After 9/11, President Bush called on average Americans to support the “War on Terror” by shopping.  Seven years and an increasingly dangerous world later, however, most Americans agree that shopping only takes us so far. 

Fortunately, a potent and populist option – “Terror-Free” investing – has emerged that provides everyday Americans a decisive role in holding governments accountable that support terrorism and seek to nuclearize their weapons programs.

Terror-Free investment options, offered by Wall Street’s best firms, exclude foreign companies conducting business with Iran, North Korea, Sudan and Syria while ensuring high-yield returns. 

Plagued by insufficient internal investment and technology, these rogue regimes rely on foreign companies to prop-up their struggling economies, thus allowing these governments to maintain business as usual – ignoring the welfare of their people and sponsoring global terrorism.  Investing Terror-Free allows all of us to say “not with my money.”

Inspired by similar campaigns that shut down South African apartheid, compelled companies to “go green” and forced tobacco companies to stop marketing to our children, Terror-Free allows investors big and small to vote with their portfolio on whether companies should conduct business with these dangerous regimes.

Polling reveals that 86 percent of Americans are opposed to investing in firms conducting business with terror-sponsoring states.  According to the same poll, 80 percent of Americans would hold strong in their conviction even if it meant lower return-on-investment, a concern alleviated by Terror-Free’s partnership with Wall Street’s top firms.

Importantly, Terror-Free also corrects the flaws in the recent spate of ineffective “limited” state divestment bills on Sudan and Iran that require state public funds to divest from certain companies operating in these countries.  It is a counter-productive model that undermines the policy objectives of Terror-Free investing.

For example, despite hundreds of foreign companies subsidizing Iran’s economy, limited divestment bills “target” less than thirty firms tied to Iran’s energy industry.  As these are among Iran’s most heavily invested companies, they are also the least likely to be influenced into halting Iranian operations.  Furthermore, loopholes allow government pension funds to continue holding those same thirty companies in other public portfolios.  This is why such bills have been called “symbolic,” although it is true that limited divestment helped prove states supported the concept.

Terror-Free investing, by contrast, is a comprehensive exclusion model that will succeed where limited divestment has failed, breaking the cycle of corporate welfare to these reprehensible regimes.  Specifically, this approach allows policymakers and institutional investors to apply real economic pressure on more than 350 companies across all economic sectors conducting non-humanitarian business in Iran, North Korea, Sudan and Syria.  It also closes loopholes to ensure 100 percent Terror-Free portfolios, thereby achieving the goal of forcing companies to decide between their business activities in these countries and reentry into large pools of investor assets.

Last year’s Conference Board Report showed that American institutional investors controlled $24.1 trillion in 2005.  If just half a percent of this figure, $120 billion, is invested to exclude these companies, does anyone really believe it would not affect their willingness to partner with terrorist-supporting regimes, or for that matter, the ability of these nations to sponsor terrorism?

The full potential of Terror-Free lies in the fact that it is suited for governments and other institutional investors as well as individual investors.  Indeed, all of us can participate and make a difference.  For example, a recently introduced FTSE Terror-Free index series excludes these 350-odd companies, allowing asset managers to create investment products for all types of investors.  Tributary Capital has introduced Terror-Free mutual funds that are widely available, and a free “Terror-Free Calculator” website now allows all of us to determine whether our mutual funds have ties to terror-sponsoring nations. 

For private institutions such as endowments, trusts and foundations, Credit Suisse, Parametric and UMB Asset Management already offer screened accounts.  Northern Trust is reportedly building commingled Terror-Free funds that will be available to all institutions.  Put simply, Terror-Free investing is now a simple matter of picking up the phone. 

In the public space, state officials are moving toward Terror-Free investing armed with these new products.  Time magazine reported that Senator Joe Lieberman is drafting federal Terror-Free legislation to give 3.8 million current and former federal employees this option for their retirement plans.  Though more telling, the State Senator who originally sponsored “limited” divestment legislation in Florida noted at a recent forum that Terror-Free investment had greater potential to leverage public funds to pressure these companies, and that he planned to introduce Terror-Free investment legislation to supersede his original bill.

For lawmakers, the path forward is clear.  Terror-Free picks up where limited divestment began.  Future legislation should require any asset manager investing on behalf of the state to certify a Terror-Free international portfolio.  As for the American people, they can still shop to support the War on Terror.  Their first move, however, should be a call to their financial advisor.

Kevin J. Murphy, a Democratic State Representative from Lowell, MA and Sen. Jeffrey D. Klein of the Bronx, NY are the sponsors of Terror-Free Investment legislation in their respective states.