2012 -- S 2198

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LC00189

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO PUBLIC FINANCE -- STATE INVESTMENT COMMISSION --

INVESTMENTS IN IRAN

     Introduced By: Senators Miller, DaPonte, Ottiano, Nesselbush, and Algiere

     Date Introduced: January 24, 2012

     Referred To: Senate Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 35 of the General Laws entitled "Public Finance" is hereby amended

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by adding thereto the following chapter:

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     CHAPTER 10.2

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DIVESTITURE OF INVESTMENTS IN IRAN

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     35-10.2-1. Legislative Findings -- It is hereby found by the general assembly as follows:

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     (1) Iran has been determined by United States Department of State to be a provider of

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support for acts of international terrorism; and

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     (2) A resolution of the United Nations Security Council imposes sanctions on Iran for its

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failure to suspend its uranium-enrichment activities; and

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     (3) The United Nations Security Council voted unanimously for an additional embargo

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on Iranian arms exports, which is a freeze on assets abroad of an expanded list of individuals and

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companies involved in Iran's nuclear and ballistic missile programs and calls for nations and

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institutions to bar new grants or loans to Iran except for humanitarian and developmental

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purposes; and

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     (4) All United States and foreign entities that have invested more than $20 million in

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Iran's energy sector since August 5, 1996, are subject to sanctions under United States law

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pursuant to the Iran and Libya Sanctions Act of 1996; and

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     (5) The United States renewed the Iran and Libya Sanctions Act of 1996 in 2001 and

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2006; and

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     (6) The United States House and Senate recently acted to pass the Comprehensive Iran

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Sanctions, Accountability, and Divestment Act of 2009, in light of: diplomatic efforts to address

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Iran's illicit nuclear efforts, unconventional and ballistic missile development programs, and

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support for international terrorism are more likely to be effective if the President is empowered

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with explicit authority to impose additional sanctions on the government of Iran; the people of the

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United States have feelings of friendship for the people of Iran and regret that developments in

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recent decades have created impediments to that friendship; and additional funding should be

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provided to the Secretary of State to document and disseminate information about human rights

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abuses in Iran, including abuses that have taken place since the June 2009 presidential election in

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Iran. Furthermore, the proposal states that it is U.S. policy to support the decision of state

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governments to divest from, and to prohibit the investment of assets they control in, entities with

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certain investments in Iran; and

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     (7) It is a fundamental responsibility of the State of Rhode Island to decide where, how,

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and by whom financial resources in its control should be invested, taking into account numerous

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pertinent factors; and

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     (8) It is the judgment of the Rhode Island general assembly that this act should remain in

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effect only insofar as it continues to be consistent with, and does not unduly interfere with, the

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foreign policy of the United States as determined by the federal government; and

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     (9) While the Rhode Island general assembly is sensitive to the welfare of the people of

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Iran, divestiture may improve the human condition, safety, and security of those currently living

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in Iran and surrounding states, and it is the responsibility of the state of Iran to provide human

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rights to its people; and,

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     (10) It is the judgment of this Rhode Island general assembly that mandatory divestment

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of public funds from certain companies is a measure that should be employed sparingly and

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judiciously, and with the hope that these peaceful sanctions will prevent the Iranian regime from

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obtaining nuclear weapons and continuing the spread of terror.

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     35-10.2-2. Definitions. - As used in this act, the following definitions shall apply:

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     (1) “Active business operations” means all business operations that are not inactive

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business operations.

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     (2) “Business operations” means engaging in commerce in any form in Iran, including by

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acquiring, developing, maintaining, owning, selling, possessing, leasing, or operating equipment,

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facilities, personnel, products, services, personal property, real property, or any other apparatus of

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business or commerce.

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     (3) “Company” means any sole proprietorship, organization, association, corporation,

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partnership, joint venture, limited partnership, limited liability partnership, limited liability

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company, or other entity or business association, including all wholly-owned subsidiaries,

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majority-owned subsidiaries, parent companies, or affiliates of such entities or business

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associations, that exists for profit-making purposes.

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     (4) “Direct holdings” in a company means all securities of that company held directly by

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the public fund or in an account or fund in which the public fund owns all shares or interests.

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     (5) “Government of Iran” means the government in Tehran, Iran, which is led by

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Mahmoud Ahmadinejad and the Ayatollah Ali Khamenei or any successor government.

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     (6) “Inactive business operations” means the mere continued holding or renewal of rights

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to property previously operated for the purpose of generating revenues but not presently deployed

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for such purpose.

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     (7) “Indirect holdings” in a company means all securities of that company held in an

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account or fund, such as a mutual fund, managed by one or more persons not employed by the

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public fund, in which the public fund owns shares or interests together with other investors not

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subject to the provisions of this chapter.

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     (8) “Public fund” means Rhode Island state pension funds or the state investment

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commission in charge of the Rhode Island state pension funds.

