BILL ANALYSIS                                                                                                                                                                                                    

                                                       Bill No:  AB  
                       Senator Roderick D. Wright, Chair
                           2009-2010 Regular Session
                                 Staff Analysis

          AB 1650  Author:  Feuer
          As Amended:  June 23, 2010
          Hearing Date:  June 29, 2010
          Consultant:  Art Terzakis

                                Public Contracts

          AB 1650 enacts the "Iran Contracting Act of 2010" which,  
          subject to the enactment of federal enabling legislation,  
          prohibits public entities from entering into or renewing  
          contracts for goods and services with persons or firms that  
          have investment activities in the Iranian energy sector.   
          Specifically, this measure: 

          1.  Prohibits any person or entity that engages in  
            investment activities in the energy sector of Iran, as  
            specified, from bidding on, submitting a proposal for, or  
            entering into or renewing a contract with a public entity  
            for goods or services.
          2.  Specifies that, for purposes of this bill, a person  
            engages in investment activities in the energy sector of  
            Iran if any of the following is true:
                a)   The person or entity has an investment of $20  
               million or more in the energy sector of Iran.
                b)   The person 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.


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                c)   The person or entity is a financial institution  
               that extends $20 million or more in credit to another  
               person, for 45 days or more, if the person will use  
               the credit to invest in the energy sector in Iran. 

          3.  Stipulates that a public entity must require a person  
            that submits a bid or proposal to, or otherwise proposes  
            to enter into or renew a contract with, a public entity  
            with respect to a contract for goods and services, that  
            currently or within the previous three years has had  
            business activities or other operations outside of the  
            United States, to certify that the person is not engaged  
            in investment activities in the energy sector of Iran, as  
          4.  Provides that if the public entity awarding the  
            contract determines that a person has submitted a false  
            certification pursuant to item #3 above, the person shall  
            be subject to civil penalties, termination of existing  
            contracts, and ineligibility to bid on contracts for the  
            next three years.  Also, specifies procedures by which a  
            person shall be notified of any of the forgoing and  
            requires the awarding body to give the person an  
            opportunity to demonstrate that they are not engaged in  
            investment activities in the energy sector of Iran.
           5.  Provides that the provisions in this Act will only  
            become operative if federal legislation is enacted  
            authorizing states to adopt and enforce contracting  
            prohibitions of the type provided for in this Act and  
            will become inoperative on the date that federal  
            authorization ceases.
           6.  Makes declarations and findings relating to federal and  
            international responses to Iran's well-documented human  
            rights abuses, support for international terrorism, and  
            efforts to develop its nuclear capacities.
           7.  Requires the Legislature to submit to the U.S. Attorney  
            General a written notice describing the provisions of  
            this Act within 30 days after its operative date.
                                  EXISTING LAW

           Existing federal law requires the President of the United  
          States, under the federal Iran Sanctions Act of 1996, as  
          subsequently amended, to impose specified sanctions on  


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          foreign companies that make substantial investments in  
          Iran's energy sector.
          Existing law 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. 
          Existing law 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.
          Existing law 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. Existing law  
          specifies penalties for submitting a false certification.  
          The United States and much of the international community  
          has condemned the Government of Iran for its human rights  
          violations, its support of international terrorism, and its  
          efforts to develop nuclear weapons under the guise of  
          developing nuclear power for domestic energy uses.  The  
          Iran Sanctions Act expresses U.S. policy to work with  
          international organizations to pressure the government of  
          Iran to cease its illicit nuclear activity, and it  
          authorizes the President, by Executive Order, to impose  
          sanctions and limit the ability of U.S. persons and  
          business from engaging in business activities with the  
          Government of Iran and other designated groups.  In light  
          of recent confrontations between the Government of Iran and  
          the international community over its nuclear activity, its  
          support of international terrorism, and its suppression of  
          civil rights and liberties, legislation is currently  
          pending in Congress that would strengthen existing  
          sanctions and enable state and local governments to adopt  
          restrictions consistent with federal policy.


