BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 861
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          Date of Hearing:   August 17, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                    SB 861 (Corbett) - As Amended:  July 13, 2011 

          Policy Committee:                              Business and 
          Professions  Vote:                            8-0
                        Jobs                                  6-0

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:               

           SUMMARY  

          This bill prohibits companies found in violation of federal law 
          regarding the Democratic Republic of Congo (DRC) and "conflict 
          minerals" disclosure from seeking state contracts. Specifically, 
          this bill:

          1)Prohibits a company from bidding on or submitting a proposal 
            for a state contract for goods or services if the company has 
            been found by the Securities and Exchange Commission (SEC) to 
            be in violation, by final judgment or settlement, of 
            provisions of the 2010 Dodd-Frank Wall Street Reform and 
            Consumer Protection Act (Dodd-Frank Act) requiring companies 
            to annually disclose to the SEC whether they use "conflict 
            minerals" that are "necessary to the functionality or 
            production" of a product they manufacture, or contract to 
            manufacture, and originate from the DRC or adjoining 
            countries.

          2)Stipulates that a company subject to (1) will no longer be 
            prohibited from seeking a state contract under one the 
            following circumstances:

             a)   It is no longer deemed to be in violation per (1).
             b)   Upon filing of an amended or corrective filing to the 
               SEC that corrects a violation.
             c)   After three years from the date of final judgment or 
               settlement.

          3)Requires the Department of General Services (DGS) to establish 
            policies and procedures for state agencies to implement the 








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            bill's requirements, in the State Administrative Manual or the 
            State Contracting Manual.

          4)States that all of the above become inoperative on the 
            termination date for the relevant disclosure requirements of 
            the Dodd-Frank Act.

           FISCAL EFFECT  

          1)To the extent this bill reduces the number of prospective 
            bidders on some state contracts, due to a company or companies 
            being found in violation of the DRC-related provisions of the 
            Dodd-Frank Act, there will be less competition for those 
            contracts, which tends to increase state costs. The overall 
            impact of this bill is unknown, and would depend on the number 
            of companies unable to submit bids, but given the 
            multi-billion volume of state contracting, costs could exceed 
            $150,000 in any fiscal year. Because the bill is narrowly 
            drawn, however, particularly when compared to recent similar 
            legislation, the annual cost would likely not be significant.

          2)DGS will incur minor one-time costs to establish the relevant 
            policies and procedures and minor ongoing costs to monitor SEC 
            rulings regarding violations of Dodd-Frank and to inform state 
            agencies about companies ineligible to submit bids and when 
            these companies regain eligibility to submit bids.

           COMMENTS  

           1)Purpose  . 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.

            "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 DGS until they comply 
            with the law." 









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           2)Background  . The DRC is Africa's third largest nation (71.7 
            million people), located in Central Africa, northeast of 
            Angola, with a narrow strip of land that controls the lower 
            Congo River. It is the only outlet to the South Atlantic 
            Ocean. According to the World Fact Book, the DRC's economy has 
            the potential of generating substantial wealth based on its 
            reserves of natural resources. The country has, however, 
            experienced decades of economic decline, brought on by 
            long-standing internal conflicts and systemic corruption since 
            its independence in 1960.

            For more than a decade, various federal and international 
            government and nongovernmental organizations (NGOs) have 
            expressed concern that the DRC is the site of one of the 
            world's worst humanitarian crises. Since 1998, an estimated 
            five million people have died as a result of this conflict. 
            Sexual violence and rape are reportedly used to terrorize and 
            control communities in the eastern region of the DRC to keep 
            the mineral trade flowing and financing illegal armed groups 
            and military forces.

            The term conflict minerals, for purposes of the DRC Act (those 
            provisions of Dodd-Frank related to the DRC), includes 
            columbite-tantalite (coltan), cassiterite, gold, wolframite or 
            their derivatives, or any other mineral or its derivative 
            determined by the U.S. Secretary of State to be financing 
            conflict in the DRC or an adjoining country. 

            Conflict minerals are used widely by many industries. For 
            example, wolframite is the main source of the metal tungsten, 
            which is used to make cutting tools for various industries. 
            Tungsten is also used to make filaments in light bulbs, 
            turbine engines for aircraft and energy generation and in 
            various electronic components. Cassiterite is used in the 
            production of tin, which, in turn, is used in the solder that 
            joins electronic components together and as an alloy for other 
            metals to prevent corrosion. Columbite-tantalite is used 
            mainly in the manufacture of condensers and micro-electronic 
            technology (chips and processors), cell phones and nuclear 
            reactors. It is also used in the production of certain 
            varieties of steel.

            The DRC Act requires new disclosures, as described in the 
            summary above, by companies concerning their potential use of 
            conflict minerals that originated in the DRC. In December 








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            2010, the SEC released draft rules of the implementation of 
            DRC Act. Although due in April 2011, the final regulations 
            have not been filed by the commission.
           
          3)Prior Legislation  . AB 1650 (Feurer)/Chapter 573 of 2010, 
            prohibits companies engaged in investment activities in Iran's 
            energy sector from seeking state contracts for goods or 
            services.

            AB 498 (Hernandez)/Chapter 272 of 2008, requires companies 
            seeking state contracts to certify that they are not engaged 
            in specified activities regarding Sudan.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081