BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 978
Author: Blumenfield (D), et al.
Amended: 6/10/13 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INSTITUTIONS COMM. : 8-0, 6/5/13
AYES: Correa, Berryhill, Beall, Hill, Hueso, Lara, Roth,
Walters
NO VOTE RECORDED: Calderon
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 72-1, 5/16/13 - See last page for vote
SUBJECT : Financial institutions: Iran sanctions
SOURCE : Author
DIGEST : This bill requires the Commissioner of the Department
of Financial Institutions (DFI) to examine a licensee which
maintains a correspondent account or payable-through account for
compliance with the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010, associated federal
regulations, and any related presidential executive orders; and
specifies that this bill becomes inoperative if certain
conditions are met.
ANALYSIS : Existing federal law, the Iran Sanctions Act,
requires the U.S. Department of the Treasury to prohibit, or
impose strict conditions on, the opening or maintaining in the
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U.S. of a correspondent account or a payable-through account for
a foreign financial institution which the U.S. Department of the
Treasury finds knowingly facilitates the efforts of the
government of Iran to acquire or develop weapons of mass
destruction, or provide support for organizations designated as
foreign terrorist organizations. This includes the efforts of
the Central Bank of Iran or any other Iranian financial
institution, Iran's Islamic Revolutionary Guard Corps, and other
individuals or third parties. In enforcement of this law
against U.S. persons (including corporations), the law requires
that the person accused knew or should have known that they were
violating the Act.
Existing state law:
1.Defines a licensee to mean any bank, savings association,
credit union, transmitter of money abroad, issuer of payment
instruments, issuer of traveler's checks, insurance premium
finance agency, and business and industrial development
corporation that is authorized by the Commissioner of DFI to
conduct business in this state.
2.Requires the Commissioner to cause every California state bank
and every foreign bank to be examined to the extent and
whenever and as often as the commissioner shall deem
advisable, but in no case less frequently than once every 12
months.
This bill:
1.Requires the Commissioner of DFI, when conducting regulatory
examinations of banks and credit unions in accordance with
Financial Code (FIN) Section 500, 14250, 16150, or 16700, to
examine a licensee which maintains a "correspondent account"
or "payable-through account," as defined, for compliance with
the federal Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010, associated federal regulations, and
any related presidential executive orders.
2.Provides that, if the Commissioner discovers a violation,
he/she shall bring an action in accordance with FIN Section
566, 14302, 16200, or 16900, and forward evidence of the
violation to the U.S. Department of the Treasury.
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3.Sunsets this bill if both of the following occur:
A. Iran is removed from the U.S. Department of State's list
of countries that have been determined to repeatedly
provide support for acts of international terrorism.
B. The President determines and certifies to the
appropriate committees of the U.S. Congress that Iran has
ceased its efforts to design, develop, manufacture, or
acquire a nuclear explosive device or related materials and
technology.
1.Makes legislative findings and declarations.
Background
Since the September 11, 2001 terrorist attacks on the U.S.,
Congress has passed, and the President has signed, several
pieces of legislation intended to prevent financial institutions
operating in the U.S. from allowing their institutions to be
used to hold assets for, transfer assets for, launder assets
for, or otherwise use the financial system of the U.S. to aid
enemies of our country. The Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010 is one of these laws.
The Act prohibits persons from knowingly funneling money to
identified terrorist groups and/or to the government of Iran, in
order to help stop the flow of funds to Iran for the acquisition
or development of nuclear weapons capabilities.
Among that Act's many provisions is one which requires the
Secretary of the Treasury to prohibit or restrict the opening or
maintaining in the U.S. of a correspondent or payable-through
account by a foreign financial institution, if that institution
knowingly (1) facilitates efforts of the Iranian government or
Iran's Revolutionary Guard Corps (IRGC) to acquire weapons of
mass destruction or support international terrorism; (2) engages
in dealings with Iranian persons sanctioned by the United
Nations Security Council; (3) engages in money laundering or
facilitates efforts of the Iran Central Bank to aid Iran's
weapons of mass destruction program, support Iran's sponsorship
of terrorism, or support persons under United Nations Security
Council sanction; or (4) conducts significant business with the
Iranian government, IRGC, its affiliates, or financial
institutions whose property or interests are blocked pursuant to
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the International Emergency Economic Powers Act.
The Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010 also directs the Secretary of the Treasury to
require a domestic financial institution that maintains a
correspondent account or a payable-through account in the U.S.
for a foreign financial institution to do one or more of the
following: (1) perform an audit of activities that may be
carried out by the foreign financial institution; (2) report to
the Department of the Treasury regarding transactions that
involve activity which has been sanctioned by the United Nations
Security Council; (3) certify that the foreign financial
institution is not knowingly engaging in any such sanctioned
activity; and (4) establish due diligence policies designed to
detect whether the foreign financial institution has engaged in
sanctioned activity.
As noted above, that 2010 federal Act is one of many intended to
minimize the likelihood that the U.S. financial system will be
used to help enemies of the U.S..
Prior Legislation
AB 2160 (Blumenfield and Feuer, Chapter 479, Statutes of 2012)
disallowed restricted investments in Iran from being considered
during the evaluation of the financial solvency of insurers
operating in California. The Insurance Commissioner earlier
uncovered that insurance companies doing business in California
were continuing to invest billions of dollars in other companies
that support Iranian nuclear, military and energy sectors.
AB 1151 (Feuer and Blumenfield, Chapter 441, Statutes of 2011)
updated and enhanced requirements that California pension funds
divest from Iran. The changes added a public process for
oversight of pension fund divestments.
AB1650 (Feuer, Blumenfield, and Huffman, Chapter 573, Statutes
of 2010) prohibited state and local governments from contracting
with companies known to be doing restricted business in Iran's
energy sector, ensuring that California tax dollars do not
support companies whose investments support Iran's nuclear
program. Iran's pursuit of nuclear weapons, its support of
international terrorism and its despotic rule not only render it
politically and economically unstable, but put at risk any
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company that does business with the Iranian energy sector.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 6/19/13)
Jewish Public Affairs Committee of California
ARGUMENTS IN SUPPORT : The author states, in making the case
for higher scrutiny, that subversion of U.S financial sanctions
by Iran is a recognizable threat to national and international
security. This bill directs the CFI to ensure licensees have
established appropriate policies and are undertaking practices
that prevent the maintenance and opening of correspondent
accounts and payable-through accounts with foreign financial
institutions that illegally assist Iranian institutions. As
increasingly sophisticated techniques are used by Iran to
subvert economic sanctions, this bill will use the existing
licensee examination process to address this matter of
international concern.
ASSEMBLY FLOOR : 72-1, 5/16/13
AYES: Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,
Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer,
Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor,
Medina, Mitchell, Mullin, Muratsuchi, Nazarian, Nestande,
Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk,
Quirk-Silva, Rendon, Salas, Skinner, Ting, Torres, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
Pérez
NOES: Donnelly
NO VOTE RECORDED: Allen, Grove, Holden, Melendez, Morrell,
Stone, Vacancy
MW:nl 6/19/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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