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     (9) “Scrutinized company" means any company engaged in any and all active business

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operations that are subject or liable to sanctions under Public Law 104-172, as amended, the "Iran

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Sanctions Act of 1996", and that involve the maintenance of a company's existing assets or

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investments in Iran, or the deployment of new investments to Iran that meet or exceed the twenty

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million dollars ($20,000,000) threshold referred to in Public Law 104-172, as amended, the "Iran

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Sanctions Act of 1996". These “scrutinized business operations" do not include the retail sale of

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gasoline and related products.

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     (10) “Substantial action” means adopting, publicizing, and implementing a formal plan to

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cease scrutinized business operations within one year and to refrain from any such new business

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operations; undertaking significant humanitarian efforts on behalf of one or more marginalized

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populations of Iran; or through engagement with the government of Iran. 

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     35-10.2-3. Identification of Companies. - (a) Within ninety (90) days following the

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effective date of this chapter, the public fund shall make its best efforts to identify all scrutinized

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companies in which the public fund has direct or indirect holdings or could possibly have such

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holdings in the future. Such efforts shall include, as appropriate:

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     (1) Reviewing and relying, as appropriate in the public fund’s judgment, on publicly

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available information regarding companies with business operations in Iran, including

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information provided by non-profit organizations, research firms, international organizations, and

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government entities; and/or

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     (2) Contacting asset managers contracted by the public fund that invest in companies

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with business operations in Iran; and/or

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     (3) Contacting other institutional investors that have divested from and/or engaged with

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companies that have business operations in Iran.

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     (b) By the first meeting of the public fund following the ninety (90) day period described

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in subsection (a), the public fund shall assemble all scrutinized companies identified into a

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“scrutinized companies list.”

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     (c) The public fund shall update the scrutinized companies list on a quarterly basis based

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on evolving information from, among other sources, those listed in subsection (a).

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     35-10.2-4. Required Actions. - The public fund shall adhere to the following procedures

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for companies on the scrutinized companies list:

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     (1) Engagement:

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     (i) The public fund shall immediately determine the companies on the scrutinized

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companies list in which the public fund owns direct or indirect holdings.

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     (ii) For each company identified in paragraph (i) with only inactive business operations,

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the public fund shall send a written notice informing the company of this chapter and encouraging

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it to continue to refrain from initiating active business operations in Iran until it is able to avoid

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scrutinized business operations. The public fund shall continue such correspondence on a semi-

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annual basis.

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     (iii) For each company newly identified in paragraph (i) with active business operations,

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the public fund shall send a written notice informing the company of its scrutinized company

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status and that it may become subject to divestment by the public fund. The notice shall offer the

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company the opportunity to clarify its Iran-related activities and shall encourage the company,

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within ninety (90) days, to either cease its scrutinized business operations or convert such

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operations to inactive business operations in order to avoid qualifying for divestment by the

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public fund.

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     (iv) If, within ninety (90) days following the public fund’s first engagement with a

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company pursuant to paragraph (iii), that company ceases scrutinized business operations, the

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company shall be removed from the scrutinized companies list and the provisions of this section

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shall cease to apply to it unless it resumes scrutinized business operations. If, within ninety (90)

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days following the public fund’s first engagement, the company converts its scrutinized active

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business operations to inactive business operations, the company shall be subject to all provisions

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relating thereto.

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     (2) Divestment:

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     (i) If, after ninety (90) days following the public fund’s first engagement with a company

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pursuant to paragraph (1)(iii) of this section, the company continues to have scrutinized active

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business operations, and only while such company continues to have scrutinized active business

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operations, the public fund shall sell, redeem, divest, or withdraw all publicly-traded securities of

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the company, except as provided below, according to the following schedule:

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     (A) At least fifty percent (50%) of such assets shall be removed from the public fund’s

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assets under management by nine (9) months after the company’s most recent appearance on the

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scrutinized companies list.

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     (B) One hundred percent (100%) of such assets shall be removed from the public fund’s

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assets under management within fifteen (15) months after the company’s most recent appearance

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on the scrutinized companies list.

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     (ii) If a company that ceased scrutinized active business operations following engagement

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pursuant to paragraph (1)(iii) of this section resumes such operations, paragraph (i) shall

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immediately apply, and the public fund shall send a written notice to the company. the company

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shall also be immediately reintroduced onto the scrutinized companies list.

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     (3) Prohibition:

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     At no time shall the public fund acquire securities of companies on the scrutinized

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companies list that have active business operations, except as provided below.

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     (4) Exemption:

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     No company which the United States government affirmatively declares to be excluded

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from its present or any future federal sanctions regime relating to Iran shall be subject to

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divestment or investment prohibition pursuant to subdivisions (2) and (3), nor any company

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which is primarily engaged in supplying goods or services intended to relieve human suffering in

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Iran or that is primarily engaged in promoting health, education, or journalistic, religious, or

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welfare activities in Iran.

