BILL ANALYSIS
AB 1650
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Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1650 (Feuer) - As Amended: April 13, 2010
SUBJECT : Public contracts: state and local contract
eligibility: energy sector investment activities in Iran.
SUMMARY : Prohibits persons with business activities in Iran's
energy sector, as specified, from bidding or entering into
contracts with a public entity for goods or services.
Specifically, this bill :
1)Prohibits a scrutinized person from bidding on, submitting a
proposal for, or entering into a contract with a public entity
for goods or services with the public entity.
2)Requires a public entity to require a person who has engaged
in business outside the United States in the previous three
years to certify that he or she is not a scrutinized person
when bidding or entering into a contract.
3)Requires that, if the public body awarding the contract
determines that a person has submitted a false certification,
the person be subject to all of the following:
a) A civil penalty of $250,000 or twice the amount of the
contract involving the false certification, whichever is
greater;
b) Termination of existing contracts with the awarding
body, at the awarding body's discretion; and,
c) Ineligibility to bid on contracts for the next three
years from the date the scrutinized person submitted the
false certification.
4)Requires an awarding body to report the names of scrutinized
persons who have submitted false certifications, together with
information as to the false certification, to the Attorney
General (AG), and requires the AG to determine whether to
bring a civil action against the person.
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5)Allows an awarding body to report the names of scrutinized
persons who have submitted false certifications, together with
information as to the false certification, to the city
attorney, county counsel, or district attorney.
6)Requires a scrutinized person to pay all reasonable costs and
fees incurred by the awarding body, AG, city attorney, county
counsel, or district attorney if civil action is taken.
7)Requires an awarding body that determines a scrutinized person
has an existing contract or has submitted a bid proposal, to
provide 90 days' written notice of its intent not to enter
into or renew a contract for goods or services, and to inform
the scrutinized person that he or she may become eligible for
public contracts upon ceasing to be a scrutinized person.
8)Requires an awarding body to provide a person it determines to
be a scrutinized person with an opportunity to demonstrate
that they are not engaged in investment activities in Iran's
energy sector, and if the awarding body subsequently
determines that person is no longer a scrutinized person, he
or she shall be eligible to enter into or renew a contract for
goods or services.
9)Becomes operative contingent upon the enactment of federal
legislation authorizing states to adopt and enforce
contracting prohibitions provided for in this bill.
10)Requires the Legislature to submit to the AG a written notice
describing this bill within 30 days after it becomes
operative.
11)States the validity of this bill's provisions are severable.
12)Ceases operation contingent upon the enactment of federal
legislation ceasing to authorize states to adopt and enforce
contracting prohibitions provided for in this bill.
13)Defines "scrutinized person" to mean a person who engages in
the following investment activities in Iran's energy sector:
a) The person has an investment of $20 million or more in
Iran's energy sector;
b) The person provides oil or liquified natural gas
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tankers, or products used to construct or maintain
pipelines used to transport oil or liquified natural gas,
for Iran's energy sector; or
c) The person is a financial institution that extends $20
million or more in credit to another person, for 45 days or
more, if that person will use the credit to invest in
Iran's energy sector.
14)Defines "awarding body" to mean a department, board, agency,
authority, or officer, agent, or other authorized
representative of the public entity awarding a contract for
goods or services.
15)Defines "energy sector" to mean activities to develop
petroleum or natural gas resources or nuclear power.
16)Defines "financial institution" to mean the term used in the
Iran Sanctions Act of 1996.
17)Defines "Iran" to include any agency or instrumentality of
Iran.
18)Defines "person" to mean any of the following:
a) A natural person, corporation, company, limited
liability company, business association, partnership,
society, trust, or any other nongovernmental entity,
organization, or group;
b) Any governmental entity or instrumentality of a
government, including a multilateral development
institution, as defined in the International Financial
Institutions Act; or,
c) Any successor, subunit, parent company, or subsidiary
of, or company under common ownership or control with, any
entity described above.
19)Makes legislative declarations and findings.
EXISTING LAW :
1)Requires the President of the United States, under the federal
Iran Sanctions Act of 1996, as subsequently amended, to impose
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specified sanctions on foreign companies that make substantial
investments in Iran's energy sector.
2)Prohibits the California Public Employees' Retirement System
(CalPERS) and the State Teachers' Retirement System (CalSTRS)
from investing public employee retirement funds in a company
with active business relations in Sudan or that has invested
or engaged in business operations with entities involved in
the development of petroleum or natural gas resources of Iran.
