BILL ANALYSIS
AB 1650
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Date of Hearing: February 16, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1650 (Feuer and Blumenfield) - As Introduced: January 13,
2010
SUBJECT : Public Contracts: Energy Sector Investments in Iran
KEY ISSUE : should businesses that invest IN the energy sector
of Iran be prohibited from entering into, or renewing, contracts
with state and local public entities in California?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
Subject to the enactment of federal enabling legislation, this
bill would prohibit the state, or any of its subdivisions, from
entering into or renewing contracts with businesses with
significant interests or investments in Iran's energy sector.
The United States and much of the international community has
condemned the Government of Iran for its human rights
violations, its support of international terrorism, and its
efforts to develop nuclear weapons under the guise of developing
nuclear power for domestic energy uses. The Iran Sanctions Act
expresses U.S. policy to work with international organizations
to pressure the government of Iran to cease its illicit nuclear
activity, and it authorizes the President, by Executive Order,
to impose sanctions and limit the ability of U.S. persons and
business from engaging in business activities with the
Government of Iran and other designated groups. In light of
recent confrontations between the Government of Iran and the
international community over its nuclear activity, its support
of international terrorism, and its suppression of civil rights
and liberties, legislation is currently pending in Congress that
would strengthen existing sanctions and, more importantly for
purposes of this bill, enable state and local governments to
adopt restrictions consistent with federal policy. This bill,
consistent with pending federal legislation, would prohibit a
company from bidding on, submitting a proposal for, or otherwise
entering into a contract with a public entity for goods or
services if the person or company (1) had investments of $20
million or more in Iran's energy sector; (2) provided products
related to the development or transport of oil or natural gas in
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Iran; or (3) was a financial institution that extended $20
million or more in credit that will be used to invest in Iran's
energy sector. This bill would also require companies seeking
to enter into contracts with the state to certify that they do
not engage in the prohibited activities, and provides civil
penalties for persons or entities that file false
certifications. The bill is supported by several human rights
groups, and there is no registered opposition.
SUMMARY : Prohibits new contracts or contract renewals between
the state, including any of its subdivisions, and companies with
substantial business activities in Iran's energy sector.
Specifically, this bill :
1)Prohibits any person or entity that engages in investment
activities in the energy sector of Iran, as specified, from
bidding on, submitting a proposal for, or entering into a
contract with a public entity for goods or services.
2)Specifies that, for purposes of this bill, a person engages in
investment activities in the energy sector of Iran if any of
the following is true:
a) The person or entity has an investment of twenty million
dollars ($20,000,000) or more in the energy sector of Iran.
b) The person provides oil or liquefied natural gas
tankers, or products used to construct or maintain
pipelines used to transport oil or liquefied natural gas,
for the energy sector of Iran.
c) The person or entity is a financial institution that
extends twenty million dollars ($20,000,000) or more in
credit to another person, for 45 days or more, if the
person will use the credit to invest in the energy sector
in Iran.
3)Requires a public entity to require a person that submits a
bid or proposal to, otherwise proposes to enter into a
contract with, a public entity with respect to a contract for
goods and services, that currently or within the previous
three years has had business activities or other operations
outside of the United States, to certify that the person is
not engaged in investment activities in the energy sector of
Iran, as specified.
4)Provides that, if the public body awarding the contract
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determines that a person has submitted a false certification
pursuant to 3) above, the person shall be subject to civil
penalties, termination of existing contracts, and
ineligibility to bind on contracts for the next three years.
Specifies procedures by which a person shall be notified of
any of the forgoing and requires the awarding body to give the
person an opportunity to demonstrate that they are not engaged
in investment activities in the energy sector of Iran.
5)Provides that the provisions in this bill will only become
operative if federal legislation is enacted authorizing states
to adopt and enforce contracting prohibitions of the type
provided for in this bill.
6)Makes declarations and findings relating to federal and
international responses to Iran's well-documented human rights
abuses, support for international terrorism, and efforts to
develop its nuclear capacities.
EXISTING LAW :
1)Requires the President of the United States, under the federal
Iran Sanctions Act of 1996, as subsequently amended, to impose
specified sanctions on foreign companies that make substantial
investments in Iran's energy sector.
2)Prohibits California Public Employees' Retirement System
CalPERS and the State Teachers' Retirement System (CalSTRS)
from investing public employee retirement funds in a company
with active business relations in Sudan or that has invested
or engaged in business operations with entities involved in
the development of petroleum or natural gas resources of Iran.
(Government Code Sections 7513.6 and 7513.7.)
3)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.
4)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
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certification. (Public Contract Code Sections 10475 to
10481.)
