BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 861
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          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 for 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 U.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 U.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