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          Subject to the enactment of federal enabling legislation,  
          this measure would prohibit public entities from entering  
          into or renewing contracts with businesses with significant  
          interests or investments in Iran's energy sector.  

          This measure would offer procedural protections for  
          bidders.  For example, companies would be given written  
          notice of their right to challenge their disqualification  
          for prohibited activities.  Companies that cease the  
          prohibited investment activities would be fully eligible to  
          contract with the state and other public entities.   
          Companies that submit a false certification, however, would  
          face civil penalties and would be ineligible to bid on  
          government contracts for three years.

           Purpose of AB 1650:   According to the author's office, AB  
          1650 is intended to support federal and international  
          efforts by precluding private companies from entering into  
          or renewing state contracts if they have substantial  
          business dealings in Iran's energy sector, thereby  
          "ensuring that California's tax dollars do not support  
          companies whose investments either directly or indirectly  
          support Iran's nuclear or terrorist activities."
           The author's office contends that "it is the responsibility  
          of the State to decide how, where and by whom its financial  
          resources should be invested.  It also is the prerogative  
          of the State not to invest in, or do business with,  
          companies whose investments with Iran place those companies  
          at risk from the impact of economic sanctions imposed upon  
          the Government of Iran for sponsoring terrorism, committing  
          egregious violations of human rights, and engaging in  
          illicit nuclear weapons development." 

          The author's office notes that for decades California has  
          engaged in socially responsible investing, ranging from  
          divesting state pension funds from companies that supported  
          apartheid in South Africa in the 1980s to sanctions for  
          human rights violations in Sudan.     

           Arguments in Support:    The Anti-Defamation League (ADL)  
          believes that Iran, through its nuclear activities and its  
          support of state-sponsored terrorism, "is a grave threat  
          not only to the United States but also to the rest of the  
          world."  ADL contends that "AB 1650 sends a strong message  
          that California supports the efforts to prevent Iran from  


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          developing nuclear weapons and takes a strong stand against  
          state sponsors of terrorism."   Furthermore, ADL argues  
          that this measure "will give Californians assurance that  
          their tax dollars are not being channeled "through foreign  
          companies into the Iranian regime's coffers and from there  
          into its nuclear program and terrorist activities."
          The American Jewish Committee (AJC) contends that if Iran  
          continues to defy the international community and develop  
          its nuclear capacity, it will "significantly threaten U.S.  
          interests, forces, and allies across the Middle East and  
          Europe."  As a "leading sponsor of state terror," AJC adds,  
          Iran "could share nuclear technology or material with such  
          proxy groups as Hezbollah, or with violent radical forces  
          such as Hamas that rely on Iranian support."  Noting that  
          Iran depends upon foreign companies to provide it with 40  
          percent of its domestic gasoline demand, this legislation  
          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."  

          Furthermore, AJC points to the pending federal enabling  
          legislation and urges the state to take action now to  
          register support for a U.S. policy of supplementing  
          diplomatic efforts with the pressure of effective economic  
          In addition to the arguments made by ADL and AJC, other  
          groups, including United Against Nuclear Iran (UANI), The  
          Center for the Promotion of Democracy and Human Rights  
          (CFPD), and 30 Years After, and Iranian-American Jewish  
          civic organizations, stress Iran's abysmal human rights  
          record.  30 Years After, for example, points out that even  
          with Iran's violent suppression of human rights, millions  
          of Iranians "have marched courageously throughout the  
          streets of Iran calling for reform, democracy, and  
          freedom."  30 Years After believes this measure will  
          express California's support for the aspirations of the  
          Iranian people and will be consistent with California  
          history of "socially responsible investing."

