2013 -- S 0521

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LC01517

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

____________

A N A C T

RELATING TO PUBLIC FINANCE

     Introduced By: Senators Miller, Ruggerio, Goldin, DaPonte, and DiPalma

     Date Introduced: February 28, 2013

     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 by the general assembly as follows:

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     (1) The United States Department of State has determined that Iran supports acts of

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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 further, calls for nations

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and 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 twenty million

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dollars ($20,000,000) in Iran's energy sector since August 5, 1996, are subject to sanctions under

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United States law 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 Congress recently acted to pass the Comprehensive Iran Sanctions,

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Accountability, and Divestment Act of 2009, 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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Furthermore, the proposal states that it is United States 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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     35-10.3-2. Definitions. -- As used in this chapter, 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 exist 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) "Iran" means the government of Iran, and includes the territory of Iran and any other

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territory or marine area, including the exclusive economic zone and continental shelf, over which

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the government of Iran claims sovereignty, sovereign rights, or jurisdiction, provided that the

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government of Iran exercises partial or total control over the area or derives a benefit from

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economic activity in the area pursuant to international arrangements.

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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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     35-10.3-3. 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 nonprofit 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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     35-10.3-4. 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 (1)(i) with only inactive business

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

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

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able to avoid scrutinized business operations. The public fund shall continue such correspondence

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on a semi-annual basis.

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     (iii) For each company newly identified in paragraph (1)(i) with active business

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

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

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

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

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such 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 (1)(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 (2)(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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     35-10.3-5. Required actions--Reporting. -- (a) 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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     (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:

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

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paragraphs 35-10.3-4(1)(ii) and 35-10.3-4(1)(iii);

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

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subdivision 35-10.3-4(2);

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

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

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     35-10.3-6. 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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     35-10.3-7. 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 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 35-10.3-4

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

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10.3-4 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 subdivision 35-10.3-4(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 subsection (a). For any cessation of divestment, reinvestment, and/or

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subsequent ongoing investment authorized by this section, the public fund shall provide a written

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

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initial reinvestment, updated semi-annually thereafter as applicable, setting forth the reasons and

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

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reinvest, and/or remain invested in companies with scrutinized active business 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 be a scrutinized company engaged in active business operations.

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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. Title 37 of the General Laws entitled "PUBLIC PROPERTY AND

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WORKS" is hereby amended by adding thereto the following chapter:

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     CHAPTER 2.5

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PROHIBITION ON CONTRACTING WITH IRAN

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     37-2.5-1. Legislative findings. -- It is hereby found by the general assembly as follows:

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     (1) In imposing sanctions on Iran, the United States Congress and the President of the

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United States have determined that the illicit nuclear activities of Iran, combined with its

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development of unconventional weapons and ballistic missiles, and its support of international

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terrorism, represent a serious threat to the security of the United States and its allies around the

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world.

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     (2) The International Atomic Energy Agency has repeatedly called attention to Iran's

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unlawful nuclear activities, and as a result, the United Nations Security Council has adopted four

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(4) rounds of sanctions designed to compel the government of Iran to cease those activities and

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comply with its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons,

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commonly known as the Nuclear Non-Proliferation Treaty.

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     (3) The human rights situation in Iran has steadily deteriorated since the fraudulent

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elections of 2009, as evidenced by the brutal repression, torture, murder and arbitrary detention of

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peaceful protestors, dissidents and minorities.

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     (4) On July 1, 2010, President Obama signed into law the Comprehensive Iran Sanctions,

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Accountability, and Divestment Act of 2010, which expressly authorizes state and local

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governments to prevent investment in, including prohibiting entry into or renewing contracts

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with, companies operating in Iran and includes provisions that preclude companies that do

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business in Iran from contracting with the United States government.

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     (5) It is the intention of the general assembly to implement this authority granted under

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Section 202 of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010.

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     (6) There are moral and reputational reasons for state and local governments to not

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engage in business with foreign companies that have business activities benefiting foreign states,

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such as Iran, that pursue illegal nuclear programs, support acts of terrorism and commit violations

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of human rights.

