BILL NUMBER: AB 2941 CHAPTERED
BILL TEXT
CHAPTER 442
FILED WITH SECRETARY OF STATE SEPTEMBER 25, 2006
APPROVED BY GOVERNOR SEPTEMBER 25, 2006
PASSED THE ASSEMBLY AUGUST 30, 2006
PASSED THE SENATE AUGUST 28, 2006
AMENDED IN SENATE AUGUST 23, 2006
AMENDED IN SENATE AUGUST 10, 2006
AMENDED IN SENATE AUGUST 7, 2006
AMENDED IN SENATE JUNE 19, 2006
AMENDED IN ASSEMBLY MAY 26, 2006
AMENDED IN ASSEMBLY APRIL 6, 2006
INTRODUCED BY Assembly Members Koretz, Dymally, and Jerome Horton
(Coauthors: Assembly Members Bass, Coto, Jones, Keene, Laird,
Leno, Leslie, Levine, Mullin, Pavley, Saldana, and Torrico)
(Coauthors: Senators Migden, Romero, and Speier)
FEBRUARY 24, 2006
An act to add Sections 7513.6 and 16642 to the Government Code,
relating to investments.
LEGISLATIVE COUNSEL'S DIGEST
AB 2941, Koretz Public retirement systems: investments: Sudan.
The California Constitution provides that the Legislature may by
statute prohibit retirement board investments where it is in the
public interest to do so and providing that the prohibition satisfies
specified fiduciary standards.
This bill would prohibit the Public Employees' Retirement System
and the California State Teachers' Retirement System from investing
public employee retirement funds in a company with active business
operations in Sudan, as specified. The bill would require the Board
of Administration of the Public Employees' Retirement System and the
Teachers' Retirement Board of the State Teachers' Retirement System
to sell or transfer any investments in a company with active business
operations in Sudan.
This bill would require those boards to report to the Legislature
any investments in a company with business operations in Sudan and
the sale or transfer of those investments, subject to the fiduciary
duty of those boards, by January 1, 2008, and every year thereafter.
This bill would indemnify from the General Fund and hold harmless
the present, former, and future board members, officers, and
employees of and investment managers under contract with those
retirement systems.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) The Congress of the United States has declared that genocide
is occurring in the Darfur region of Sudan.
(b) The National Black Caucus of State Legislators Resolution
05-144 declares that the atrocities unfolding in Darfur are genocide
under Article 1, Article 2, and Article 3 of the United Nations
Convention of 1948.
(c) The United Nations International Commission of Inquiry on
Darfur found that government and militia forces of Sudan have
conducted indiscriminate attacks, including, but not limited to, the
killing of civilians, torture, forced disappearances, the destruction
of villages, rape and other forms of sexual violence, pillaging, and
forced displacement throughout Darfur.
(d) Sudanese government forces and government-supported militia
forces have implemented a coordinated policy of ethnic cleansing.
(e) More than two and one-half million people are affected by the
crisis in Sudan. According to the Intermediate Technology Development
Group, two and one-half million people are displaced inside Sudan,
200,000 people are living as refugees, and more than 60 percent of
the villages in northern Darfur have been destroyed or abandoned.
(f) According to the Report on Human Rights Practices in Sudan by
the United States Department of State, Sudanese government forces
have pursued a scorched earth policy aimed at removing populations
from around a newly constructed oil pipeline and other oil production
facilities.
(g) The United States Department of State Report on Human Rights
Practices in Sudan found that 14,000 Dinka women and children have
been abducted in Sudan.
(h) Christian Solidarity International reports that the government
of Sudan is responsible for the revival of the evil institution of
slavery.
(i) The Methodist Church of Southern Africa reports mass rapes of
girls and women, the displacement of millions of people, and genocide
and ethnic cleansing in Darfur.
(j) The Committee on Conscience of the United States Holocaust
Memorial Museum has declared a genocide emergency in Sudan.
(k) Investing public retirement funds in business firms and
institutions with ties to the repressive regime in Sudan is
inconsistent with the moral and political values of the people of
California.
(l) The Legislature acknowledges that divestment is a course of
last resort that should be used sparingly and under extraordinary
circumstances. This act is based on unique circumstances,
specifically, the reprehensible and abhorrent genocide occurring in
Sudan. This act is not intended to set precedent with regard to
divestment policies and practices by public retirement and pension
funds in California.
SEC. 2. Section 7513.6 is added to the Government Code, to read:
7513.6. (a) As used in this section, the following definitions
shall apply:
(1) "Active business operations" means a company engaged in
business operations that provide revenue to the government of Sudan
or a company engaged in oil-related activities.
(2) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
(3) "Business operations" means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in Sudan, including the ownership or possession of real
or personal property located in Sudan.