           Arguments in Opposition:    According to the opponents, one  
          of the biggest issues, if not the biggest issue, is that,  
          "Title II Section 202 of the federal bill, cautions States  
          and local governments to make every effort to avoid  


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          erroneously targeting an entity and to verify that the  
          entity engages in Iranian energy sector investments. In  
          addition, Section 202 (b) of the federal legislation states  
          that the State or local governments may adopt measures to  
          require divestiture of or prohibit investments in 'any  
          person that the State or local government determines, using  
          credible information available to the public, engages in  
          investment activities in Iran?' We think this language is  
          intended to require the State and local governments to make  
          the determination as to who can or cannot contract with the  
          government entities based on the State and local  
          governments' determinations."

          Opponents emphasize that it is imperative that AB 1650  
          provide the same clarity and certainty that Congress  
          intends.  If not done correctly, among other things, AB  
          1650 could result in California and local governments being  
          unable to access the financial markets and could jeopardize  
          the state's ability to manage its financial affairs.

          Opponents have suggested the following amendments to  
          strengthen the provisions of AB 1650:

                 Expand the scope of the measure and have an  
               appropriate state agency develop a list.  [Opponents  
               believe the phrase "engages in investment activities  
               in the energy sector in Iran" is vague and should be  
               replaced with a reference to a list of businesses that  
               a state agency compiles identifying such businesses.]

                 Limitations on collateral lawsuits. [Opponents  
               believe the private right of action should be removed  
               to give the legal counsel of the contracting entities  
               the ability to file a lawsuit so that losing bidders  
               cannot file a lawsuit against the winning contractor  
               or the awarding body.]

                 Statute of limitations.  [Opponents believe there  
               should be a defined length of time after the contract  
               has been awarded and completed that a prosecutor may  
               authorize civil actions.]

                 Due process for company to refute claims.   
               [Opponents believe 90 days should be provided for the  
               company to demonstrate that it is not engaged in  
               investment activities, or to cease its investments if  


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               they do have activities in Iran.]

                 Minimum contract amount threshold.  [Opponents  
               believe provisions should be applicable to a public  
               entity award, on an annual basis of more than $10  
               million and individual contracts awarded in excess of  
               $1 million.]

                 Implementation when the feds move.  [Opponents  
               suggested time frame: 90 days after the federal bill  
               takes effect or after the effective date of AB 1650,  
               whichever is later.]

                 Provide flexibility to local entities.  [Opponents  
               believe local governments should be given flexibility  
               in determining whether to bring civil action, and to  
               take into account negligence, frequency and gravity of  
               offense, etc.]   

           Federal Legislation H.R. 2194:   Congress is advancing  
          bipartisan federal legislation, co-sponsored by more than  
          half the members of the United States Senate and House of  
          Representatives that would authorize state and local  
          governments to divest and otherwise disassociate themselves  
          from companies operating in the Islamic Republic of Iran's  
          energy sector that supports the Islamic Republic of Iran's  
          efforts to achieve a nuclear weapons capability.  H.R.  
          2194, the Comprehensive Iran Sanctions, Accountability, and  
          Divestment Act of 2010, would strengthen the underlying  
          Iran Sanctions Act (ISA) by imposing an array of tough new  
          economic penalties aimed at persuading Iran to change its  
          conduct. Major highlights of the Act and the Conference  
          Report Agreement reached early last week (week of June  
          21st) include provisions to: 

           Expand the scope of sanctions authorized under ISA by  
          imposing sanctions on foreign companies -- including  
          insurance, financing and shipping companies -- that sell  
          Iran goods, services, or know-how that assist it in  
          developing its energy sector. 
           Ban U.S. banks from engaging in financial transactions  
          with foreign banks doing business with Iran's Islamic  
          Revolutionary Guard Corp (IRGC) or facilitating Iran's  
          illicit nuclear program or its support for terrorism.


