Patriots or Profiteers Part ll

A perspective by Brad Molnar
Tuesday, March 10, 2020

Former senior financial executive Richard Spencer, currently Secretary of the Navy, has been waging war against a little known government agency, the Federal Retirement ‘Thrift Investment Board.’ The TIB wants to invest retirement funds of active and retired military into defense companies owned/operated by the Peoples Republic of China devoted to developing a high-tech Chinese Army and Navy; some abet human rights violations. American firms cannot sell components to, or buy products from, these sanctioned companies. But, it is argued, there is not a law forbidding investing in them. Secretary Spenser argues our military members should not fund the weaponry aimed at them. 


U.S. Senator Marco Rubio joined the fight in 2017. Buttressed by only four other Republican senators and Sen. Jeanne Shaheen (D) he sent a letter to the TIB asking them to reverse their decision to join the Morgan Stanley All Country World ex U.S. A. Index which caters to Russian and Chinese sanctioned and non-sanctioned firms. Rubio’s opposition is not only having military personnel fund their own demise, but also these firms are owned/controlled by the Peoples Republic of China and Russia so the transparency required by Sarbanes-Oxley for American funds is denied as state secrets. Investor risk is increased while the fund’s competitiveness is enhanced. Kangmei Pharmaceutical Co., a Chinese company that has been included in this MSCI index, and its sub-indexes, falsely overstated the value of its cash holdings by $4.4 billion.

Rep. Banks R-IN introduced HR 2903 the “Blocking Investments in Our Adversaries Act.” HR 2903 made it out of committee but has never had a floor vote. HR 2903 has 11 co-sponsors. Rep. Liz Cheney R-Wyo. is one of them; Rep. Gianforte is not. Senators Rubio and Shaheen introduced S.2791 addressing the issue of adversary nations’ investment non-transparency with seven co-sponsors. Congressman Meadows-R No. Carolina, with 16 fellow R’s, introduced companion bill HR 5018. Neither has had a vote. None were co-sponsored by Sen. Daines, Sen. Tester, nor Congressman Gianforte.  


Aon Hewitt, consultant to TIB, defends adding the sanctioned firms saying carving China out would be contrary to industry norms and may result in lower returns for federal employees including Senators and Congressmen. Aon calculates $1 invested in securities on the new index would return $3.28 after 23 years; 23 cents more than if invested in non-aggressor companies. 

Patrick Chovanec, chief strategist with Silvercrest Asset Management says of adding the Chinese sanctioned and non-sanctioned firms, “But by the same token, they’re the second-biggest economy in the world. If you push them off a cliff, you better make sure you’re not handcuffed to them.” Navy Secretary Spencer countered with, “The savings of members of the military should not be unwittingly helping to underwrite the threats China and Russia pose to their lives.” 


Russian companies, Gasprom and Novatek, are in the I fund and have been sanctioned over Russia’s intervention in Ukraine and cyber espionage; five of the 11 Russian constituents in the index had been sanctioned by our Treasury Department.

 AviChina Industry & Technology Company Ltd., is China’s state-owned manufacturer of ultra modern military aircraft and airborne weapons. These weapons were the centerpiece of the recent military parade in Beijing celebrating China’s 70th anniversary. China Mobile, which is banned from providing international service to the U.S., and ZTE fined by the U.S. for violating sanctions against North Korea and Iran are also in the proposed I fund acquisition.   


Regardless of blocking legislation, or a change of heart at the TIB (final action is expected late June, 2020), it will still be legal for investment funds and individuals to invest in censured, blackballed, non-transparent companies, or their subsidiaries, in adversarial countries. Using most recent disclosure filings Montana’s U.S Senate Candidates John Mues has no such holdings and Sen. Steve Daines holds two China funds with blackballed companies included.* In our race for Governor, Olszewski, Fox, and Cooney do not have investment in sanctioned companies; at press deadline Whitney Williams has not yet filed for office so has not filed disclosure forms. Gianforte has invested in funds that include multiple sanctioned and unsanctioned Russian and Chinese companies.** 

Of those that have filed for our Congressional seat neither Joe Dooling nor Debra Lamb has invested in adversarial nation stocks. Kathleen Williams has not invested in sanctioned companies but has Chinese holdings. Rosendale shows no stock investments and Stapelton, having not yet filed for congress claims no personal stock investments on his latest state financial (D-1) disclosures.***


Montana’s Board of Investment has beaten the FTRIB to the punch. They have already invested state employee retirement funds in [Morgan Stanley] MSCI All Country World ex U.S.A. Index but will not comment on Chinese and Russian companies included. That should give Montana’s National Guard, Reserves, and active military serious pause. 

*Mike Knoles (D), Daniel Larson (R) and Cora Neuman (D) have filed for US Senate and John Evankovich (R) has filed for US House but their financial disclosure forms have not been posted at press time. **Sub indexes and subsidiary relationships were not investigated. *** Only the most recent Financial Disclosure forms were consulted.

The Laurel Outlook


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