Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2650

Introduced by Assembly begin delete Member Nazarian end delete begin insert end insert begin insert Members Nazarian, Achadjian, and Wilk end insert

February 19, 2016

An act to amend Section begin delete 7513.6 of end delete begin insert 16642 of, and to add Section 7513.76 to, end insert the Government Code, relating to public employee retirement systems.

LEGISLATIVE COUNSEL’S DIGEST

AB 2650, as amended, Nazarian. Public employee retirement systems: prohibited begin delete investments. end delete begin insert investments: Turkey. end insert

The California Constitution grants the retirement board of a public employee retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the retirement fund and system. The California Constitution qualifies this grant of powers by reserving to the Legislature the authority to prohibit investments if it is in the public interest and the prohibition satisfies standards of fiduciary care and loyalty required of a retirement board. Existing law prohibits begin delete specified end delete begin insert the boards of administration of the Public Employees’ Retirement System and State Teachers’ Retirement System from making end insert investments in certain begin delete countries, including Sudan. end delete begin insert countries and in thermal coal companies, as specified, subject to the boards’ plenary authority and fiduciary responsibility for investment of moneys and administration of the systems. end insert

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This bill would prohibit the boards of administration of the Public Employees’ Retirement System and State Teachers’ Retirement System from making additional or new investments, or renewing existing investments, of public employee retirement funds in an investment vehicle in Turkey that is issued by the government of Turkey or that is owned, controlled, or managed by the government of Turkey. The bill would require the boards to liquidate existing investments in Turkey in these types of investment vehicles on or before July 1, 2018, subject to engagement with the government of Turkey regarding whether it is transitioning to publicly accepting its responsibility for the Armenian Genocide. The bill would require these boards, on or before January 1, 2019, to make a specified report to the Legislature and the Governor regarding these actions. The bill would provide that its provisions do not require a board to take any action that the board determines in good faith is inconsistent with its constitutional fiduciary responsibilities to the retirement system. The bill would indemnify from the General Fund and hold harmless the present, former, and future board members, officers, and employees of, and investment managers under contract with, in connection with actions relating to these investments.

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This bill would make technical, nonsubstantive changes to provisions prohibiting investment in the Sudan.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert begin insert

The Legislature finds and declares the following:

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(a) The State of California has officially recognized the
Armenian Genocide each year for decades and has repeatedly
urged the Republic of Turkey to acknowledge the facts of the
Armenian Genocide and work toward a just resolution, honor its
obligations under international treaties and human rights laws,
end all forms of religious discrimination and persecution, and
return Christian church properties to their rightful owners.

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(b) Genocide is defined by the United Nations as an act
“committed with intent to destroy, in whole or in part, a national,
ethnical, racial or religious group.”

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(c) Genocide denial is widely viewed as among the final stages
of genocide and serves to perpetuate the effects of genocide even
after the active phases of extermination, massacres, forced
marches, and deportation have ended.

end insert begin insert

(d) The government of Turkey has engaged and continues to
engage in an ongoing campaign of genocide denial and historical
revisionism by refusing to acknowledge its responsibility for the
Armenian Genocide, refusing to compensate its victims, and
actively pursuing a well-funded political lobbying campaign
throughout the United States, including in California, to rewrite
history and defeat legislation recognizing the Armenian Genocide.

end insert begin insert

(e) The government of Turkey has engaged and continues to
engage in efforts to effect Armenian cultural erasure since the
founding of the Republic of Turkey, including, but not limited to,
ethnic cleansings and the destruction of sacred Armenian religious
sites.

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(f) Reference in Turkey by any scholar, journalist, or other
person to the massacre and deportation of Armenians in 1915 to
1923, inclusive, as genocide can be criminally prosecuted under
Article 301 of the Turkish Penal Code.

end insert begin insert

(g) The State of California is home to the largest Armenian
American population in the United States, and Armenians living
in California, most of whom are direct descendants of the survivors
of the Armenian Genocide, have enriched our state through their
leadership and contributions in business, agriculture, academia,
government, and the arts, yet continue to suffer the effects of the
continued denial campaign by the government of Turkey.

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(h) The State of California, as the world’s eighth largest
economy, and in accordance with principles of human rights and
justice, has taken the lead in adopting legislation to divest from
South Africa for its policy of apartheid, Sudan for its genocide in
Darfur, and Iran for its support of international terrorism,
imposing economic consequences upon regimes that engage in
conduct and policy that violate human rights or constitute crimes
against humanity.

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(i) The State of California, through its Public Employees’
Retirement System (PERS) and its State Teachers’ Retirement
System (STRS), directly invests public funds in the government of
Turkey, which then reaps profits while actively denying the
Armenian Genocide, funding its continued campaign of denial, at
least in part, through these investments in its economy.

