2009
As Goldman exec, Obama nominee played key role in Sudan-linked IPO
Despite human rights concerns, State Dept nominee pushed through illegal PetroChina offering
President Obama's recent nominee for undersecretary of state, Robert Hormats, is another in a long lineof Goldman Sachs executives to secure influential posts in government. But his nomination deservesspecial scrutiny, above and beyond growing concern surrounding the bank's influence in government.Hormats played a crucial role in a 2000 Goldman Sachs deal that was fervently opposed by religiousgroups and human rights advocates and later cited by the SEC as an example of illegal marketmanipulation:
the $3 billion initial public offering of PetroChina, a company with ties to Sudan'sgenocidal regime.Key facts concerning Hormats's role in the PetroChina IPO:
With the PetroChina IPO facing significant opposition from human rights advocates, Hormatsassured members of the press that no funds from the offering would be used for work in Sudan.
These statements later proved to be inaccurate and misleading. Several large institutionalinvestors, including Harvard, have since divested from PetroChina, citing human rightsconcerns.
The SEC later cited Hormats's remarks as evidence of illegal market tampering, or "marketconditioning," in a larger case against Goldman Sachs, which the bank settled for $2 million.
Hormats's role in the PetroChina deal raises serious questions about his fitness to serve in a postthat will give him substantial influence over international economic policy and US-Chinarelations.
Illegal and deceptive financial practices.
As a Wall Street executive, Hormats deceivedinvestors and violated SEC rules in order to promote Goldman Sachs' interests in thePetroChina deal. With this record, can he be a credible advocate for sound internationaleconomic policy?
China, Sudan, and human rights.
By offering support for the PetroChina deal, Hormatsflouted human rights and national security concerns as they pertained to China and Sudan. Withthis record, can he effectively represent US interests in managing US-China policy?
Goldman Sachs and conflicts of interest.
How will Hormats negotiate the conflicts of interestaccrued during his time at Goldman Sachs?These questions deserve critical examination from the Senate as it considers the Hormats nomination.This Public Accountability Initiative brief outlines key findings and supporting documentation andraises important questions for Robert Hormats.
The Public Accountability Initiative is a 501(c)3 research and educational organization focused oncorporate and government accountability. To learn more, see p. 6 of this brief, visit our website at http://public-accountability.org, or see our work at LittleSis (http://littlesis.org).
Key Findings & Supporting Documentation
The following findings concern Robert Hormats's role in the Goldman Sachs-backed initial publicoffering of stock in PetroChina, a Chinese oil company, which took place in spring 2000. At the time,Hormats was a managing director at the bank and a vice chairman at Goldman Sachs International,where he advised foreign countries on financial strategies. Hormats joined the bank in 1982 after 12years at the National Security Council (under Henry Kissinger) and Department of State.
1. The PetroChina IPO drew fierce opposition from religious, labor, and human rights groups.
The PetroChina IPO faced significant opposition from religious groups, labor unions, and human rightsadvocates because of its parent company's business dealings with the government of Sudan.Its parent, the China National Petroleum Company (CNPC), had had extensive business dealings withthe government of Sudan, a notorious human rights violator. At the time, the US had already put Sudanunder economic sanctions; President Bush has since described Sudan's mass killings as "genocide."From the
Washington Post
, January 27, 2000:Conservative religious and human rights groups have launched a campaign to block China'slargest petroleum company from listing an affiliated company on the New York Stock Exchangenext month because of its oil investments in Sudan, an African nation under extensive U.S.sanctions because of its alleged support of terrorism and persecution of Christians.Leaders of the campaign charge that the Chinese-backed Islamic fundamentalist regime there iscommitting "genocide" in its war against a Christian-led rebel movement in the south andencouraging a flourishing trade in non-Muslim slaves.
