At a time when a US nuclear agreement with Iran remains the subject of sharp debate, a two-year-old law calling for Rhode Island to divest from companies doing business with Iran has failed to result in the divestment of any money.
Here's the surprising story of how this happened.
Supporters applauded when then-Governor Lincoln Chafee used a Statehouse ceremony to sign the Iran divestment bill into law in September of 2013.
Attorney General Peter Kilmartin was the driving force behind the law. He was encouraged by supporters of Israel and the National Association of Attorneys Generals. At the time, he posed it as an opportunity for the nation’s smallest state to have an impact on global affairs.
"As the world gets smaller, our influence in little Rhode Island can get bigger," Kilmatin said.Listen to the audio version of this story.
Kilmartin said divesting from Iran would show that Rhode Island stands against terrorism and supports the state of Israel, adding, "This is more than just a symbolic statement."
But it turns out that statement may have been just symbolic. Since the bill passed, Rhode Island has not divested any money from companies doing business with Iran, according to the state treasurer’s office.
David Ortiz, the spokesman for state Treasurer Seth Magaziner, said the problem is the way the law was written. It addresses only direct investments, like stocks, but not indirect investments -- things like mutual funds, where a big part of the state’s nearly $8 billion pension fund sits.
"Indirect investments are not subject to the law," Ortiz said. "All of the state’s investments are indirect – they’re in commingled funds, so there has not been a divestment ... since 2013."
A year later, in 2014, Rhode Island had investments in 17 companies doing business with Iran, according to a report prepared by a consultant for the treasurer’s office. (Developing this list of so-called "scrutinized companies" has cost the state a total of just under $16,000 since the divestment law was enacted, Ortiz said; the treasurer's office is currently negotiating with a bidder to continue the work after the initial consulting contract expired.) The firms doing business in Iran in which Rhode Island is invested include Boeing and Royal Dutch Shell, and companies from China and India, among others.
Rhode Island is one of about 25 states that have enacted Iran divestment laws.
Richard Nephew, a former US State Department deputy coordinator for sanctions policy who now works at Columbia University’s Center on Global Energy Policy, said Rhode Island’s lack of divestment from Iran reflects the fundamental ineffectiveness of state-based sanctions.
"I think these efforts were always destined to fail, or to be bit players in the sanctions campaign against Iran," Nephew said, "but that doesn’t stop people from saying we ought to pursue this as a way to demonstrate how tough and serious we are in this serious foreign policy challenge."
Although state-based sanctions may be motivated by legitimate concerns about Iran, Nephew said these efforts are basically feel-good policies. For sanctions to be effective, he said, they have to be levied by nations, not states. Even for the states that do divest money from Iran, Nephew said the impact is smaller and different from what supporters advertise.
"Those states that decide to withdraw from good effective large multi-national corporations that are doing a lot of business are basically depriving themselves of the opportunity to make money off them," Nephew said.
Attorney General Peter Kilmartin declined to discuss the ineffectiveness of the divestment law he championed in 2013.
But supporters of similar efforts around the country claim billions of dollars have been diverted from companies doing business in Iran as a result. One of the sponsors of Rhode Island’s Iran divestment bill, state Rep. Mia Ackerman (D-Cumberland), maintains it has had an influence.
"Just to be part of the larger United States community as part of many states that have implemented these types of bills and sanctions together collectively that’s where I think the impact is felt," Ackerman said.
Yet Ackerman was unaware before our interview that Rhode Island’s law has not led to the divestment of any actual money. "I don’t have any knowledge of that," she said.
Legislative critics might see the state’s Iran divestment law as an example of the way the General Assembly sometimes passes laws first and asks questions later. But the bill’s other sponsor, state Sen. Josh Miller (D-Cranston), sees it differently.
"It gives guidelines going forward as long as there are sanctions, and it keeps people in line as far as guidelines for investment," Miller said. "And It had an impact on a public relations basis in that not only were national and global efforts being done, but efforts were being done internally in different countries lining up states and pension funds toward this."
As the US moves closer to completing a controversial multi-nation nuclear agreement with Iran, some states plan to keep their individual divestment policies. Closer to home, the state treasurer’s office says it plans to assess what the nuclear agreement would mean for Rhode Island’s divestment law. One thing that’s already clear is the law has had no tangible impact on state investment in Iran or companies that do business there.