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     (5) Excluded Securities:

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     Notwithstanding anything herein to the contrary, subdivisions (2) and (3) shall not apply

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to indirect holdings in actively managed investment funds. The public fund shall, however,

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submit letters to the managers of such investment funds containing companies with scrutinized

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active business operations requesting that they consider removing such companies from the fund

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or create a similar actively managed fund with indirect holdings devoid of such companies. If the

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manager creates a similar fund, the public fund shall replace all applicable investments with

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investments in the similar fund in an expedited timeframe consistent with prudent investing

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standards. For the purposes of this section, “private equity” funds shall be deemed to be actively

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managed investment funds.

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     35-10.2-5. Required Actions. - Reporting. (1) The public fund shall file a publicly-

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available report to the Rhode Island general assembly and office of the attorney general that

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includes the scrutinized companies list within thirty (30) days after the list is created.

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     (2) Annually thereafter, the public fund shall file a publicly-available report to the Rhode

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Island general assembly and the office of the attorney general and send a copy of that report to the

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United States Presidential Special Envoy to Iran (or an appropriate designee or successor) that

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includes:

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     (i) A summary of correspondence with companies engaged by the public fund under

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subdivisions 35-10.2- 4(1)(ii) and 35-10.2-4(1)(iii) of this section;

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     (ii) All investments sold, redeemed, divested, or withdrawn in compliance with

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subsection 4(1)(ii) of this section;

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     (iii) All prohibited investments under subsection 4(c) of this section; and

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     (iv) Any progress made under subsection 4(e) of this section.

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     35-10.2-6. Provisions for repeal of chapter. - This chapter shall be repealed upon

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affirmative action of the general assembly. Provided, that in determining whether to repeal this

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chapter, by way of suggestion and guidance only and without binding or in any way inhibiting the

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discretion of future sessions of the general assembly, it is submitted that the occurrence of any of

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the following should be construed and deemed to be a basis for repealing this chapter:

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     (1) Iran is removed from the United States Department of State's list of countries that

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have been determined to repeatedly provide support for acts of international terrorism; or

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     (2) The President of the United States determines and certifies that state legislation

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similar to this section interferes with the conduct of United States foreign policy.

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     35-10.2-7. Other Legal Obligations. - With respect to actions taken in compliance with

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this chapter, including all good faith determinations regarding companies as required by this

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chapter, the public fund shall be exempt from any conflicting statutory or common law

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obligations, including any such obligations with respect to choice of asset managers, investment

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funds, or investments for the public fund’s securities portfolios.

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     35-10.2-8. Reinvestment in Certain Companies with Scrutinized Active Business

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Operations. - (a) Notwithstanding anything herein to the contrary, the public fund shall be

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permitted to cease divesting from certain scrutinized companies pursuant to section 35-10.2-4

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and/or reinvest in certain scrutinized companies from which it divested pursuant to section 35-

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10.2-4 if clear and convincing evidence shows that the value for all assets under management by

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the public fund becomes equal to or less than ninety-nine and one-half percent (99.50%) or fifty

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(50) basis points of the hypothetical value of all assets under management by the public fund

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assuming no divestment for any company had occurred under subsection 35-10.2-4(2).

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     (b) Cessation of divestment, reinvestment, and/or any subsequent ongoing investment

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authorized by this section shall be strictly limited to the minimum steps necessary to avoid the

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contingency set forth in the preceding sentence. For any cessation of divestment, reinvestment,

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and/or subsequent ongoing investment authorized by this section, the public fund shall provide a

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written report to the Rhode Island general assembly and the office of the attorney general in

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advance of initial reinvestment, updated semi-annually thereafter as applicable, setting forth the

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reasons and justification, supported by clear and convincing evidence, for its decisions to cease

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divestment, reinvest, and/or remain invested in companies with scrutinized active business

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operations.

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     (c) This section has no application to reinvestment in companies on the ground that they

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have ceased to have scrutinized active business operations.

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     35-10.2-9.. Enforcement. - The attorney general is charged with enforcing the provisions

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of this chapter and, through any lawful designee, may bring such actions in court as are necessary

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to do so. 

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     35-10.2-10. Severability. - If any one or more provision, section, subsection, sentence,

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clause, phrase, or word of this chapter or the application thereof to any person or circumstance is

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found to be invalid, illegal, unenforceable or unconstitutional, the same is hereby declared to be

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severable and the balance of this chapter shall remain effective and functional notwithstanding

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such invalidity, illegality, unenforceability or unconstitutionality. The Rhode Island general

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assembly hereby declares that it would have passed this chapter, and each provision, section,

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subsection, sentence, clause, phrase or word thereof, irrespective of the fact that any one or more

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provision, section, subsection, sentence, clause, phrase, or word be declared invalid, illegal,

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unenforceable or unconstitutional, including, but not limited to, each of the engagement,

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divestment, and prohibition provisions of this chapter.

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     SECTION 2. This act shall take effect upon passage.

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LC00189

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PUBLIC FINANCE -- STATE INVESTMENT COMMISSION --

INVESTMENTS IN IRAN

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     This act would require that Rhode Island's financial resource be divested from companies

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doing business in Iran, and would establish a procedure for such divestment. Further, this act

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would set forth the procedure to be followed by the state of Rhode Island should such divestment

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not take place.

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     This act would take effect upon passage.

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LC00189

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