JEFFERSON CITY, Mo. -- State Treasurer Sarah Steelman called on the state employee retirement system Wednesday to halt its investments in foreign companies and banks with terrorist connections.

Steelman, a Republican who took office in January, is part of the board that oversees the Missouri State Employees' Retirement System, or MOSERS, but cannot single-handedly change its investment strategy.

Steelman said the state should not be directly investing in Arab Bank or in foreign companies doing business in Iran, which is under long-standing U.S. sanctions.

"Investing public funds in banks that fund terrorism is wrong," she said. "These investments must be stopped."

The retirement system invests about $6 billion, about 20 percent of which is in foreign investments. Investments with those doing business in Iran amounted to about $20 million as of last week, and the state investment in Arab Bank is about $80,000, she said.

Arab Bank faces several lawsuits in the United States by relatives of terrorism victims in Israel, including a Missouri native, who allege the bank supported terrorism by funneling donations to Palestinian suicide bombers and their families.

Rep. Todd Smith, R-Sedalia, vice chairman of the MOSERS board, said the board has looked at similar issues in the past and found it's tough to determine which companies have terrorist connections.

"The problem is there is no single list out there saying, 'Don't do business with these following companies,"' Smith said. "We're not going to sit there and second-guess our money managers on who is and isn't investing in companies we don't personally like for one reason or another."

Still, he said he would review the specific concerns of Steelman.

Steelman said her office hasn't yet studied American companies, but if it finds any with terrorist ties, the state should not invest in them either.

The retirement system's current policy is to annually check a list, if provided by the federal government, of companies with terrorist ties. Steelman said that's not good enough, especially as the state has never received that list.

"Bureaucratic delays are not acceptable," she said.

But MOSERS director Gary Findlay said without guidance from the federal government, foreign policy would vary with each state. He said the staff doesn't have the resources to determine whether companies doing business in certain countries are helping or hurting U.S. interests.

Steelman wants those investments pulled out, the policy strengthened and a state law to bar investment of state funds in companies with terrorist ties.

She said that move is essentially a matter of right versus wrong, and the state should be able to find other suitable investments that guarantee the same rate of return.

Smith said returns are the bottom line.

"We have a fiduciary responsibility as the board to maximize our rates of return. Are you really upholding your fiduciary responsibility when you are basically trying to do social engineering?" he asked. "That's a question every board has to wrestle with: Where do you draw the line?"

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On the Net:

Treasurer: http://www.treasurer.missouri.gov

MOSERS: http://www.mosers.org