Two human rights groups Monday morning sent a letter to the chairman and ranking Republican on the Senate Foreign Relations Committee questioning the pending nomination of a State Department nominee because of his involvement with a company that had ties to the government of Sudan.
Goldman Sachs International Vice Chairman Robert Hormats, President Obama's pick to be Undersecretary of State for Economic, Energy and Agricultural Affairs, played an "instrumental role...in reassuring the public and the financial markets about PetroChina in preparation for that company’s initial public offering," wrote Sam Bell of the Genocide Intervention Network and Eric Cohen of Investors Against Genocide. "PetroChina’s IPO raised strong opposition due to the extensive dealings between its parent company, China National Petroleum Corporation (CNPC) and the Government of Sudan, which was under U.S. sanctions and was engaged in widespread crimes against humanity and human rights abuses in its war against Sudan’s south."
In 1997, the US government initiated strong sanctions against Sudan because of the government's support for terrorism. Further sanctions were imposed after the civil war and genocide in that country.
Despite those sanctions, more than five hundred international firms operate in Sudan, most of them "contributing to peace and prosperity in Sudan," though "a few dozen companies’ operations disproportionately fuel Khartoum’s capacity for abuse while offering little benefit to Sudan’s citizens," the human rights activists wrote, including the China National Petroleum Company in the latter.
CNPC holds the controlling and managing stake in the majority of Sudan’s oil production, funding the government in Khartoum. Initially CNPC was unable to make an IPO on the New York Stock Exchange specifically because of CNPC’s operations in Sudan.
CNPC then carved out and offered a subsidiary, PetroChina. CNPC said PetroChina would not be involved in the Sudan, and pledged a firewall. Some investors expressed skepticism at the firewall, but Hormats -- whose firm Goldman Sachs was underwriting the IPO -- expressed support for the IPO.
"Sudan should not be an issue because of extensive legal firewalls in place to ensure that IPO proceeds are used domestically in China," Hormats was quoted saying in the Wall Street Journal in January 2000.
Hormats told Business Week that "it's not an issue because of the extraordinary steps the company is taking to ensure IPO proceeds are only used domestically.”
He told the Washington Post that "the structure of the deal emerging should mean that Sudan is not an issue because of the safeguards ensuring all the funds raised here will be used domestically…PetroChina will be a purely domestic company."
But the human rights activists allege that CNPC and PetroChina, "are substantially the same entity with overlapping management, frequent asset transfers, and strong mutual dependence." PetroChina incurred $15 billion in debt from CNPC, some of which was acquired in connection with CNPC’s Sudan operations, they say. Analysts estimated that approximately $270-$300 million -- ten percent of the IPO’s total -- went directly to CNPC. Wang Guoliang now serves as both Chief Financial Officer for PetroChina and Chief Financial Officer for CNPC.
In 2004, Goldman Sachs was fined for a number of incidents, including Hormats' comments to the press. The Securities and Exchange Commission, reported the Washington Post, concluded a "senior Goldman representative" thought to be Hormats, "made inappropriate statements to the press -- including The Washington Post -- regarding the firm's role in underwriting PetroChina Co., a Chinese-based oil producer whose parent company invested in Sudan. Although the SEC document didn't name the senior Goldman representative, the articles it referred to quoted Goldman vice chairman Robert D. Hormats. Hormats's statements were made before the company filed a registration statement with the SEC and violated a law that prohibits any actions that may pique interest in a stock before a registration statement is filed."
The SEC also found that Goldman had improperly promoted the PetroChina stock.
In their letter to Sens. John Kerry, D-Mass., and Richard Lugar, R-Ind., chair and ranking Republican of the Senate Finance Committee, the human rights activists request that Hormats be asked about:
"1. His current view, in contrast to his view at the time of the IPO, of the dangers of investments in PetroChina helping to fund the regime in Khartoum. "2. His willingness, now, to make a clear and public statement recognizing that PetroChina is helping to fund atrocities in Sudan and to admit that his support of the IPO was a mistake. "3. Assistance he provided to PetroChina, allowing it to raise capital in the United States and subsequently help fuel the humanitarian crisis directed by the Government of Sudan. "4. Policies that he now considers would be prudent for financial institutions to adopt, so as to avoid the mistakes he facilitated during PetroChina’s IPO, and to avoid inadvertently connecting ordinary American investors to ongoing and future crimes against humanity and mass atrocities."
The Obama administration had no immediate comment.