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(j) By investing public funds in the government of Turkey, the
State of California as the embodiment of its citizens contradicts
its longstanding, just position of recognizing the Armenian
Genocide and urging the government of Turkey to acknowledge
its responsibility and work toward a just resolution by honoring
its obligations under international treaties and human rights laws,
to end all forms of religious discrimination and persecution, and
to return Christian church properties to their rightful owners.

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(k) It is the government of Turkey, not the people of Turkey, that
is responsible for Turkey’s continued egregious violations of human
rights and active pursuit of genocide denial, cultural erasure, and
historical revisionism.

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(l) PERS currently has investment holdings in bonds directly
issued by the Republic of Turkey in excess of $185,000,000.

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(m) STRS currently has investment holdings in bonds directly
issued by the Republic of Turkey in excess of several hundred
million dollars.

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(n) Investment in the Republic of Turkey enables its government
to continue to deny justice to the Armenian people.

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(o) Divesting these funds would ensure that the State of
California is in no way complicit in the continued denial of the
Armenian Genocide by the government of Turkey and would
encourage said government to acknowledge the Armenian
Genocide and to reach a fair and just resolution of reparations
for the survivors of the Armenian Genocide.

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begin insert SEC. 2. end insert   

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begin insert Section 7513.76 is added to the end insert begin insert Government Code end insert begin insert , to
read: end insert

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begin insert 7513.76. end insert   

(a) As used in this section, the following terms have
the following meanings:

(1) “Board” means the Board of Administration of the Public
Employees’ Retirement System or the Teachers’ Retirement Board
of the State Teachers’ Retirement System, as applicable.

(2) “Government of Turkey” means the government of Turkey
or its instrumentalities or political subdivisions. “Government of
Turkey” also includes any and all investment vehicles, government
bonds, or financial institutions and entities that are owned,
controlled, or operated by the government of Turkey.

(3) “Turkey” means the Republic of Turkey or any territory
under the administration or control of Turkey.

(4) “Public employee retirement funds” means the Public
Employees’ Retirement Fund described in Section 20062 and the
Teachers’ Retirement Fund described in Section 22167 of the
Education Code.

(b) The board shall not make additional or new investments or
renew existing investments of public employee retirement funds in
any investment vehicle in Turkey that meets either of the following
criteria:

(1) The investment vehicle is issued by the government of Turkey.

(2) The investment vehicle is owned, controlled, or managed
by the government of Turkey.

(c) The board shall liquidate investments in Turkey in an
investment vehicle described in subdivision (b) on or before July
1, 2018. In making a determination whether to liquidate
investments, the board shall constructively engage with the
government of Turkey to establish whether the government of
Turkey is transitioning to publicly accepting its responsibility for
the Armenian Genocide.

(d) On or before January 1, 2019, the board shall file a report
with the Legislature, in compliance with Section 9795, and the
Governor, that shall include the following:

(1) A list of investment vehicles in Turkey of which the board
has liquidated its investments pursuant to subdivision (c).

(2) A list of investment vehicles in Turkey in connection with
which the board engaged with the government of Turkey pursuant
to subdivision (c), with supporting documentation to substantiate
the board’s determination.

(3) A list of investment vehicles in Turkey of which the board
has not liquidated its investments as a result of a determination
made pursuant to subdivision (e) that a sale or transfer of
investments is inconsistent with the fiduciary responsibilities of
the board as described in Section 17 of Article XVI of the
California Constitution and the board’s findings adopted in support
of that determination.

(e) Nothing in this section shall require a board to take action
as described in this section unless the board determines in good
faith that the action described in this section is consistent with the
fiduciary responsibilities of the board described in Section 17 of
Article XVI of the California Constitution.

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begin insert SEC. 3. end insert   

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begin insert Section 16642 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

16642.  

Present, future, and former board members of the Public
Employees’ Retirement System or the State Teachers’ Retirement
System, jointly and individually, state officers and employees,
research firms described in subdivision (d) of Section 7513.6, and
investment managers under contract with the Public Employees’
Retirement System or the State Teachers’ Retirement System shall
be indemnified from the General Fund and held harmless by the
State of California from all claims, demands, suits, actions,
damages, judgments, costs, begin delete charges end delete begin insert charges, end insert and expenses,
including court costs and attorney’s fees, and against all liability,
losses, and damages of any nature whatsoever that these present,
future, or former board members, officers, employees, research
firms as described in subdivision (d) of Section 7513.6, or contract
investment managers shall or may at any time sustain by reason
of any decision to restrict, reduce, or eliminate investments
pursuant to Sections 7513.6, 7513.7, begin delete and 7513.75. end delete begin insert 7513.75, and
7513.76. end insert

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SECTION 1.  

Section 7513.6 of the Government Code is
amended to read:

7513.6.  

(a) As used in this section:

(1) “Active business operations” means a company engaged in
business operations that provide revenue to the government of
Sudan or a company engaged in oil-related activities.

