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