(4) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profitmaking purposes or to
otherwise secure economic advantage. "Company" also means a company
owned or controlled, either directly or indirectly, by the government
of Sudan, that is established or organized under the laws of or has
its principal place of business in the Republic of the Sudan.
(5) "Government of Sudan" means the government of Sudan or its
instrumentalities.
(6) "Invest" or "investment" means the purchase, ownership, or
control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, bonds issued
by the government or a political subdivision of Sudan, corporate
bonds or other debt instruments issued by a company, or the
commitment of funds or other assets to a company, including a loan or
extension of credit to that company.
(7) "Military equipment" means weapons, arms, or military defense
supplies.
(8) "Oil-related activities" means, but is not limited to, the
export of oil, extracting or producing oil, exploration for oil, or
the construction or maintenance of a pipeline, refinery, or other oil
field infrastructure.
(9) "Public employee retirement funds" means the Public Employees'
Retirement Fund described in Section 20062 of this code, and the
Teachers' Retirement Fund described in Section 22167 of the Education
Code.
(10) "Research firm" means a reputable, neutral third-party
research firm.
(11) "Substantial action" means a boycott of the government of
Sudan, curtailing business in Sudan until that time described in
subdivision (m), selling company assets, equipment, or real and
personal property located in Sudan, or undertaking significant
humanitarian efforts in the eastern, southern, or western regions of
Sudan.
(12) "Sudan" means the Republic of the Sudan, a territory under
the administration or control of the Sudan, including but not limited
to, the Darfur region, or an individual, company, or public agency
located in Khartoum, northern Sudan, or the Nile River Valley that
supports the Republic of the Sudan.
(b) The board shall not invest public employee retirement funds in
a company with business operations in Sudan that meets all of the
following criteria:
(1) The company is engaged in active business operations in Sudan.
If that company is not engaged in oil-related activities, that
company also lacks significant business operations in the eastern,
southern, and western regions of Sudan.
(2) Either of the following apply:
(A) The company is engaged in oil-related activities or energy or
power-related operations, or contracts with another company with
business operations in the oil, energy, and power sectors of Sudan,
and the company failed to take substantial action related to the
government of Sudan because of the Darfur genocide.
(B) The company has demonstrated complicity in the Darfur
genocide.
(c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies military
equipment within the borders of Sudan. If a company provides
equipment within the borders of Sudan that may be readily used for
military purposes, including, but not limited to, radar systems and
military-grade transport vehicles, there shall also be a strong
presumption against investing in that company unless that company
implements safeguards to prevent the use of that equipment for
military purposes.
(d) (1) The board shall, without regard to the provisions
regarding competitive bidding, contract with a research firm or firms
to determine those companies that have business operations in Sudan.
Those research firms shall, in the aggregate, obtain data on a
majority of companies with business operations in Sudan. On or before
March 30, 2007, those research firms shall report any findings to
the board and those research firms shall submit further findings to
the board if there is a change of circumstances in Sudan.
(2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March 30,
2007:
(A) Review publicly available information regarding companies with
business operations in Sudan.
(B) Contact other institutional investors that invest in companies
with business operations in Sudan.
(C) Send written notice to a company with business operations in
Sudan that the company may be subject to this section.
(e) (1) The board shall determine, by the next applicable board
meeting and based on the information and reports described in
subdivision (d), if a company meets the criteria described in
subdivision (b) or (c). If the board plans to invest or has
investments in a company that meets the criteria described in
subdivision (b) or (c), that planned or existing investment shall be
subject to subdivisions (g) and (h).
(2) Investments of the board in a company that does not meet the
criteria described in subdivision (b) or (c) or does not have active
business operations in Sudan are not subject to subdivision (h),
provided that the company does not subsequently meet the criteria
described in subdivision (b) or (c) or engage in active business
operations. The board shall identify the reasons why that company
does not satisfy the criteria described in subdivision (b) or (c) or
does not engage in active business operations in the report to the
Legislature described in subdivision (i).
(f) (1) Notwithstanding subdivision (e), if the board's investment
in a company described in subdivision (b) or (c) is limited to
investment via an externally and actively managed commingled fund,
the board shall contact that fund manager in writing and request that
the fund manager remove that company from the fund as described in
subdivision (h). On or before June 30, 2007, if the fund or account
manager creates a fund or account devoid of companies described in
subdivision (b) or (c), the transfer of board investments from the
prior fund or account to the fund or account devoid of companies with
business operations in Sudan shall be deemed to satisfy subdivision
(h).
