Chapter 173

2013 -- S 0521 SUBSTITUTE A

Enacted 07/11/13

 

A N A C T

RELATING TO PUBLIC FINANCE

          

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

     Date Introduced: February 28, 2013

 

It is enacted by the General Assembly as follows:

 

     SECTION 1. Title 35 of the General Laws entitled "PUBLIC FINANCE" is hereby

amended by adding thereto the following chapter:

 

CHAPTER 10.3

DIVESTITURE OF INVESTMENTS IN IRAN

 

     35-10.3-1. Legislative findings. -- It is hereby found by the general assembly as follows:

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

international terrorism; and

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

failure to suspend its uranium-enrichment activities; and

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

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

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

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

purposes; and

     (4) All United States and foreign entities that have invested more than twenty million

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

United States law pursuant to the Iran and Libya Sanctions Act of 1996; and

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

2006; and

     (6) The United States Congress recently acted to pass the Comprehensive Iran Sanctions,

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

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

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

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

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

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

to the secretary of state to document and disseminate information about human rights abuses in

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

Furthermore, the law authorizes state and local governments to divest public assets from, or

prohibit public investment in, certain investment activities in Iran; and

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

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

pertinent factors; and

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

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

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

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

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

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

rights to its people; and,

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

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

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

obtaining nuclear weapons and continuing the spread of terror.

 

     35-10.3-2. Definitions. -- As used in this chapter, the following definitions shall apply:

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

business operations.

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

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

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

business or commerce.

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

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

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

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

associations, that exist for profit-making purposes.

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

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

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

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

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

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

economic activity in the area pursuant to international arrangements.

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

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

for such purpose.

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

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

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

subject to the provisions of this chapter.

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

commission in charge of the Rhode Island state pension funds.

     (9) "Scrutinized business operations" means any and all active business operations that

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

of 1996", and that involve the maintenance of a company's existing assets or investments in Iran,

or the deployment of new investments to Iran that meet or exceed the twenty million dollars

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

of 1996". "Scrutinized operations" does not include the retail sale of gasoline and related

products.

     (10) “Scrutinized company” means any company engaging in scrutinized business

operations.

     (11) "Substantial action" means adopting, publicizing, and implementing a formal plan to

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

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

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

 

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

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

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

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

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

available information regarding companies with business operations in Iran, including

information provided by nonprofit organizations, research firms, international organizations, and

government entities; and/or

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

with business operations in Iran; and/or

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

companies that have business operations in Iran.

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

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

"scrutinized companies list."

     (c) The public fund shall update the scrutinized companies list on an annual basis based

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

 

     35-10.3-4. Required actions. -- The public fund shall adhere to the following procedures

for companies on the scrutinized companies list:

     (1) Engagement:

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

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

     (ii) For each company identified in paragraph (1)(i) with only inactive business

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

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

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

on a semi-annual basis.

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

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

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

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

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

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

public fund.

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

company pursuant to paragraph (1)(iii), that company ceases scrutinized business operations, the

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

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

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

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

relating thereto.

     (2) Divestment:

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

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

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

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

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

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

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

scrutinized companies list.

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

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

on the scrutinized companies list.

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

pursuant to paragraph (1)(iii) of this section resumes such operations, paragraph (2)(i) shall

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

shall also be immediately reintroduced onto the scrutinized companies list.

     (3) Prohibition:

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

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

     (4) Exemption:

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

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

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

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

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

welfare activities in Iran.

     (5) Excluded Securities:

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

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

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

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

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

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

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

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

managed investment funds.

 

     35-10.3-5. Required actions--Reporting. -- (a) The public fund shall file a publicly

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

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

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

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

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

includes:

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

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

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

subdivision 35-10.3-4(2);

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

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

 

     35-10.3-6. Provisions for repeal of chapter. -- This chapter shall be repealed upon

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

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

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

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

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

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

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

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

 

     35-10.3-7. Other legal obligations. -- With respect to actions taken in compliance with

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

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

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

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

 

     35-10.3-8. Reinvestment in certain companies with scrutinized active business

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

permitted to cease divesting from certain scrutinized companies pursuant to section 35-10.3-4

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

10.3-4 if clear and convincing evidence shows that the value for all assets under management by

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

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

assuming no divestment for any company had occurred under subdivision 35-10.3-4(2).

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

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

contingency set forth in subsection (a). For any cessation of divestment, reinvestment, and/or

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

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

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

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

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

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

have ceased to be a scrutinized company engaged in active business operations.

 

     35-10.3-9. Enforcement. -- The attorney general is charged with enforcing the provisions

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

to do so.

 

     35-10.3-10. Severability. -- If any one or more provision, section, subsection, sentence,

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

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

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

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

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

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

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

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

divestment, and prohibition provisions of this chapter.

 

     SECTION 2. Title 37 of the General Laws entitled "PUBLIC PROPERTY AND

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

 

CHAPTER 2.5

PROHIBITION ON CONTRACTING WITH IRAN

 

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

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

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

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

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

world.

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

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

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

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

commonly known as the Nuclear Non-Proliferation Treaty.

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

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

peaceful protestors, dissidents and minorities.

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

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

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

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

business in Iran from contracting with the United States government.

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

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

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

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

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

of human rights.

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

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

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

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

people.

 

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

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

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

liquefied natural gas resources or nuclear power in Iran.

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

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

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

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

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

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

economic activity in the area pursuant to international arrangements.

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

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

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

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

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

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

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

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

common ownership or control with, any entity described in paragraph (i) or (ii).

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

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

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

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

the legislative branch.

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

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

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

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

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

natural gas, for the energy sector of Iran; or

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

     (c) The treasurer shall update the list annually.

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

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

included on the list:

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

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

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

goods or services with the state; and

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

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

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

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

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

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

on the list.

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

for which the false certification was made;

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

and

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

determination that the person or entity submitted the false certification.

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

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

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

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

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

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

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

 

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

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

after its effective date.

 

     SECTION 3. Section 1 of this act shall take effect upon passage and it shall expire on

July 1, 2018. Section 2 of the act shall take effect upon passage, but shall apply to contracts

awarded or renewed commencing thirty (30) days after the effective date of this act.

     

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LC01517/SUB A

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