BILL ANALYSIS Ó
SB 861
Page 1
Date of Hearing: June 28, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 861 (Corbett) - As Amended: May 31, 2011
SENATE VOTE : 33-2
SUBJECT : Public contracts: contract eligibility: conflict
minerals in the Democratic Republic of the Congo.
SUMMARY : Prohibits a scrutinized company, as defined, using
conflict minerals from the Democratic Republic of Congo (DRC)
from bidding on a state goods or services contract.
Specifically, this bill :
1)Prohibits a scrutinized company from bidding on a state goods
or services contract if it must comply with the disclosures
relating to conflict minerals originating in the DRC, as
specified in the Securities Exchange Act of 1934 (Act).
2)Defines "scrutinized company" to mean a person found to be in
violation of Section 13(p) of the Act by final judgment or
settlement entered in a civil or administrative action brought
by Securities Exchange Commission (SEC) and the person has not
remedied or cured the violation in a manner accepted by the
SEC on or before final judgment or settlement.
3)Deems that a person is no longer regarded as a scrutinized
company when the person no longer in violation of the Act, or
three years from the date of final judgment or settlement,
whichever is earlier.
4)Makings legislative findings and declarations.
EXISTING LAW :
1)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.
2)Prohibits persons engaging in investment activities in Iran's
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energy sector, as specified, from bidding or entering into
contracts with a public entity for goods or services.
3)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.)
EXISTING FEDERAL LAW :
1)Establishes the 2006 Democratic Republic of Congo Relief,
Security, and Democracy Promotion Act (DRCRSDP Act). The
DRCRSDP Act stated that it is the policy of the United States
(U.S.) to work for peace and security throughout the DRC by
supporting efforts to protect civilians, disarm illegal armed
groups, and hold accountable individuals and entities working
to destabilize the country.
2)Establishes the 2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), pertaining to the
trade of minerals associated with the DRC conflict. The
Dodd-Frank Act was signed into law adding, amongst other
things, Section 13(p) to the Act, directing the SEC to publish
new disclosure rules by April 17, 2011, for publically traded
companies reporting to the SEC for whom "conflict minerals"
are necessary to the functionality or production of a product
manufactured by such persons.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "Greed
for the Congo's mineral wealth has been a prime cause of
atrocity and conflict. Multiple armed groups use mass rape as a
strategy to intimidate and control communities as they profit
from the illicit trade of the Congo's conflict minerals, such as
tin, tungsten, and tantalum. Many of these same conflict
minerals end up in our electronic devices, such as cell phones,
laptops, and digital cameras.
"Secretary of State Hillary Clinton called the situation 'truly
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one of mankind's greatest atrocities.' The United Nations
(U.N.) has recorded at least 200,000 cases of sexual violence in
the eastern Congo? California is home to many computer and cell
phone companies? The State of California should not spend tax
dollars on companies that fail to comply with federal law.
"In order to encourage compliance with federal law, SB 861
prohibits publicly traded companies that have been found to be
in violation of the reporting requirements under the Dodd-Frank
Act by final judgment from obtaining procurement contracts with
the state through the Department of General Services until they
comply with the law."
Background . The Legislature has recently heard legislation
prohibiting specified "scrutinized companies" from bidding on
public contracts on humanitarian grounds and in conjunction with
federal efforts.
The DRC is Africa's third largest nation, and it is the eastern
portion, Kivu, that has been the site of conflict. Illegally
armed militia groups have been responsible for human rights
abuses, sexual exploitation, acts of violence, and other
atrocities in order to mine the mineral-rich Kivu. The Act
defines "conflict materials" as columbite-tantalite (coltan),
cassiterite, gold, wolframite, or their derivatives. These
materials, in turn, are used to produce tungsten, tin, steel, or
some other component that results in the manufacture of light
bulb filaments, electrical components, computer chips and
processors, cell phones, and other technology products. In
addition, other conflict materials mentioned in the Dodd-Frank
Act, such as gold, are manufactured into jewelry and sold in the
U.S.
