On Monday, the National Foreign Trade Council, whose list of members reads like the Fortune 500, filed a lawsuit in a federal court in Chicago challenging an Illinois law that mandates the divestment of most state assets in the African nation of Sudan. Several police and firefighter pension funds from around the state are also listed as plaintiffs.
In response, State Sen. Jacqueline Collins, D-Chicago, the bill’s original author, led a rally of approximately 100 demonstrators to the offices of Winston & Strawn LLP, the law firm handling the NFTC case, and asked for a meeting with Julie Bauer, a partner at the firm. Collin’s request was eventually granted; the meeting is set for today, Thursday, Aug. 10, in Chicago.
Top U.S. officials have described the situation in Sudan as genocide. In 2003, an ethnic-cleansing campaign got under way in western Sudan’s Darfur region, when Arab militia groups known as the Janjaweed — who, many believe, are sponsored by the Sudanese government — began slaughtering non-Arab Muslims. To date, 400,000 Darfurians have been killed and 2.5 million more displaced, according to the Sudan Divestment Task Force.
In January, the Legislature passed the Act to End Atrocities and Terrorism in the Sudan, making Illinois the first state in the nation to enact a Sudan-divestiture bill. Since then, several other states have followed suit. A number of colleges and universities have also decided to join the Sudan-divestment movement.
Critics of the divestment complain that good intentions are too costly to the state, citing the transaction fees that will be incurred in selling off the investments.
Bill Atwood, executive director of the Illinois State Board of Investments puts this figure at about $400,000 — less than 2 percent of the $26.3 million the board paid in investment-management fees in fiscal year 2006. Although the legislation will reduce the number of companies the state can invest in, Atwood says he doesn’t expect any “measurable effect” on ISBI’s portfolio.
Under the Illinois law, state pension plans have until the end of next year to dump all investments held in select multinational corporations doing business in Sudan, including NFTC members Verizon Communications, Eastman Kodak Co., Xerox Corp., Toyota Motor Corp., and Caterpillar Inc.
In the late 1970s and ’80s, a similar campaign for divestment was aimed at toppling the regime of the Republic of South Africa, a nation that imposed strict policies of racial segregation under a system known as apartheid. Initially most U.S. companies that did business with South Africa fought divestment efforts, saying that moral factors shouldn’t affect investment decisions, but the prolonged campaign was credited with helping transform South Africa into a democratic nation.
The main sponsor of the Sudan legislation draws a similar parallel.
“On moral and legal grounds, the [NFTC] lawsuit is unfortunate, destined for defeat, ill-advised, and rife with conflicts of interests,” Collins says in a statement. “The lawsuit flies in the face of justice, flouts the interests of our great State, and betrays our Sudanese sisters and brothers.”
Trade-council president William Reinsch says the U.S. Supreme Court doesn’t agree: In 2000, the high court ruled unconstitutional a Massachusetts law barring state entities from doing business with firms operating in Burma, a case also brought forth by the NFTC.
Reinsch believes that Illinois’ law is tantamount to setting foreign policy, which only the president has the constitutional authority to do.
“This clearly interferes with what the president is trying to do in Sudan — this is not a case of the feds doing nothing,” Reinsch says, pointing out that sanctions against Sudan are already in place under the Sudan Peace Act.
But Collins contends that divestiture is not foreign policy. “Divestment is nothing like the boycott in the Burma case because it is, first and foremost, an act of disassociation or speech,” Collins says.
Collins also notes that challenges to Baltimore’s divestment from South Africa were beaten back in 1989. The difference, Reinsch says, is that the Baltimore issue never made it to federal court and pertained only to the city’s conduct.
For companies doing business there, Sudan is a security risk, and the NFTC lawsuit helps foreign companies who compete with law-abiding U.S. companies and may invalidate other socially responsible policies, Collins asserts.
Furthermore, Collins, who chairs the Senate financial-institutions committee, believes that divestment has no bearing on the “prudent investor” standard and that public pensions have neither the independent right to invest in Sudan nor the capacity to sue the state of Illinois.
Reisch responds by saying that pension funds are not part of the state government.
“To say that they can’t is just wrong. The more relevant argument would be that they can only sue for certain claims,” he says.
Attorney General Lisa Madigan, Department of Financial and Professional Regulation secretary Dean Martinez, and state Treasurer Judy Baar Topinka are named as defendants in the suit.
Reinsch says that Gov. Rod Blagojevich’s name was left off because attorneys advised them to list only the names of individuals responsible for implementing the divestment law.