COMMENTS : For more than a decade both the United States and the
international community have condemned the Government of Iran
for its support of international terrorism, its human rights
violations, and its efforts to develop nuclear weapons in
defiance of international comity. Since the United States
enacted the first Iran Sanctions Act in 1996, most experts would
seem to agree that the threat posed by Iran has only increased.
In only the past week, Iran has announced that it will begin
enriching uranium to the thresholds needed to develop nuclear
weapons. Although Iran claims that its program is designed for
medical and domestic energy purposes, it recently rejected a
proposal by the International Atomic Energy Agency which would
have provided for shipment of its low-enriched uranium to other
countries for further enrichment, to ensure that its development
is indeed for peaceful purposes. President Obama has called
Iran's action "not acceptable" and has vowed to work "over the
next several weeks in developing a significant regime of
sanctions that will indicate to them how isolated they are from
the international community as a whole." (See ""U.S. ready to
offer Iran alternative to nuclear plan," and "Iran uranium
enrichment course 'not acceptable,' Obama says," available at
www.cnn.com/2010/POLITICS /02/09/us.iran.nuclear/index.html and
links to related articles at
http://topics.edition.cnn.com/topics/Iran )
According to the authors, AB 1650 will support federal and
international efforts by precluding private companies from
entering into state contracts if they have substantial business
dealings in Iran's energy sector, thereby "ensuring that
California's tax dollars do not support companies whose
investments either directly or indirectly support Iran's nuclear
or terrorist activities."
Background on Federal Legislation: The Iran Sanctions Act of
1996 through Pending Congressional Amendments : The Iran
Sanctions Act (ISA), which was originally called the Iran and
Libya Sanctions Act, was enacted in 1996 in response to Iran's
effort to step up its nuclear program and at a time when Iran
was also allegedly increasing its support of terrorists
organizations, including Hezbollah and Hamas. (Libya was
subsequently removed from the scope of the legislation.)
Although federal law can prohibit American companies from
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engaging in specified business practices with Iran, it has no
similar power to ban the actions of foreign companies. However,
the United States does have the power to penalize foreign
companies by denying them certain advantages of U.S. law. The
key provisions of the ISA require the President to impose two of
seven possible sanctions on foreign persons or companies that
make an investment of more than $20 million in Iran's energy
section. Sanctions primarily include denial of access to
certain forms of credit, denial of licenses for the export of
certain U.S. military technologies, and various prohibitions
relating to dealing in U.S. bonds, acting as a repository of
U.S. funds, or securing certain government procurements.
In light of increasing tension between the United States and
Iran relating to Iran's defiance of international efforts to
monitor its nuclear activity, its continued support of
international terrorism, and its generally disruptive effect on
peace and stability in the Middle East, there are currently four
measures pending in Congress - two initiated in the House, and
two in the Senate - that seek to strengthen existing federal
sanctions and enable state and local governments to divest from
companies that do substantial business with Iran. Two of these
bills - HR 2194 (Berman) and S. 908 (Bayh) - express Congress'
intent to continue supplementing diplomatic efforts toward Iran
with effective economic sanctions, on the assumption that
diplomacy alone has proven to be ineffective with a nation like
Iran, which openly defies international agreements and rules of
international comity. Both bills would enact the Iran Refined
Petroleum Act, which would amend the ISA to direct the President
to impose sanctions on any person, entity, business, or
corporation that has knowingly made an investment of $20 million
or more that directly or significantly contributes to Iran's
ability to develop its petroleum resources. Persons or
companies could also face sanctions for providing refined
products or goods, services, technology or information worth
$200,000 or more. The legislation targets the energy
investments because that sector provides Iran with the bulk of
its revenue and is highly dependent upon foreign investments.
Federal Enabling Legislation: More relevant to this bill are
two pieces of enabling legislation now pending in Congress.
H.R. 1327 (Frank) and S. 1065 (Brownback) would enact the Iran
Sanctions Enabling Act. Each measure would expressly state that
it is the policy of the United States to support the decision of
state and local governments to prohibit the investment of assets
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that they control in any person or company with substantial
investments in Iran's energy sector. Specifically, the enabling
legislation authorizes a state or local government to divest
assets from, or prohibit the investment in, any person or entity
that (1) invests $20 million or more in Iran's energy sector;
(2) provides oil or liquefied natural gas tankers, or products
used to construct or maintain pipelines used to transport oil or
liquefied natural gas, for that energy sector. The federal
enabling legislation also expressly authorizes state and local
governments to divest its assets from any financial institutions
which extends $20 million or more in credit to another person,
for 45 days or more, if that person will use the credit to
invest in Iran's energy sector. Finally, the proposed federal
enabling legislation specifies that the Act will cease 30 days
after the President certifies to Congress that the government of
Iran has ceased (1) providing support for acts of international
terrorism; and (2) the pursuit, acquisition, and development of
nuclear, biological, and chemical weapons and ballistic missile
technology.