This bill attempts to prohibit public traded companies that
commercially use DRC conflict minerals from bidding on a state
contract for goods or services. This bill would not affect
construction projects or local contracts.
The enforcement of this bill is dependent on federal law
offering direction on how to address the conflict minerals, and
references in particular, the Act. While the Act directs the
SEC, by April 17, 2011, to promulgate regulations on the
reporting on conflict minerals and whether they originated in
the DRC. The reports filed with SEC must specify whether
conflict minerals are necessary to the functionality of a
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product, include the chain of custody of the minerals, and
specify whether they are DRC conflict free or not. "DRC
conflict free" is defined to mean the products do not contain
minerals that directly or indirectly finance or benefit armed
groups in DRC or an adjoining country. The report must be
certified and published on the company Web site. If the
submitted report is determined to be unreliable, then the
scrutinized company is found in violation of the regulations.
While the SEC was directed to promulgate the regulations by
April 17, 2011, to date, the federal regulations have not yet
been promulgated. This may impede implementation of this bill,
if DGS must rely on the federally promulgated regulations on
guidance for implementation.
Previous Legislation . AB 1650 (Feuer), Chapter 573, Statutes of
2010, prohibited persons engaging in investment activities in
Iran's energy sector, as specified, from bidding or entering
into contracts with a public entity for goods or services.
AB 961 (Krekorian) of 2009, would have prohibited 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 the
California Public Employees' Retirement System (CalPERS) and the
California State Teachers' Retirement System (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.
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Support . According to the International Corporate
Accountability Roundtable, "This landmark piece of legislation
will prohibit California state contracts Ýfor goods and
services] with companies that fail to comply with federal
reporting requirements to combat the trade of minerals fueling
conflict in the eastern DRC. Armed groups perpetrating violence
finance themselves through trade in four main minerals: tin,
tantalum, tungsten, and gold. The ÝU.N.] has found that the
official exports of these minerals are grossly undervalued and
that various armed groups in the eastern region of the DRC
continue to profit from natural resources by coercively
exercising control over mining sites from where they are
extracted and locations along which they are transported for
export. These minerals form the basis of metals used in diverse
technological products sold worldwide, including mobile
telephones, laptop computers, and digital video recorders.
"The illegal profits made from these minerals are just some of
the consequences of the unregulated and unrelenting mining in
this region. Other human rights abuses, including gender-based
violence, such as sexual slavery, forced recruitment, forced
prostitution and rape, have reached catastrophic proportions,
with local health clinics in South Kivu reporting that, on
average, 40 women are raped daily. In fact, sexual violence is
an active weapon of war used by armed groups in the region. In
investigating and reporting on the mass rapes of over 300
civilians in August 2010, the ÝU.N.] emphasized the link between
the violence and competition over the mineral resources in the
North Kivu province. According to a study by the International
Rescue Committee released in January 2008, conflict and the
humanitarian crisis in the DRC have resulted in the death of an
estimated 5.4 million people since 1998 and continue to cause as
many as 45,000 deaths each month."
Double-referred . This bill is double-referred to Assembly Jobs,
Economic Development, and the Economy Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Africa Faith and Justice Network
Boston Common Asset Management
California Church IMPACT
California Coalition Against Sexual Assault
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California Coalition Against Sexual Assault
California National Organization for Women
Calvert Asset Management Co. Inc.
City of Berkeley
City of West Hollywood
Coalition to Abolish Slavery & Trafficking
Consumer Federation of California
Enough Project
Feminist Majority
Free the Slaves
Gavin Newsom, Lieutenant Governor
Howard Berman, Congressman
Interfaith Center on Corporate Responsibility
International Corporate Accountability Roundtable
Jewish World Watch
Midwest Coalition for Responsible Investment
Responsible Sourcing Network
Social Investment Forum
Stop Genocide Now
The Social Equity Group
Trillium Asset Management Co.
Union Pour La Democratie Et Le Progres Social
Opposition
None on File.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301