(2) “Board” means the Board of Administration of the Public
Employees’ Retirement System or the Teachers’ Retirement Board
of the State Teachers’ Retirement System, as applicable.

(3) “Business operations” means maintaining, selling, or leasing
equipment, facilities, personnel, or any other apparatus of business
or commerce in Sudan, including the ownership or possession of
real or personal property located in Sudan.

(4) “Company” means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, its
subsidiary or affiliate that exists for profitmaking purposes or to
otherwise secure economic advantage. “Company” also means a
company owned or controlled, either directly or indirectly, by the
government of Sudan, that is established or organized under the
laws of or has its principal place of business in the Republic of the
Sudan.

(5) “Government of Sudan” means the government of Sudan
or its instrumentalities.

(6) “Invest” or “investment” means the purchase, ownership,
or control of stock of a company, association, or corporation, the
capital stock of a mutual water company or corporation, bonds
issued by the government or a political subdivision of Sudan,
corporate bonds or other debt instruments issued by a company,
or the commitment of funds or other assets to a company, including
a loan or extension of credit to that company.

(7) “Military equipment” means weapons, arms, or military
defense supplies.

(8) “Oil-related activities” means, but is not limited to, the export
of oil, extracting or producing oil, exploration for oil, or the
construction or maintenance of a pipeline, refinery, or other oil
field infrastructure.

(9) “Public employee retirement funds” means the Public
Employees’ Retirement Fund described in Section 20062 of this
code, and the Teachers’ Retirement Fund described in Section
22167 of the Education Code.

(10) “Research firm” means a reputable, neutral third-party
research firm.

(11) “Substantial action” means a boycott of the government
of Sudan, curtailing business in Sudan until that time described in
subdivision (m), selling company assets, equipment, or real and
personal property located in Sudan, or undertaking significant
humanitarian efforts in the eastern, southern, or western regions
of Sudan.

(12) “Sudan” means the Republic of the Sudan, a territory under
the administration or control of the Sudan, including but not limited
to, the Darfur region, or an individual, company, or public agency
located in Khartoum, northern Sudan, or the Nile River Valley
that supports the Republic of the Sudan.

(b) The board shall not invest public employee retirement funds
in a company with business operations in Sudan that meets all of
the following criteria:

(1) The company is engaged in active business operations in
Sudan. If that company is not engaged in oil-related activities, that
company also lacks significant business operations in the eastern,
southern, and western regions of Sudan.

(2) Either of the following apply:

(A) The company is engaged in oil-related activities or energy
or power-related operations, or contracts with another company
with business operations in the oil, energy, and power sectors of
Sudan, and the company failed to take substantial action related
to the government of Sudan because of the Darfur genocide.

(B) The company has demonstrated complicity in the Darfur
genocide.

(c) Notwithstanding subdivision (b), the board shall not invest
public employee retirement funds in a company that supplies
military equipment within the borders of Sudan. If a company
provides equipment within the borders of Sudan that may be readily
used for military purposes, including, but not limited to, radar
systems and military-grade transport vehicles, there shall also be
a strong presumption against investing in that company unless that
company implements safeguards to prevent the use of that
equipment for military purposes.

(d) (1) The board shall, without regard to the provisions
regarding competitive bidding, contract with a research firm or
firms to determine those companies that have business operations
in Sudan. Those research firms shall, in the aggregate, obtain data
on a majority of companies with business operations in Sudan. On
or before March 30, 2007, those research firms shall report any
findings to the board and those research firms shall submit further
findings to the board if there is a change of circumstances in Sudan.

(2) In addition to the reports described in paragraph (1), the
board shall take all of the following actions no later than March
30, 2007:

(A) Review publicly available information regarding companies
with business operations in Sudan.

(B) Contact other institutional investors that invest in companies
with business operations in Sudan.

(C) Send written notice to a company with business operations
in Sudan that the company may be subject to this section.

(e) (1) The board shall determine, by the next applicable board
meeting and based on the information and reports described in
subdivision (d), if a company meets the criteria described in
subdivision (b) or (c). If the board plans to invest or has
investments in a company that meets the criteria described in
subdivision (b) or (c), that planned or existing investment shall be
subject to subdivisions (g) and (h).

(2) Investments of the board in a company that does not meet
the criteria described in subdivision (b) or (c) or does not have
active business operations in Sudan are not subject to subdivision
(h), provided that the company does not subsequently meet the
criteria described in subdivision (b) or (c) or engage in active
business operations. The board shall identify the reasons why that
company does not satisfy the criteria described in subdivision (b)
or (c) or does not engage in active business operations in the report
to the Legislature described in subdivision (i).