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     (7) Short-term economic profits cannot be a justification to circumvent even in spirit

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those international sanctions designed to thwart Iran from developing nuclear weapons.

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     (8) The concerns of this general assembly regarding Iran are strictly the result of the

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actions of the government of Iran and should not be construed as enmity toward the Iranian

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people.

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     37-2.5-2. Definitions. -- (a) As used in this act, the following definitions shall apply:

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     (1) "Energy sector" of Iran means activities to develop, invest in, explore , refine,

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transfer, purchase or sell petroleum, gasoline, or other refined petroleum products, or natural gas,

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liquefied natural gas resources or nuclear power in Iran.

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     (2) "Financial institution" means the term as used in Section 14 of the Iran Sanctions Act

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of 1996, Section 14 of Pub.L.104-172 (50 U.S.C. 1701 note), as amended.

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     (3) "Iran" means the government of Iran, and includes the territory of Iran and any other

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territory or marine area, including the exclusive economic zone and continental shelf, over which

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the government of Iran claims sovereignty, sovereign rights, or jurisdiction, provided that the

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government of Iran exercises partial or total control over the area or derives a benefit from

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economic activity in the area pursuant to international arrangements.

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     (4) "Person or entity" means any of the following:

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     (i) A natural person, corporation, company, limited partnership, limited liability

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partnership, limited liability company, business association, sole proprietorship, joint venture,

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partnership, society, trust, or any other nongovernmental entity, organization, or group;

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     (ii) Any governmental entity or instrumentality of a government, including a multilateral

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development institution, as defined in Section 1701(c)(3) of the International Financial

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Institutions Act, 22 U.S.C. 262r(c)(3), as amended; or

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     (iii) Any parent, successor, subunit, direct or indirect subsidiary, or any entity under

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common ownership or control with, any entity described in subdivision (1) or (2).

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     (5) "State" means the state of Rhode Island and any of its departments or agencies and

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public agencies, including, but not limited to, any commission, council, board, bureau,

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committee, institution, or other governmental entity of the executive or judicial branch of this

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state and the general assembly and any office, board, bureau or commission within or created by

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the legislative branch.

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     (6) "Treasurer" means the general treasurer or the department of treasury.

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     (b) For the purposes of this act, a person engages in investment activities in Iran, if:

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     (1) The person provides goods or services of twenty million dollars ($20,000,000) or

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more in the energy sector of Iran, including a person that provides oil or liquefied natural gas

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tankers, or products used to construct or maintain pipelines used to transport oil or liquefied

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natural gas, for the energy sector of Iran; or

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     (2) The person is a financial institution that extends twenty million dollars ($20,000,000)

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or more in credit to another person, for forty five (45) days or more, if that person will use the

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credit to provide goods or services in the energy sector in Iran and is identified on a list created

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pursuant to subsection 37-2.5-3(b) as a person engaging in investment activities in Iran as

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described in subsection 37-2.5-3(a).

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     (c) The treasurer shall adopt regulations that reduce the amounts provided for in this

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subsection if the treasurer determines that such change is permitted or required under Section 202

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of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, as amended.

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     37-2.5-3. Certain persons, entities prohibited from bidding on certain public

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contracts, maintenance of list. -- (a) A person or entity that, at the time of bid or proposal for a

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new contract or renewal of an existing contract, is identified on a list created pursuant to

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subsection (b) as a person or entity engaging in investment activities in Iran as described in

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subsection 37-2.5-2(b), shall be ineligible to, and shall not, bid on, submit a proposal for, or enter

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into or renew, a contract with the state for goods or services.

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     (b) Within ninety (90) days of the effective date of this act, the treasurer shall, using

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credible information available to the public, develop a list of persons or entities it determines

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engage in investment activities in Iran as described in subsection 37-2.5-2(b).

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     (c) The treasurer shall update the list every one hundred and eighty (180) days.

