Senators Turn Up the Heat on BlackRock Over China Investments

Kevin Cramer/PHOTO: Gage Skidmore (CC)

Following an effort by National Legal and Policy Center to urge the world’s largest investment firm to divest its customers’ money from 137 companies based in communist China, two Senators have also turned up the pressure.

In a letter dated Monday, Republican Sens. Martha McSally and Kevin Cramer – of Arizona and North Dakota, respectively – asked BlackRock CEO Larry Fink to explain apparent inconsistencies in the company’s approach to managing its funds. Specifically, the senators wanted to know why BlackRock’s U.S. investments are held to a higher standard as it pertains to appeasing activist investors with a progressive agenda, as opposed to its holdings in foreign companies that do not comply with minimal legal and auditing standards.

Fink has led his firm into the decision-making of the U.S. companies where BlackRock has its investments, voting “on 18,758 shareholder proposals and participated in 2,269 shareholder meetings in the first three-months of the year,” according to Pensions & Investments. The activity follows a deal he made with two activist investors in BlackRock – Boston Trust Walden and Mercy Investment Services – to vote against corporate boards and resolutions that do not toe the progressive line on human-caused climate change. The activists backed off their own shareholder resolution to pressure BlackRock on the issue as a result of the agreement.

Meanwhile BlackRock does not appear to be concerned about such standards – if any standards at all – when it comes to its investments in Chinese firms. Following heightened scrutiny after the COVID-19 pandemic debacle, China’s continued efforts to spy and infiltrate U.S. corporations to steal technology, and unfair trade practices, Congress and President Trump have increased scrutiny of the communists. McSally and Cramer asked why Fink isn’t doing the same.

Martha McSally/PHOTO: Gage Skidmore (CC)

“We are interested in discussing what appears to be a double standard in the way your company treats investments in Chinese companies versus American,” the Senators wrote.

Their letter called attention to a recent joint statement from the Securities and Exchange Commission and Public Company Accounting Oversight Board that called into question noncompliance and lack of transparency required for Chinese companies that are listed on American stock exchanges. Among the shortcomings raised by the two U.S. regulatory agencies: “the incomplete disclosure of material information; the inability to enforce financial regulations; limitations on U.S. regulators to bring actions; the inability for the PCAOB to adequately audit in China; limited shareholder rights; and passive investing strategies that fail to take these risks into account.”

“Blackrock’s investments in emerging markets, such as China, contrasts significantly with your statements and actions related to your U.S. investment strategy,” McSally and Cramer wrote to Fink. “In your January letter to CEOs you outlined additional commitments which only punish American companies for not adhering to climate change disclosures well beyond what is required by the SEC. We are concerned your standards are counter to your fiduciary duty to manage your clients’ assets in their best interests.”

The context of the senators’ questioning comes in light of BlackRock’s assistance to the Federal Reserve Board in administration of aid under the CARES Act, which provides relief to American businesses following the economic devastation from the COVID pandemic. Cramer inquired about BlackRock’s role in a Senate Banking Committee hearing yesterday with Fed Chairman Jerome Powell.

“In light of the deference BlackRock appears to provide the Chinese Communist Party and radical environmental activist investors,” Cramer asked, “should we be concerned about BlackRock’s role in providing CARES Act assistance?”

“Senator, there is no reason for you to be concerned,” Powell responded. “They play an administrative role. We set all the policy decisions, and our facilities lend only to US companies.”

The senators’ inquiry follows a letter sent in May by National Legal and Policy Center Chairman Peter Flaherty to Fink, asking him to divest BlackRock from 137 Chinese companies that are listed on U.S. exchanges. Flaherty explained that all the companies are under the influence and ultimate control of the Communist Party of China, and at least 11 have 30 percent or more Chinese government ownership.

“You recently wrote a letter to BlackRock shareholders about the pandemic and the future of BlackRock,” Flaherty wrote. “Not one of your 5,000-plus words was critical of China for its role in the worldwide Coronavirus nightmare. Instead, you wrote, ‘I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term.…’”

McSally and Cramer called Fink’s attention to the Holding Foreign Companies Accountable Act, passed recently by unanimous vote in the Senate, which requires that listed companies are not owned or controlled by foreign governments. It also bans foreign companies from U.S. exchanges if they cannot be audited by the Public Company Accounting Oversight Board.

“It is in the public interest to investigate why BlackRock is not fulfilling its fiduciary responsibility and shining a light of transparency on these poorly-governed, secretive Chinese companies,” the Senators wrote. “Instead, you have chosen to be punitive toward American companies to placate a small group of activist investors with a biased political agenda.

“These actions seem to contribute to a pattern of appeasement by BlackRock towards Chinese companies and the Chinese Communist Party.”