2012 -- S 2198 SUBSTITUTE A

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LC00189/SUB A

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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

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amended by adding thereto the following chapter:

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     CHAPTER 10.3

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DIVESTITURE OF INVESTMENTS IN IRAN

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     35-10.3-1. Legislative Findings -- It is hereby found and declared that:

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

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support for acts of international terrorism;

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     (2) A resolution of the United Nations Security Council has imposed sanctions on Iran for

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its failure to suspend its uranium-enrichment activities;

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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;

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     (4) The United States Congress enacted Public Law 111-195, the Comprehensive Iran

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Sanctions, Accountability, and Divestment Act of 2010, authorizing state and local governments

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to divest public assets from, or prohibit public investment of assets in, any person that engages in

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investment activities in the energy sector of Iran, provided that the measures meet certain

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requirements;

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     (5) The United States Congress enacted the Comprehensive Iran Sanctions,

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Accountability, and Divestment Act of 2010, in light of diplomatic efforts to address Iran’s illicit

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nuclear efforts, unconventional and ballistic missile development programs, and support for

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international terrorism are more likely to be effective if the President is empowered with explicit

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

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

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

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

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

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     (6) 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;

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     (7) 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;

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

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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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     35-10.3-2. Definitions. -- As used in this chapter, the following terms have the following

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meanings:

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     (1) “Business operations” means engaging in commerce in the energy sector of Iran,

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including by acquiring, developing, maintaining, owning, selling, possessing, leasing, or

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operating equipment facilities, personnel, products, services, personal property, real property, or

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any other apparatus of business or commerce.

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     (2) “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” means equity securities held directly by the public fund or in a

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separately managed active account in which the public fund owns all shares or interests.

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     (5) “Government of Iran” means the government of the Islamic Republic of Iran.

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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” means securities held in a commingled account or fund, such as a

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mutual fund, private equity fund, hedge fund, or real estate fund, managed by one or more

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persons not employed by the public fund, in which the public fund owns shares or interests

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together with other investors not 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, excluding the defined contribution

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retirement plan as established under section 36-10.3-2.

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     (9) “Scrutinized investment activity” means: (i) An investment of twenty million dollars

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($20,000,000) or more in the energy sector of Iran; including in any company that provides oil or

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liquefied natural gas tankers, or products used to construct or maintain pipelines used to transport

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oil or liquefied natural gas, for the energy sector of Iran; or (ii) An extension of twenty million

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dollars ($20,000,000) or more in credit to a person, for forty-five (45) days or more, if that person

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will use the credit for investment in the energy sector of Iran.

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     (10) “Scrutinized company” means any company engaged in a scrutinized investment

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activity.

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     35-10.3-3. Identification of scrutinized companies. -- (a) Within ninety (90) days

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

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all scrutinized companies in which the public fund has direct holdings. Such efforts shall include,

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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;

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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 announced divestment from

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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 data related to the identification of scrutinized

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companies into a “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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     35-10.3-4. Required Actions. -- The public fund shall adhere to the following

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procedures 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 holdings.

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     (ii) For scrutinized companies identified pursuant to paragraph (i), the public fund shall

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send a written notice to the company in order to:

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     (A) Inform the company of its status as a scrutinized company and that it may become

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subject to divestment by the public fund;

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     (B) Provide an opportunity for the company to comment in writing on its business

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operations in Iran; and

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     (C) Encourage the company, within ninety (90) days, to either cease its scrutinized

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investment activities or convert the scrutinized investment activities to inactive business

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operations in order to avoid divestment.

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

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company identified pursuant to paragraph (i), that company ceases scrutinized investment

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activities, the company shall be removed from the scrutinized companies list and the provisions

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of this section shall cease to apply to it unless it resumes scrutinized investment activities. If,

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within ninety (90) days following the public fund’s first engagement, the company converts its

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scrutinized investment activities to inactive business operations, the company shall be removed

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from the scrutinized companies list and the provisions of this section shall cease to apply to it

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unless it resumes scrutinized investment activities.

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     (2) Divestment:

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     (i) If, after ninety (90) days following the public fund’s transmittal of a written notice to

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the scrutinized company pursuant to paragraph (1)(ii), the company continues to engage in

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scrutinized investment activities, and only while such company continues to have scrutinized

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active investment activities, the public fund shall sell, redeem, divest, or withdraw all publicly-

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traded equities of 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 investment activities following engagement

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pursuant to paragraph (1)(ii) resumes such operations, paragraph (2)(i) shall immediately apply,

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and the public fund shall send a written notice to the company. The company shall also be

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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 direct holdings in scrutinized companies, except

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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, this section shall not apply to indirect

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holdings. The public fund shall, however, submit letters to the managers of such investment funds

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containing scrutinized companies, requesting that they consider removing such companies from

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the fund or create a similar fund devoid of holdings in scrutinized companies. If the manager

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creates such a similar fund at no additional cost to the public fund, the public fund is encouraged

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to replace all applicable investments with investments in the similar fund in an expedited

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timeframe consistent with prudent investing standards.

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     35-10.3-5. Required reporting. -- (a) The public fund shall file a publicly-available

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

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

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     (b) 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: (1) A summary of correspondence with companies engaged by the public fund under

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subsections 35-10.3-4(1) and 35-10.3-4(2);

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     (2) A list of all direct holdings sold, redeemed, divested, or withdrawn in compliance

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with subsection 35-10.3-4(2);

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     (3) All prohibited investments under subsection 35-10.3-4(4); and

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     (4) Any progress made under subsection 35-10.3-4(5).

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     (c) Within thirty (30) days of enactment of this chapter, the public fund shall submit

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written notice to the United States Attorney General describing the provisions of this chapter.

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     35-10.3-6. Recurrence of investment in Iran. -- (a) The public fund shall have no

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obligations under this chapter upon the occurrence of any of the following:

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

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

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     (2) The President of the United States of America or the United States Congress, through

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legislation or executive order, declares that state laws requiring divestment of public funds

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interfere with the conduct of United States foreign policy.

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     35-10.3-7. 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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     35-10.3-8. Reinvestment in certain companies with scrutinized investment activities.

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-- (a) Notwithstanding anything herein to the contrary, the public fund shall be permitted to cease

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divesting from certain scrutinized companies pursuant to section 35-10.2-4 and/or reinvest in

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certain scrutinized companies from which it divested pursuant to section 35-10.2-4 if clear and

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convincing evidence shows that the value for all assets under management by the public fund

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becomes equal to or less than ninety-nine and one-half percent (99.5%) or fifty (50) basis points

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of the hypothetical value of all assets under management by the public fund assuming no

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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 scrutinized companies.

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

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have ceased scrutinized investment activities.

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     35-10.3-9. 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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     35-10.3-10. 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/SUB A

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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 state pension finds be divested from certain

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companies making investments in the energy sector of Iran, and would establish a procedure for

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such divestment.

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     This act would take effect upon passage.

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LC00189/SUB A

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