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     (d) Before finalizing an initial list pursuant to subsection (b) or an updated list pursuant to

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subsection (c) of this section, the treasurer shall do the following before a person or entity is

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included on the list:

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     (1) Provide ninety (90) days written notice of its intent to include the person or entity on

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the list. The notice shall inform the person or entity that inclusion on the list would make the

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person or entity ineligible to bid on, submit a proposal for, or enter into or renew, a contract for

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goods or services with the state; and

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     (2) Provide a person or entity with an opportunity to comment in writing that it is not

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engaged in investment activities in Iran. If the person or entity demonstrates to the treasurer that

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the person or entity is not engaged in investment activities in Iran as described in subsection 37-

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2.5-2(b), the person or entity shall not be included on the list, unless the person or entity is

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otherwise ineligible to bid on a contract as described in subdivision 37-2.5-5(a)(3).

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     (3) The treasurer shall make every effort to avoid erroneously including a person or entity

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on the list.

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     37-2.5-4. Certification required. -- (a) The state shall require a person or entity that

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submits a bid or proposal or otherwise proposes to enter into or renew a contract to certify, at the

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time the bid is submitted or the contract is renewed, that the person or entity is not identified on a

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list created pursuant to subsection 37-2.5-3(b) as a person or entity engaging in investment

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activities in Iran described in subsection 37-2.5-2(b).

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     (b) The certification required shall be executed on behalf of the applicable person or

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entity, by an authorized officer or representative of the person or entity.

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     (c) In the event that a person or entity is unable to make the certification required because

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it or one of its parents, subsidiaries, or affiliates, as defined in subdivision 37-2.5-2(a)(4), has

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engaged in one or more of the activities specified in subsection 37-2.5-2(b), the person or entity

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shall provide to the state, prior to the deadline for delivery of such certification, a detailed and

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precise description of such activities, such description to be provided under penalty of perjury.

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     (d) The certifications provided under subsection (a) of this section and disclosures

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provided under subsection (c) of this section shall be disclosed to the public.

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     37-2.5-5. False certification; Penalties. -- (a) If the treasurer determines, using credible

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information available to the public and after providing ninety (90) days written notice and an

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opportunity to comment in writing for the person or entity to demonstrate that it is not engaged in

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investment activities in Iran, that the person or entity has submitted a false certification pursuant

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to section 37-2.5-4, and the person or entity fails to demonstrate to the treasurer that the person or

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entity has ceased its engagement in the investment activities in Iran within ninety (90) days after

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the determination of a false certification, the following shall apply:

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     (1) Pursuant to an action under subsection (b) of this section, a civil penalty in an amount

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that is equal to the greater of one million dollars ($1,000,000) or twice the amount of the contract

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for which the false certification was made;

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     (2) Termination of an existing contract with the state as deemed appropriate by the state;

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and

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     (3) Ineligibility to bid on a contract for a period of three (3) years from the date of the

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determination that the person or entity submitted the false certification.

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     (b) The treasurer shall report to the attorney general the name of the person or entity that

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the state determines has submitted a false certification under section 37-2.5-4, together with its

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information as to the false certification, and the attorney general shall determine whether to bring

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a civil action against the person or entity to collect the penalty described in subdivision (a)(1).

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Only one civil action against the person or entity to collect the penalty described in subdivision

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(a)(1) may be brought for a false certification on a contract. A civil action to collect such penalty

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shall commence within three (3) years from the date the certification is made.

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     37-2.5-6. Written notice to Attorney General. -- The governor shall submit to the

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attorney general of the United States a written notice describing this act within thirty (30) days

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after its effective date.

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     SECTION 3. Section 1 of this act shall take effect upon passage. Section 2 of the act shall

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take effect upon passage, but shall apply to contracts awarded or renewed commencing thirty (30)

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days after the effective date of this act.

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LC01517

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PUBLIC FINANCE

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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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     The act also prohibits the state from providing public contracts with persons or entities

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that are engaged in certain investment activities in the energy and financial sectors of Iran.

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     Section 1 of this act would take effect upon passage. Section 2 of the act would take

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effect upon passage but would apply to contracts awarded or renewed commencing thirty (30)

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days after the effective date of this act.

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LC01517

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