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           Impose significant financial penalties and travel  
          restrictions on Iran's human rights abusers. 
           Establish three new sanctions, in addition to the menu of  
          six sanctions that already exists under ISA, including: (1)  
          a prohibition on access to foreign exchange in the U.S.;  
          (2) a prohibition on access to the U.S. banking system; and  
          (3) a prohibition on property transactions in the U.S. The  
          Act would require the President to impose at least three of  
          the possible now-nine sanctions on an entity in violation  
          of ISA. 
           Ban U.S. government procurement contracts for any foreign  
          company that exports to Iran technology used to restrict  
          the free flow of information or to disrupt, monitor, or  
          otherwise restrict freedom of speech.
           Require a certification from a company bidding on a U.S.  
          government procurement contract that it is not engaged in  
          sanctionable conduct. 
           Provide a legal framework by which U.S. states, local  
          governments, and certain other investors can divest their  
          portfolios of foreign companies involved in Iran's energy  
          sector. Strengthen efforts to stop black-market diversion  
          of sensitive technologies to Iran. 
           Strengthen the U.S. trade embargo against Iran by  
          codifying longstanding executive orders and limiting the  
          goods exempted from the embargo. 
           Increase substantially the criminal penalties for  
          sanctions violations by U.S. entities. 
           Additional Federal Legislation:   Two additional pieces of  
          enabling legislation now pending in Congress -  H.R. 1327  
          (Frank) and S. 1065 (Brownback) - would enact the Iran  
          Sanctions Enabling Act.  Each measure would expressly state  
          that it is the policy of the United States 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  
                           PRIOR/RELATED LEGISLATION
           AB 498 (Hernandez) Chapter 272, Statutes of 2008.     
          Requires a company that bids or submits a proposal for a  
          contract for goods and services with a state agency to  
          self-certify that it is not a scrutinized company engaged  
          in specified activities in Sudan.
           AB 221 (Anderson) Chapter 671, Statutes of 2007.   Requires  


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          CalPERS and CalSTRS to sell or transfer any investments in  
          a company with business operations in Iran. Also, requires  
          annual reports to the Legislature from the retirement  
          systems on the status of their investments in any company  
          with business operations in Iran beginning in 2009. 

           AB 1089 (Hernandez) 2007-08 Session.   Would have required  
          the DGS to identify a list of companies that the state has,  
          or could have, a contract with that also conducts business  
          operations in Sudan.  Also, would have prohibited state  
          agencies from entering into contracts with such companies.  
          (Died in Senate Appropriations Committee)

           AB 2941 (Koretz) Chapter 442, Statutes of 2006.   Prohibits  
          CalPERS and CalSTRS from investing in a company with active  
          business operations in Sudan and requires the boards of  
          these retirement systems to sell or transfer any  
          investments with these companies.
           AJR 6 (Koretz) Resolution Chapter 57, Statutes of 2005.    
          Encouraged the President and Congress to address certain  
          issues relating to the government of Sudan and the  
          situation in Darfur.
          ACR 11 (Dymally) Resolution Chapter 98, Statutes of 2005.    
          Encouraged CalPERS and CalSTRS to encourage companies doing  
          business in Sudan to act responsibly and not take actions  
          that would promote or otherwise enable human rights  
          violations in Sudan. 
           SB 1285 (Watson) Chapter 30, Statutes of 1994 and AB 2448  
          (W. Brown) Chapter 31, Statutes of 1994.   Repealed statutes  
          that prohibited investment by certain state entities in  
          South Africa but indemnified specified parties from suit  
          for prior decisions not to invest in South Africa pursuant  
          to the repealed statutes.

          SUPPORT:   As of June 25, 2010:

          American Jewish Committee
          Anti-Defamation League
          Beverly Hills, City of
          Center for the Promotion of Democracy and Human Rights 
          County of Los Angeles
          Jewish Community Relations Council


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          Jewish Federation of San Diego County
          Jewish Labor Committee Western Region 
          Jewish Public Affairs Committee 
          Los Angeles, City of 
          Simon Wiesenthal Center
          30 Years After
          United Against Nuclear Iran
          West Hollywood, City of

           OPPOSE:   As of June 25, 2010:

          American Council of Engineering Companies, California
          American Council of Life Insurers
          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

           FISCAL COMMITTEE:   Senate Appropriations Committee