In his nomination hearing today, State Department nominee Robert Hormats was forced to discuss his role in the IPO of PetroChina. The IPO was the focus of a LittleSis / PAI report in late July and led anti-genocide groups to raise questions about the nomination. The nominee also faced repeated questions from the Senate Foreign Relations Committee on the issues of human rights, sanctions, and transparency.
Hormats was introduced by Senator Schumer, who announced his “unthrottled, full-throated support” of the nomination based on their friendship of over thirty years. In an early (but not explicit) nod to the PetroChina issue, Hormats’s opening statement emphasized his time spent in Africa.
After asking about his views of human rights issues, Senator Cardin raised the issue of PetroChina and Sudan, and the fact that there was significant concern in the human rights community about his role in the IPO.
Hormats thanked him for the opportunity to address the issue, and acknowledged that “a number of NGOs have sent letters to the committee.” He said that he had not been involved in structuring the IPO, but had been asked to make statements to the press about the PetroChina IPO, and was concerned for two reasons: the fact that there were sanctions on Sudan, at the time, and the fact that he had met Sudanese before and learned of the ongoing atrocities in their country.
And then came the crux of his defense: that he had questioned Goldman Sachs executives and lawyers close to the deal about whether funds would go to Sudan.
“I asked if they were fully confident that the ringfencing was robust enough,” he said.
Of course, no amount of “ringfencing” is enough to change the fact that money is fungible — even if the money was kept in a separate piggy bank, the PetroChina IPO would naturally free up funds for its parent company to invest in Sudan. As a distinguished Wall Street executive and international economics PhD, Hormats should be well aware of this basic fact.
His defense reminds me of a similar claim by Wall Street executives and politicians earlier this year: that bailout funds would not be used to finance bonuses. Conor Clarke assailed this notion in a post titled Money: still fungible at the Atlantic Monthly:
Some of the CEOs testifying before Congress yesterday tried this one too: “Sure, we took the bailout and we awarded bonuses, but the two pots of money are distinct.” And the problem with this argument is that money is fungible: A dollar of bailout funding is a perfect substitute for a dollar of operating revenue. The two pots of money are in no sense distinct.
The argument is applicable here, as well: a dollar of IPO funding is a perfect substitute for a dollar from the Chinese government, in the case of PetroChina/CNPC.
Either Hormats does not know this basic fact, and doesn’t belong in Washington, or he misrepresented his views before a Senate panel.