What’s in Your Portfolio? U.S. Investors are Unknowingly Financing State Sponsors of Terrorism

Abstract:     
U.S. investors are unknowingly investing in companies that do business in and with state sponsors of terrorism. The United States has extensive economic sanctions in place to prevent U.S. companies from doing business in such nations, but sanctions often do not prevent foreign companies, or even foreign subsidiaries of U.S. companies, from doing business in sanctioned countries. U.S. securities law, given its emphasis on providing information to investors, should require companies to disclose any such operations if they sell securities to U.S. investors. Securities laws include a variety of disclosure regulations, generally subject to a broad materiality standard, to guide reporting companies in making disclosure. Activities in state sponsors of terrorism satisfy the materiality standard and should be disclosed. This article presents the results of substantial original empirical research that shows that companies are not disclosing their operations in sanctioned state sponsors of terrorism. As a result, the SEC needs to clarify the application of the disclosure regulations and the materiality standard in the case of corporate activity in state sponsors of terrorism.

Number of Pages in PDF File: 71

Keywords: securities, disclosure, terrorism, sanctions

Accepted Paper Series