(Government Code Sections 7513.6 and 7513.7.)
3)Authorizes contracting between state agencies and private
contractors and sets forth the requirements for the
procurement of goods and services and for the solicitation and
evaluation of bids and the awarding of contracts by public
entities.
4)Prohibits companies involved in specified business activities
in Sudan from entering into a contract with a state agency for
goods and services and requires a prospective bidder for a
state contract to certify that the company is not engaged in
such activities. Specifies penalties for submitting a false
certification. (Public Contract Code Sections 10475 to
10481.)
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill . According to the author's office, "The
U.S. has imposed sanctions on Iran, determining that Iran's
illicit nuclear activities, combined with its support of
international terrorism, represent a serious threat to the
security of the U.S., Israel, U.S. allies in Europe, the Middle
East, and around the world.
"Congress is advancing bipartisan federal legislation,
co-sponsored by more than one third of the members of the U.S.
Senate and more than half of the House of Representatives, that
would authorize state and local governments to divest and
otherwise disassociate themselves from companies operating in
Iran's energy sector that support Iran's efforts to achieve a
nuclear weapons capability.
"The International Atomic Energy Agency has called attention
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repeatedly to Iran's unlawful nuclear activities, leading the
United Nations Security Council to adopt a range of sanctions
designed to encourage Iran to cease those activities and comply
with obligations under the Nuclear Non-Proliferation Treaty.
"AB 1650 would preclude all public entities in California from
renewing or entering to contracts with companies that have
substantial business in Iran's energy sector, ensuring that
California's tax dollars do not support companies whose
investments either directly or indirectly support Iran's nuclear
program or terrorist activities."
Background . Current pending federal legislation on Iran
sanctions was introduced in response to concern over Iran's
engagement in nuclear proliferation. There are four measures
pending, two in the House and two in the Senate, that seek to
strengthen existing federal sanctions and enable state and local
governments to divest from companies engaging in business in
Iran's energy sector.
Most relevant to this bill are two pieces of legislation now
pending in Congress. H.R. 1327 (Frank) and S. 1065 (Brownback)
would enact the Iran Sanctions Enabling Act (Act). Each measure
would expressly state that it is U.S. policy to support the
decision of state and local governments to prohibit the
investment of assets that they control in any person or company
with substantial investments in Iran's energy sector.
Specifically, the enabling legislation authorizes a state or
local government to divest assets from, or prohibit the
investment in, any person or entity that (1) invests $20 million
or more in Iran's energy sector; (2) provides oil or liquefied
natural gas tankers, or products used to construct or maintain
pipelines used to transport oil or liquefied natural gas, for
that energy sector. The federal enabling legislation also
expressly authorizes state and local governments to divest its
assets from any financial institutions which extends $20 million
or more in credit to another person, for 45 days or more, if
that person will use the credit to invest in Iran's energy
sector. Finally, the proposed federal enabling legislation
specifies that the Act will cease 30 days after the President
certifies to Congress that the government of Iran has ceased (1)
providing support for acts of international terrorism; and (2)
the pursuit, acquisition, and development of nuclear,
biological, and chemical weapons and ballistic missile
technology.
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False Certification . The current language in the bill requires
a person who signs a bid proposal or contract to certify that he
or she is not engaged in business activities in Iran's energy
sector. This individual can be a representative signing on the
company's behalf, who, if unknowingly incorrect, is subject to
penalty of perjury at a minimum of $250,000, in addition to
contract termination and ineligibility to bid with a public
entity for three years. For example, an individual investor,
company, or financial institution may not know that its business
partners have made investments in Iran and may unknowingly make
a false certification. This bill would require such a contract
to be cancelled and result in additional costs to the
governmental entity to re-bid and award the contract.
Existing Contracts . The current language in the bill captures
existing contracts, requiring individuals that currently or
within the previous three years have had business activities or
operations outside the U.S., to certify that the person is not a
scrutinized person. As drafted, this bill could penalize and
financially affect companies and individuals involved in ongoing
contracts that were not previously prohibited. Further, the
termination of an existing contract would negatively impact the
awarding body financially because the awarding body would need
to find a replacement to complete the remainder of work under
the contract. In addition, there could be potential lawsuits on
the dissolution of a contractual agreement between the awarding
body and the contractor. The author may wish to clarify that
this bill applies to prospective contracts and persons who are
scrutinized persons at the time of a bid proposal's submission
and not prior to that submission.