This bill is carefully crafted to align with the proposed
federal enabling legislation. As noted in the bill's
declarations and findings, the bill seeks to align California
policy with national and international efforts to effectively
respond to the serious threat posed by Iran, a threat that would
be exponentially increased if Iran had nuclear weapons.
Specifically, under this bill any entity of the State of
California - including any of its subdivisions - would be
prohibited from making new contracts or renewing contracts with
companies that have investments of $20 million or more in Iran's
energy sector. Companies seeking to bid or renew contracts with
state or local governments or government agencies would be
required to certify that they are not engaged in the specified
activities.
The bill also offers procedural protections for bidders. For
example, companies would be given written notice of their right
to challenge their designation as a "scrutinized person."
Companies that ceased the prohibited investment activities would
be fully eligible to contract with the state and its
subdivisions. Companies that submit a false certification,
however, would face civil penalties and would be ineligible to
bid on government contracts for three years.
Precedents Promoting Responsible State Investing : This bill is
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consistent with prior legislation that limited state investments
or contracting in order to prevent the use of state taxpayer
dollars to support repressive regimes. For example, in 2007 the
Governor signed AB 221 (Anderson), which prohibited CalPERS and
CalSTRS from investing public employee retirement funds in a
company that had active business operations in Iran's defense or
energy sectors. The previous year the Governor signed AB 2941
(Koretz), which similarly prohibited CalSTRS and CalPERS
investments in Sudan. More recently, the Governor signed AB 498
(Hernandez), which prohibited companies with business operations
in Sudan from bidding on state contracts for goods and services.
Preemption: Although state policies that touch upon foreign
affairs typically raise questions of preemption, there does not
appear to be such an issue raised here. To begin with, this
bill will only become effective if enabling legislation now
pending in Congress becomes law, and it will cease upon the
expiration of that law. In addition, even in the absence of
federal enabling legislation, it is not entirely clear that this
measure would be preempted under "field preemption" or a
"conflict preemption" test. That is, independent of any desire
to impede upon foreign affairs, the state arguably has an
independent interest in ensuring that Californians' taxpayer
dollars do not support regimes that the majority of citizens
find morally reprehensible. Moreover, such a statute would not
arguably be preempted under a "conflict preemption" standard
since the statute is fully consistent with long-standing federal
policy to discourage business investment in Iran's energy
sector.
ARGUMENTS IN SUPPORT : The Anti-Defamation League (ADL), like
all supporters, believes that Iran, through its nuclear
activities and its support of state-sponsored terrorism, "is a
grave threat not only to the United States but also to the rest
of the world." Assembly Bill 1650, ADL contends, sends a strong
message that California supports the efforts to prevent Iran
from developing nuclear weapons and takes a strong stand against
state sponsors of terrorism." Furthermore, ADL argues that
this bill will give Californians assurance that their tax
dollars are not being channeled "through foreign companies into
the Iranian regime's coffers and from there into its nuclear
program and terrorist activities."
The American Jewish Committee (AJC) contends that if Iran
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continues to defy the international community and develop its
nuclear capacity, it will "significantly threaten U.S.
interests, forces, and allies across the Middle East and
Europe." As a "leading sponsor of state terror," AJC adds, Iran
"could share nuclear technology or material with such proxy
groups as Hezbollah, or with violent radical forces such as
Hamas that rely on Iranian support." Noting that Iran depends
upon foreign companies to provide it with 40 percent of its
domestic gasoline demand, this legislation would "send a strong
message to companies that have substantial business in Iran's
energy sector that they must choose between doing business with
the State of California or with the rogue regime in Iran."
Finally, AJC points to the pending federal enabling legislation
and urges the state to take action now to register our support
for a U.S. policy of supplementing diplomatic efforts with the
pressure of effective economic sanctions.
In addition to the arguments made by ADL and AJC, other groups,
including United Against Nuclear Iran (UANI), The Center for the
Promotion of Democracy and Human Rights (CFPD), and 30 Years
After, and Iranian-American Jewish civic organizations, stress
Iran's abysmal human rights record. 30 Years After, for
example, points out that even with Iran's violent suppression of
human rights, millions of Iranians "have marched courageously
throughout the streets of Iran calling for reform, democracy,
and freedom." AB 1650, 30 Years After believes, will express
the states support for the aspirations of the Iranian people and
will be consistent with California history of "socially
responsible investing."
REGISTERED SUPPORT / OPPOSITION :
Support
American Jewish Committee
Anti-Defamation League
Center for the Promotion of Democracy and Human Rights
Museum of Tolerance
30 Years After
United Action Against Nuclear Iran
Opposition
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None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334