(2) If the board's investment in a company described in
subdivision (b) or (c) is limited to an alternative fund or account,
the alternative fund or account manager creates an actively managed
commingled fund that excludes companies described in subdivision (b)
or (c), and the new fund or account is deemed to be financially
equivalent to the existing fund or account, the transfer of board
investments from the existing fund or account to the new fund or
account shall be deemed to satisfy subdivision (h). If the board
determines that the new fund or account is not financially equivalent
to the existing fund, the board shall include the reasons for that
determination in the report described in subdivision (i).
(3) The board shall make a good faith effort to identify any
private equity investments that involve companies described in
subdivision (b) or (c) or are linked to the government of Sudan. If
the board determines that a private equity investment clearly
involves a company described in subdivision (b) or (c) or is linked
to the government of Sudan, the board shall consider, at its
discretion, if those private equity investments shall be subject to
subdivision (h). If the board determines that a private equity
investment clearly involves a company described in subdivision (b) or
(c) or is linked to the government of Sudan and the board does not
take action as described in subdivision (h), the board shall include
the reasons for its decision in the report described in subdivision
(i).
(g) Except as described in subdivision (f) or paragraph (2) of
subdivision (e), the board, in the board's capacity of shareholder or
investor, shall notify any company described in paragraph (1) of
subdivision (e) that the company is subject to subdivision (h) and
permit that company to respond to the information and reports
described in subdivision (d). The board shall request that the
company take substantial action no later than 90 days from the date
the board notified the company under this subdivision. If the board
determines that a company has taken substantial action or has made
sufficient progress towards substantial action before the expiration
of that 90-day period, that company shall not be subject to
subdivision (h). The board shall, at intervals not to exceed 90 days,
continue to monitor and review the progress of the company until
that company has taken substantial action in Sudan. A company that
fails to complete substantial action or continue to make sufficient
progress towards substantial action by the next time interval shall
be subject to subdivision (h).
(h) If a company described in paragraph (1) of subdivision (e)
fails to complete substantial action by the time described in
subdivision (g), the board shall take the following actions:
(1) The board shall not make additional or new investments or
renew existing investments in that company.
(2) The board shall liquidate the investments of the board in that
company no later than 18 months after this subdivision applies to
that company. The board shall liquidate those investments in a manner
to address the need for companies to take substantial action in
Sudan and consistent with the board's fiduciary responsibilities as
described in Section 17 of Article XVI of the California
Constitution.
(i) On or before January 1, 2008, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:
(1) A list of investments the board has in companies with business
operations in Sudan, including, but not limited to, the issuer, by
name, of the stock, bonds, securities, and other evidence of
indebtedness.
(2) A detailed summary of the business operations a company
described in paragraph (1) has in Sudan and whether that company
satisfies all of the criteria in subdivision (b) or (c).
(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b) or (c).
(4) If the board has not completely reduced its investments in a
company that satisfies the criteria in subdivision (b) or (c), when
the board anticipates that the board will reduce all investments in
that company or the reasons why a sale or transfer of investments is
inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.
(5) Any information described in subdivision (e).
(6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations in
Sudan as described in subdivision (f).
(j) If the board voluntarily sells or transfers all of its
investments in a company with business operations in Sudan, this
section shall not apply except that the board shall file a report
with the Legislature related to that company as described in
subdivision (i).
(k) Nothing in this section shall require the board to take action
as described in this section unless the board determines, in good
faith, that the action described in this section is consistent with
the fiduciary responsibilities of the board as described in Section
17 of Article XVI of the California Constitution.
(l) Subdivision (h) shall not apply to any of the following:
(1) Investments in a company that is primarily engaged in
supplying goods or services intended to relieve human suffering in
Sudan.
(2) Investments in a company that promotes health, education,
journalistic, or religious activities in or welfare in the western,
eastern, or southern regions of Sudan.
(3) Investments in a United States company that is authorized by
the federal government to have business operations in Sudan.
(m) This section shall remain in effect only until one of the
following occurs, and as of the date of that action, is repealed:
(1) The government of Sudan halts the genocide in Darfur for 12
months as determined by both the Department of State and the Congress
of the United States.
(2) The United States revokes its current sanctions against Sudan.
SEC. 3. Section 16642 is added to the Government Code, to read:
16642. Present, future, and former board members of the Public
Employees' Retirement System or the State Teachers' Retirement
System, jointly and individually, state officers and employees,
research firms described in subdivision (d) of Section 7513.6, and
investment managers under contract with the Public Employees'
Retirement System or the State Teachers' Retirement System shall be
indemnified from the General Fund and held harmless by the State of
California from all claims, demands, suits, actions, damages,
judgments, costs, charges and expenses, including court costs and
attorney's fees, and against all liability, losses, and damages of
any nature whatsoever that these present, future, or former board
members, officers, employees, research firms, or contract investment
managers shall or may at any time sustain by reason of any decision
to restrict, reduce, or eliminate investments pursuant to Section
7513.6