Support . According to United Against Nuclear Iran, "Iran has
defied the United Nations and the International Atomic Energy
Agency by pursuing an illegal nuclear program?. If Iran obtains
a nuclear weapon, the already volatile Middle East will likely
see the start of a regional nuclear arms race. Needless to say,
a nuclear arms race in the Middle East is a clear threat to
American national security. Unfortunately, at the same time
that Iran diverts billions of dollars to its illicit nuclear
weapons program, a slew of multinational corporations are doing
business with Iran for short-term economic gain. In doing so,
these corporations are providing the last crutch for the
faltering Iranian economy, facilitating the regime's diversion
of funds to its illicit nuclear program and ultimately
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endangering the U.S. and its allies."
According to the American Jewish Committee (AJC), "The Iranian
regime depends on foreign companies to provide it with 40% of
its gasoline to meet domestic demand. [AB 1650] would send a
strong message to companies that have substantial business in
Iran's energy sector that they must choose between doing
business with the State of California or with the rogue regime
in Iran?.
"In conjunction with federal [legislation, AB 1650] would
substantially constrain Iran's access to refined petroleum
products, and heighten economic pressure on Tehran to comply
with repeated Security Council resolutions and cease threatening
regional and global security. Even as the Obama Administration
explores direct diplomatic approaches, AJC believes that it is
critical that there be a simultaneous increase of sanctions on
Iran."
Oppose . Opponents express concerns that the term "scrutinized
person" is not used in federal legislation. The term "actual
knowledge" is used in federal legislation to imply that
individuals or companies are subject to civil penalties if they
intentionally falsified a certification. Opponents argue that
without reference to "actual knowledge," innocent individuals or
companies would be liable to a minimum of $250,000 penalty, for
the actions of others, even though they have little or no
influence or knowledge of their business activities.
Opponents would like to see the bill provisions apply
prospectively, include a statute of limitations, and ensure that
the absence of a certification form does not invalidate a
contract. In a joint letter, opponents write, "The
certification requirement laid out in AB 1650 should be
prospective only. That is, it should apply to contracts that
are signed on or after the effective date of the law?. Similar
legislation passed in Arizona, and Florida is expressly
prospective."
"The bill [should] not be retrospective in examining assets held
before the effective date of the bill. For example, a company
that has divested from Iran two years would still be captured by
this bill because of the three-year retrospective examination.
This is not clear in AB 1650 and should be clarified.
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"AB 1650 is premature, considering that implementation of the
bill is contingent on federal legislation. The two pieces of
federal legislation have yet to go through reconciliation, so
the final form of a federal bill is uncertain. It would be
prudent to wait for a final version of the federal bill before
moving forward with AB 1650?. It is important that the bill does
not overreach or go beyond the purview of the federal
legislation."
Previous Legislation . AB 961 (Krekorian) of 2009 prohibits a
scrutinized company, as defined, from entering into a contract
with a state agency for goods or services. This bill was held
in the Assembly Appropriations Committee.
AB 498 (Hernandez), Chapter 272, Statutes of 2008, prohibited
companies with business operations in Sudan from bidding on
state contracts for goods and services.
AB 221 (Anderson), Chapter 671, Statutes of 2007, prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in a company with active business operations in Iran's
defense or nuclear sectors, petroleum or natural gas resource
development, or with companies that engage in business with an
Iranian organization labeled as a terrorist group by the U.S.
government.
AB 2941 (Koretz), Chapter 442, Statutes of 2006, prohibited
CalPERS and CalSTRS from investing public employee retirement
funds in a company with business operations in Sudan, and
requires the boards of these retirement systems to sell or
transfer any investments with these companies and report to the
Legislature regarding these investments, as specified.
REGISTERED SUPPORT / OPPOSITION :
Support
30 Years After
Anti-Defamation League
American Jewish Committee - Los Angeles
Center for the Promotion of Democracy and Human Rights
City of Beverly Hills
City of West Hollywood
Jewish Labor Committee, Western Region
Jewish Public Affairs Committee of California
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Los Angeles County Board of Supervisors
Simon Wiesenthal Center
United Against a Nuclear Iran
Opposition
American Council of Engineering Companies, California
Associated General Contractors of California
Association of California Life & Health Insurance Companies
California Bankers Association
California Chamber of Commerce
California Manufacturers and Technology Association
Western States Petroleum Association
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301