SEC Removes Terrorism Tool amid Backlash

Chairman Christopher Cox takes down the list but doesn't rule out releasing another version.
Alan RappeportJuly 23, 2007

The Securities and Exchange Commission removed the controversial terrorism tool from its website on Friday evening, nearly a month after it launched.

The tool drew ire from companies, business lobby groups, and the House Committee on Financial Services, which argued that it had unfairly “blacklisted” companies for having exposure to five countries deemed to be state sponsors of terrorism. Critics said that some of the relationships were negligible or outdated.

The tool’s detractors also said the tool was subject to misinterpretations because it relied solely on simple search terms and companies’ annual reports. For instance, if a company said in its report that it had previously “divested” from one of the countries, it would still have appeared on the SEC’s list.

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In a statement released on Friday, SEC Chairman Christopher Cox said the SEC has temporarily suspending the tool while it undergoes reconstruction. However, any reincarnation of the tool could be vastly different, if it happens at all. “Our staff is considering whether the use of interactive data tags applied by companies themselves could permit investors, analysts, and others to easily discover this disclosure without need of an SEC-provided Web tool at all,” Cox said, indicating that eXtensible business reporting language, or XBRL, may have a hand in the solution.

In addition, the commission will consider whether to ask the public to comment on the best way to “make public company disclosure of activities in terrorist states more accessible,” Cox added.

The tool’s removal came just a week after Rep. Barney Frank (D-Mass.), chairman of the House Committee on Financial Services, sent a letter to Cox questioning its fairness and accuracy. “I hope you will give serious consideration to devising either a more rigorous, materiality-based methodology for developing the list you are presenting to investors or else eliminating the webpage entirely,” wrote Frank. “Disclosure is important, but in this instance it is my belief the disclosure needs to be absolutely accurate or not occur at all.”

The SEC launched the tool late last month. The website highlighted companies listed on U.S. exchanges that had dealings with Iran, Sudan, North Korea, Syria, or Cuba. At the time, Cox said, “No investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state.”

Amid the debate over the tool, SEC spokesman John Nester told that its list was created using the most recent company information in annual reports and that it was not the commission’s responsibility to interpret that data.