Tag Archives: PetroChina

Our Stake in Afghan Mining

At the time, our meeting seemed like nothing more than a strange coincidence.

The scene was a restaurant patio in Moss Beach, California. The sun had set. People clustered around firepits to keep warm. (It was, after all, July in northern California.) We pulled up two chairs and after a few minutes fell into conversation with the couple sitting to our right. The usual preliminaries: he traveled frequently to India and Asia on business, we learned, and she had some kind of corporate job in the Valley. I can’t remember if I ever found out what it was.

Nobody was really interested in talking about work anyway. Almost immediately our conversation veered – I can’t remember how; I think it had to do with an appreciative remark about the lack of humidity on the West Coast — away from polite chatter about their lives in California to their daughter’s life in Florida. She had just moved there, close to the military base where her fiancé was now stationed. He was suffering from PTSD, which his mother-in-law-to-be attributed to an incident in Afghanistan not too long ago, when he inadvertently directed a combat unit into the line of fire.

Just a few minutes after the conversation had taken this grim turn, another couple pulled up chairs. They had moved to Silicon Valley from India years ago. The husband was some kind of engineer. They had come to Moss Beach that evening with their two adult sons, one of whom was getting ready to leave the next day – for Afghanistan. He wasn’t going there to fight, but to work for a food relief effort. He seemed confident and courageous. His mother could not disguise her worry.

And so it turned out that everyone in our little group had had their lives touched by the US war in Afghanistan: the six Americans who gathered to warm themselves around the firepit might make a good study in diminishing degrees of separation. We shared a connection to the war; we talked about wounded soldiers, hungry villagers and Bagram prison (where Daphne had gone in February of 2011 to chronicle human rights abuses, leaving me and the dog at home to worry for her safety). We remarked on how uncanny it seemed that all of us should have some connection to the war in Afghanistan. Nearly ten years after September 11th, 2001, it was one thing we all had in common.

Everybody put a brave face on. We talked about how Kabul is fascinating and what an adventure the young relief worker was about to have; we all tried to say some reassuring things about how resilient the young couple in Florida would turn out to be.

When this morning I remembered our accidental meeting around the firepit, I wasn’t thinking about the upcoming anniversary of September 11th and our disastrous conduct of the War on Terror there and around the world. I was, instead, reading a story by Graham Bowley on the front page of today’s Times about plans to extract a “trillion” in mineral wealth from underneath the soil of Afghanistan.

Judging from Bowley’s report, it would seem there’s big trouble ahead: the Taliban and tribal chieftains are trying to expand and claim new territories, so the mining will take place on their lands; this factionalism and corruption at all levels of government means it is unlikely that contracts (for mineral rights or infrastructure upgrades) will be awarded without bribery or criminal involvement. It also seems uncertain that the environment will be protected, human rights will be respected, or that “ordinary people” will benefit from the boom.

Ordinary people in Afghanistan have good reason to worry that criminals and corrupt officials along with global mining giants will rob them of their chances at a better life. But ordinary people in America – like the people who gathered around that firepit in Moss Beach in July – have reason to worry about Afghan mining as well. Why? It has to do with where our money goes – not just the billions of federal dollars that have already been squandered in Afghanistan, but billions in private funds (like pension funds) invested with and managed by America’s big banks.

Big banks already have a stake in mining Afghanistan’s mineral wealth. For example, Bowley mentions an “investment consortium organized by JP Morgan Chase” involved in gold mining. It’s odd that in that same paragraph he fails to note that Chase is also involved in the oil fields of Amu Darya. That operation is being conducted by China National Petroleum Corporation, and China National Petroleum Corporation is a subsidiary of PetroChina –a company in which JP Morgan Chase is heavily invested, and whose involvement in the genocide in Sudan has been the focus of shareholder resolutions and human rights campaigns.

In another post about JP Morgan and PetroChina, written in the wake of London Whale scandal, I asked whether JP Morgan was capable of managing its human rights risk. Bowley’s article raises a similar question for me. It’s unclear what credible assurances about risk management or environmental and human rights monitoring the bank can give shareholders and customers regarding its involvement in Afghanistan’s mining and oil industries. JP Morgan shareholders may find themselves unwittingly entangled in the plunder of Afghanistan’s buried treasures, and the civil conflicts, human rights abuses, and environmental degradation their extraction seems bound to entail.

One wonders whether we have learned anything at all in the past eleven years.

Can JP Morgan Manage Its Human Rights Risk?

No one questions Jamie Dimon’s competence. It’s just not clear that Mr. Dimon or “any executive,” as the Wall Street Journal put it, “can properly oversee such a large financial institution” as JP Morgan Chase. The complexity of the bank’s balance sheet and the scale and scope of its investments boggle even the best minds. The London Whale losses demonstrate pretty clearly that it’s possible for the bank to overlook, or miss or ignore serious exposure – to do something stupid or sloppy, as Dimon likes to put it. I wonder how many shareholders now wish they could re-cast their vote for an independent chair, to check and govern the CEO; and I wonder, too, how many will question the bank’s claim that it is capable of managing the human rights risk in its portfolio of investments.

As I pointed out in a previous post, most boards reject human rights proposals on three grounds: that they would be restrictive, burdensome, or redundant. The JP Morgan board stuck pretty close to this script in urging shareholders to vote against a resolution for a “genocide-free” investing policy, which would ensure that its investments did not “substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights, and to assist customers in avoiding the inadvertent inclusion of investments in such companies in their portfolios.” (You can read proposal 8 and the board’s response in the proxy statement here [pdf]).

Most immediately at issue are the banks investments in PetroChina and its subsidiary China National Petroleum Corporation, which pose “high risk due to their ties to the Sudanese government and its connection to human rights abuses.” That is not the hyperbolical cry of some outraged human rights advocate, but the sober and clear-eyed assessment of the board at T. Rowe Price; they joined 27 US states, 61 colleges and universities and the European Parliament’s pension fund in their decision to divest from PetroChina. JP Morgan, on the other hand, “increased holdings of PetroChina after being made aware of PetroChina’s connection to genocide,” CNN reports; and this year, again, the board confidently – some might now say arrogantly – asserted its ability to manage human rights risks:

 We use our extensive risk management processes and procedures to consider human rights and other reputational issues associated with our businesses….The Firm has a robust risk management framework…, and management routinely reviews specific business clients and transactions including where appropriate for consistency with our Human Rights Statement.

This year, the board had its way. The “genocide-free” proposal went down in defeat, garnering only 9.2 percent of the vote (which, by the way, means it’s not going away any time soon.) But the losses in London, which could run as high as five billion and will be difficult to unravel, give the lie to the board’s argument that further human rights risk review would be merely redundant. To the contrary, the losses raise serious questions about the bank’s ability to manage risk — of any and every kind. Its much-touted risk management framework does not seem so “robust” as the board makes it out to be. And it appears Ina Drew and crew operated without routine reviews or oversight. How, then, can the bank ensure that its investments in PetroChina and around the world are not exposing investors to other, more serious risks?

I refuse to believe that most investors don’t mind blood on their money; their confidence should be shaken.

As for Jamie Dimon, London harbored his white whale. China may turn out to be his human rights dragon. It’s said that when he first discovered the extent of the losses in London he could not catch his breath. Imagine what might happen if Jamie Dimon really understood the atrocities in Sudan and the part JP Morgan has played in them.