BILL ANALYSIS
Bill No: AB
1650
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
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
SUBJECT
Public Contracts
DESCRIPTION
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.
AB 1650 (Feuer) continued
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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
specified.
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.
BACKGROUND
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.
AB 1650 (Feuer) continued
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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
sanctions.
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
sector.
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
AB 1650 (Feuer) continued
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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
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