(f) (1) Notwithstanding subdivision (e), if the board’s
investment in a company described in subdivision (b) or (c) is
limited to investment via an externally and actively managed
commingled fund, the board shall contact that fund manager in
writing and request that the fund manager remove that company
from the fund as described in subdivision (h). On or before June
30, 2007, if the fund or account manager creates a fund or account
devoid of companies described in subdivision (b) or (c), the transfer
of board investments from the prior fund or account to the fund
or account devoid of companies with business operations in Sudan
shall be deemed to satisfy subdivision (h).

(2) If the board’s investment in a company described in
subdivision (b) or (c) is limited to an alternative fund or account,
the alternative fund or account manager creates an actively
managed commingled fund that excludes companies described in
subdivision (b) or (c), and the new fund or account is deemed to
be financially equivalent to the existing fund or account, the
transfer of board investments from the existing fund or account to
the new fund or account shall be deemed to satisfy subdivision
(h). If the board determines that the new fund or account is not
financially equivalent to the existing fund, the board shall include
the reasons for that determination in the report described in
subdivision (i).

(3) The board shall make a good faith effort to identify any
private equity investments that involve companies described in
subdivision (b) or (c) or are linked to the government of Sudan. If
the board determines that a private equity investment clearly
involves a company described in subdivision (b) or (c) or is linked
to the government of Sudan, the board shall consider, at its
discretion, if those private equity investments shall be subject to
subdivision (h). If the board determines that a private equity
investment clearly involves a company described in subdivision
(b) or (c) or is linked to the government of Sudan and the board
does not take action as described in subdivision (h), the board shall
include the reasons for its decision in the report described in
subdivision (i).

(g) Except as described in subdivision (f) or paragraph (2) of
subdivision (e), the board, in the board’s capacity of shareholder
or investor, shall notify any company described in paragraph (1)
of subdivision (e) that the company is subject to subdivision (h)
and permit that company to respond to the information and reports
described in subdivision (d). The board shall request that the
company take substantial action no later than 90 days from the
date the board notified the company under this subdivision. If the
board determines that a company has taken substantial action or
has made sufficient progress towards substantial action before the
expiration of that 90-day period, that company shall not be subject
to subdivision (h). The board shall, at intervals not to exceed 90
days, continue to monitor and review the progress of the company
until that company has taken substantial action in Sudan. A
company that fails to complete substantial action or continue to
make sufficient progress towards substantial action by the next
time interval shall be subject to subdivision (h).

(h) If a company described in paragraph (1) of subdivision (e)
fails to complete substantial action by the time described in
subdivision (g), the board shall take the following actions:

(1) The board shall not make additional or new investments or
renew existing investments in that company.

(2) The board shall liquidate the investments of the board in
that company no later than 18 months after this subdivision applies
to that company. The board shall liquidate those investments in a
manner to address the need for companies to take substantial action
in Sudan and consistent with the board’s fiduciary responsibilities
as described in Section 17 of Article XVI of the California
Constitution.

(i) On or before January 1, 2008, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe the following:

(1) A list of investments the board has in companies with
business operations in Sudan, including, but not limited to, the
issuer, by name, of the stock, bonds, securities, and other evidence
of indebtedness.

(2) A detailed summary of the business operations a company
described in paragraph (1) has in Sudan and whether that company
satisfies all of the criteria in subdivision (b) or (c).

(3) Whether the board has reduced its investments in a company
that satisfies the criteria in subdivision (b) or (c).

(4) If the board has not completely reduced its investments in
a company that satisfies the criteria in subdivision (b) or (c), when
the board anticipates that the board will reduce all investments in
that company or the reasons why a sale or transfer of investments
is inconsistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.

(5) Any information described in subdivision (e).

(6) A detailed summary of investments that were transferred to
funds or accounts devoid of companies with business operations
in Sudan as described in subdivision (f).

(j) If the board voluntarily sells or transfers all of its investments
in a company with business operations in Sudan, this section shall
not apply except that the board shall file a report with the
Legislature related to that company as described in subdivision
(i).

(k) Nothing in this section shall require the board to take action
as described in this section unless the board determines, in good
faith, that the action described in this section is consistent with the
fiduciary responsibilities of the board as described in Section 17
of Article XVI of the California Constitution.

(l) Subdivision (h) shall not apply to any of the following:

(1) Investments in a company that is primarily engaged in
supplying goods or services intended to relieve human suffering
in Sudan.

(2) Investments in a company that promotes health, education,
journalistic, or religious activities in or welfare in the western,
eastern, or southern regions of Sudan.

(3) Investments in a United States company that is authorized
by the federal government to have business operations in Sudan.

(m) This section shall remain in effect only until one of the
following occurs, and as of the date of that action, is repealed:

(1) The government of Sudan halts the genocide in Darfur for
12 months as determined by both the Department of State and the
Congress of the United States.

(2) The United States revokes its current sanctions against
Sudan.

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