U.S. SEC's country watch list draws fire

By Martha Graybow

NEW YORK, July 5 (Reuters) - U.S. securities regulators have stirred up a controversy with a new online tool that allows investors to search for companies with ties to countries the State Department has designated "state sponsors of terrorism."

Both business and humanitarian groups say the list, available on the U.S. Securities and Exchange Commission's Web site, is ill-conceived. The tool provides links to companies whose annual reports contain "some reference" to business related to Sudan, Syria, North Korea, Iran and Cuba.

"Not only has the SEC named and shamed the wrong companies, it's missed many with significant operations in countries like Sudan," Adam Sterling, director of the Sudan Divestment Task Force, and Todd Malan, president and CEO of the Organization for International Investment, wrote in an opinion piece in Thursday's Wall Street Journal.

They said the SEC's tool can easily mislead investors. For example, they wrote, Baker Hughes (BHI.N) appears on the SEC's Sudan page, but that the oilfield services company withdrew from Sudan two years ago.

Baker Hughes wrote in its 2006 annual report -- which is linked to on the Sudan section of the SEC's Web site -- that its subsidiaries will "prohibit any business activity that directly or indirectly involves or facilitates transactions in Iran, Sudan or with their governments, including government-controlled companies operating outside of these countries."

Sterling and Malan also pointed to another company on the list, Immtech Pharmaceuticals (IMM.A), which they said appears because it conducted experiments for the treatment of African sleeping sickness in Sudan.

Another business group, the Institute of International Bankers, said in a statement provided to Reuters on Thursday that the "SEC's so-called terrorism 'blacklist' unfairly portrays a number of internationally-headquartered financial institutions and other corporations in a misleading, negative light, and has been compiled without regard to the materiality of their dealings, if any, with the five countries."

The list could "needlessly discourage international firms from listing their securities in the U.S. at a time when (Treasury) Secretary Paulson and others are working to enhance the international competitiveness of our capital markets," the banking group's CEO, Lawrence Uhlick, said in the statement.

SEC spokesman John Nester said the online tool was not a blacklist, and was only intended to give investors an easier way to search through corporate annual reports that contain references to the five counties.

"Instead of wading through 10 or 15,000 public reports filed annually by companies, you can just go here and extract all the information that companies provided," he said.

"There are no judgments about the information," Nester added.

In May, U.S. Senate Banking Committee Chairman Christopher Dodd wrote to SEC Chairman Christopher Cox, expressing concern about whether regulators were moving fast enough to force companies to disclose business ties to "terrorist-sponsoring states."

The SEC announced the online tool on June 25, with Cox saying that "no investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state."

Sterling, of the Sudan Divestment Task Force, said that he was particularly disappointed with the SEC tool because pension funds and other investors had been pressing regulators to provide a comprehensive list of companies with ongoing business links to Sudan and other countries deemed rogue regimes.

The resulting list is "not anything that didn't already exist," he said.