1
This was not a fringe effort; opposition to the PetroChina IPO included former members of the Reaganadministration and members of Congress. Spencer Bachus, chair of the Monetary Policy Committee,asked SEC chair Arthur Levitt for an investigation into the PetroChina IPO, highlighting PetroChina'slinks to Sudan and the relationship between oil revenues and Sudan's human rights violations.The campaign against the PetroChina IPO united a wide range of advocacy groups, including Studentsfor a Free Tibet, the AFL-CIO, Christian Solidarity International, and the Southern Baptist Convention.According to Kevin Reeves, a Smith professor and longtime Sudan activist, "We hammered that IPO."
2
2. This opposition was successful in convincing several large investors not to participate in theIPO.
As early as January, 2000, more than two months before the PetroChina IPO, the Washington Postreported that at least two large pension funds, among the largest investors in the US, had opted out of
1 "Chinese Fought on NYSE Listing; Groups Cite Oil Firm's Role in Sudan,"
Washington Post,
January 27, 2000.2 "Endowment tied to Sudan,"
The Harvard Crimson
, October 25, 2004.http://www.thecrimson.com/article.aspx?ref=504045
the PetroChina IPO, citing human rights concerns.
3
Business Week
reported, as of April 2000, that the AFL-CIO had convinced investors controlling nearly$1 trillion in assets to put out statements saying that they would not participate in the deal:So far, major funds shunning the IPO include Vanguard, CalPERS, TIAA-CREF (the $250 billion teachers' pension fund), and the public employee pension funds of New York City, NewYork State, and California. "The larger question is how safe an investment is in countries that donot have freedom or democracy," says California State Treasurer Philip Angelides, who sits onthe board of the $172 billion CalPERS.
4
The size of the PetroChina IPO was reportedly cut back from $10 billion to $5 billion, and ended upcoming in under-subscribed, at $2.89 billion.
3. To reassure investors, Hormats told journalists that the IPO would not fund work in Sudan.
As opposition intensified in early 2000, Robert Hormats, vice chairman of Goldman SachsInternational, began telling members of the press that money raised through the PetroChina IPO wouldnot fund work in Sudan and that there were "firewalls" in place to ensure that IPO funds would only beused domestically.Hormats offered these assurances on at least four occasions, and was the only Goldman Sachsexecutive to do so:
Wall Street Journal
, 1/14/2000: "Sudan should not be an issue because of extensive legalfirewalls in place to ensure that IPO proceeds are used domestically in China," said RobertHormats, vice chairman of Goldman Sachs International.
5
Business Week,
1/24/2000: "It's not an issue because of the extraordinary steps the company istaking to ensure IPO proceeds are only used domestically,'' says Goldman Sachs InternationalVice-Chairman Robert D. Hormats.
6
Washington Post,
1/27/2000: "The structure of the deal emerging should mean that Sudan is notan issue because of the safeguards ensuring all the funds raised here will be used domestically,"said Robert D. Hormats, Goldman Sachs International vice chairman and a former NationalSecurity Council and State Department official. "PetroChina will be a purely domesticcompany."
LA Times
, 2/14/2000: "No one is saying there aren't problems there" in Sudan, says RobertHormats, vice chairman of Goldman Sachs International and a former assistant secretary of State. "But . . . this particular transaction should not be affected by concerns about Sudan or
3 "Chinese Fought on NYSE Listing; Groups Cite Oil Firm's Role in Sudan,"
Washington Post,
January 27, 2000.4 "PetroChina: Pouring Oil on the Flames,"
BusinessWeek
, April 3, 2000.http://www.businessweek.com/archives/2000/b3675161.arc.htm5 "PetroChina Hopes to Shake Off Its Past --- As Big Stock Offer Looms, Beijing Hopes Oil Giant Can Shed PoliticalRoots,"
Wall Street Journal,
January 14, 2000.6 "Can this Giant Fly on Wall Street?",
Business Week
, January 24, 2000.
Add a Comment
deleted_fbuser_1290947649left a comment