America Steps Up Investment In Global Cluster Bomb Trade

Cluster bombs release hundreds of smaller “bomblets” meant to significantly expand the amount of damage inflicted by an attack. As other countries move to condemn such munitions, US financial institutions are increasing funding to their manufacturers.
By @clbtea |
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    WASHINGTON — Global investments in the manufacture of cluster bombs and related munitions rose over the past year, despite the existence of an international convention against the use or production of these weapons. More than half of the institutions involved in those investments are based in the United States.

    From 2011 to 2014, an estimated 151 financial institutions invested at least $27 billion in companies that produce weapons considered by rights groups to be prohibited by the Convention on Cluster Munitions, which entered into effect in 2010. This new estimate, from PAX, a Dutch watchdog group, constitutes a $3 billion increase from just last year.

    While it is unclear what exactly is driving that increase, rights groups have reported on the recent use of cluster munitions in both eastern Ukraine and, particularly, Syria.



    “We’re seeing an increase in the total value of investment from just a year ago, so that’s a big disappointment,” Amy Little, a campaign manager at the Cluster Munition Coalition, a global advocacy network that includes PAX, told MintPress News.

    “In fact, more and more companies and institutions are taking action to stop these investments, but simultaneously these remaining small number of abusers are still not finding it difficult to obtain finance.”

    Cluster bombs are air-dropped weapons meant to open in midair and release hundreds of additional “bomblets,” thus significantly expanding the potential damage inflicted in the attack. For years, global sentiment has coalesced against the use of cluster bombs due to the fact that some of the bomblets invariably fail to explode, resulting in lingering danger for civilians long after conflicts end.

    According to the new report from PAX, seven companies either continue to manufacture or assist in the manufacture of cluster weapons. These are the same seven companies included on the list last year. Two of these are based in the United States — the Minnesota-based Alliant Techsystems (ATK) and the Rhode Island-based Textron, while the rest are primarily located in China and South Korea. All three countries remain outside of the Convention on Cluster Munitions.

    Notably, the list does not include Lockheed Martin, the defense behemoth that last year stated that it would no longer produce weapons seen as falling under the Convention on Cluster Munitions.

    “We hope to see the trend going the same way for the remaining companies, including the two in the United States,” Little said. “We certainly see the pressure of the global stigma increasingly impacting on the companies. There is clearly the beginning of a trend to restrict funding.”

     

    76 of 151 financiers

    The U.S. military no longer uses cluster bombs, with advocates pinpointing the last such use as having been in Yemen in 2009. Yet the U.S. is by far the largest financier of cluster weapons today, largely due to the presence of Textron and ATK. According to the new report, more than half of the 151 financial institutions with links to cluster manufacturers are banks, pension funds and other groups based in the U.S.

    These involve some of the biggest names in global finance, including JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and others. JPMorgan’s investment is pegged at more than $670 billion, while Bank of America’s is nearly $380 billion. Major asset managers and mutual funds, including The Vanguard Group and T. Rowe Price, are also implicated.

    “The majority of the investments were made by financial institutions from the United States. Seventy-six U.S. investors have provided loans or other financial services to seven cluster munitions producers,” Suzanne Oosterwijk, a co-author on the new report and a program officer focusing on security and disarmament with PAX, told MintPress.

    “It’s unacceptable that so many U.S. investors seem to have no problem with these explosive investments into companies involved in production of these internationally banned weapons.”

    Indeed, over the past two years both Textron and ATK have been able to secure several billion dollars’ worth of multi-year credit from major banks. Many of these investors, of course, would note that they are in no way purposefully supporting the production of cluster munitions. Both ATK and Textron are massive producers of a wide variety of complex technologies, and the underwriting, credit extensions and other support major financiers offer is not directed.

    Even if institutions have specifically tried to earmark their support away from cluster munitions, critics say that only wholesale disinvestment will shield investors.

    “It is impossible for a financial institution to be sure that the financial services it provides a company will not be used to produce cluster munitions,” the new report states.

    “It is common for weapons producers to finance their cluster munitions from their general corporate capital. So far, we have never come across a project intended specifically to finance cluster munitions facilities. There is no way to prevent a company from legally reallocating capital within a group.”

    In the U.S. context, the issue is further clouded by wrangling over legal definitions. The U.S. has significantly tightened its regulations on cluster munitions in recent years, including a blanket export ban signed in 2009. But that ban is only relevant for cluster weapons with an unexploded rate higher than 1 percent, a threshold that will also become military policy by 2018.

    U.S. producers claim that their weapons do indeed meet this 1 percent requirement, or are not considered cluster munitions by the convention. Yet civil society groups, as well as other countries party to the convention, have questioned these findings.

     

    Evolving investor consensus

    Given the difficulty of differentiating investment capital, since the Convention on Cluster Munitions went into effect governments as well as major financial institutions worldwide have taken unilateral action. This includes imposing either national legislation or internal policies banning investment in companies involved in the production of cluster munitions.

    According to the new report, nine countries have taken such legislative action – a figure that has doubled since 2012. These include mostly states in the European Union, as well as New Zealand and Samoa. Further, another 27 countries have offered formal opinions that the Convention on Cluster Munitions itself bans such investment. (Advocates dismiss this rationale, saying strong domestic legislation is still needed.)

    Some 76 financial institutions have also put formal policies in place prohibiting investment in cluster munitions manufacturers, though none of those listed in the new report are from the U.S. While 48 new entities were included in this year’s report’s “Hall of Shame” listing of companies that do continue to engage in such investment, supporters of stricter arms control nonetheless claim momentum.

    “The consensus among investors seems to be evolving,” the report states. “Where only a few financial institutions excluded companies producing cluster munitions when the [convention] process started, a wider group of investors seems to have become aware that producers of cluster munitions are not feasible business partners.”

    This slowly growing trend notwithstanding, the apparently significant increase in financing for cluster weapons over the past year has advocates concerned.

    “There is an urgency to all of this,” the Cluster Munition Coalition’s Little said.

    “Although we cannot directly link any of the current investment to use in Syria, the production of more weapons means that these will be stockpiled and could be used in the future. The lesson of the current use is that production needs to stop.”

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