PRINTER'S NO. 1779
No. 1279 Session of 2008
INTRODUCED BY FUMO, ORIE, RAFFERTY, KITCHEN, FONTANA, STACK,
BOSCOLA, LOGAN, WASHINGTON, PIPPY, C. WILLIAMS, HUGHES,
DINNIMAN, O'PAKE, BROWNE, TARTAGLIONE, PILEGGI, EICHELBERGER,
SCARNATI, PICCOLA, LAVALLE, GREENLEAF AND COSTA,
FEBRUARY 14, 2008
REFERRED TO FINANCE, FEBRUARY 14, 2008
AN ACT
1 Providing for divestiture by the State Employees' Retirement
2 System and the Public School Employees' Retirement System of
3 investments in companies doing business in Iran's petroleum-
4 energy sector.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. Short title.
8 This act shall be known and may be cited as the Protecting
9 Pennsylvania's Investments Act.
10 Section 2. Findings and declarations.
11 The General Assembly finds and declares as follows:
12 (1) In 2001, the United States Securities and Exchange
13 Commission determined that companies with business operations
14 in terrorist-sponsoring states are exposed to a special-risk
15 category known as Global Security Risk, which is the risk to
16 share value and corporate reputation stemming from the
17 intersection of a publicly traded company's international
1 business activities and security-related concerns, such as
2 terrorism and weapons proliferation.
3 (2) In response to the financial risk posed by
4 investments in companies doing business with a state that
5 sponsors terrorists, the Securities and Exchange Commission
6 established its Office of Global Security Risk to provide for
7 enhanced disclosure of material information regarding such
8 companies.
9 (3) According to a former chair of the Securities and
10 Exchange Commission, the fact that a foreign company is doing
11 material business with a country, government or entity on the
12 Office of Foreign Assets Control's sanctions list is, in the
13 Securities and Exchange Commission staff's view,
14 substantially likely to be significant to a reasonable
15 investor's decision about whether to invest in that company.
16 (4) A 2006 report by the United States House of
17 Representatives states that "a company's association with
18 sponsors of terrorism and human rights abuses, no matter how
19 large or small, can have a materially adverse result on a
20 public company's activities, financial condition, earnings,
21 and stock prices, all of which can negatively affect the
22 value of an investment."
23 (5) Iran tops the United States State Department's list
24 of state sponsors of terrorism, funding such groups as Hamas,
25 Hizballah and Islamic Jihad, as well as fueling the
26 insurgency in Iraq via its Al-Quds force.
27 (6) The United States imposed sanctions on Iran by
28 designating the Islamic Revolutionary Guard Corps, its al-
29 Quds Force and three state-owned banks as weapons
30 proliferators and supporters of terrorism.
20080S1279B1779 - 2 -
1 (7) The United Nations Security Council has twice voted
2 unanimously to impose sanctions on Iran for its failure to
3 suspend its uranium-enrichment activities, calling for an
4 additional embargo on Iranian arms exports, which would
5 result in a freeze on assets abroad of an expanded list of
6 individuals and companies involved in Iran's nuclear and
7 ballistic missile programs, and calling for nations and
8 institutions to bar new grants or loans to Iran except for
9 humanitarian and developmental purposes.
10 (8) Foreign entities have invested in Iran's petroleum-
11 energy sector despite United States and United Nations
12 sanctions against Iran.
13 (9) All entities that have invested more than
14 $20,000,000 in any given year in Iran's energy sector since
15 August 5, 1996, are subject to sanctions under United States
16 law under the Iran and Libya Sanctions Act of 1996 (Public
17 Law 104-172, 110 Stat. 1541).
18 (10) The United States renewed the Iran and Libya
19 Sanctions Act of 1996 in 2001 and 2006.
20 (11) It is a fundamental responsibility of the
21 Commonwealth to decide where, how and by whom financial
22 resources in its control should be invested, taking into
23 account numerous pertinent factors.
24 (12) Divestiture should be considered with the intent to
25 improve investment performance and, by the rules of prudence,
26 fiduciaries must take into account all relevant substantive
27 factors in arriving at an investment decision.
28 (13) The Commonwealth is deeply concerned about
29 investments in publicly traded companies that have
30 investments in Iran's petroleum-energy sector as a financial
20080S1279B1779 - 3 -
1 risk to shareholders.
2 (14) By investing in publicly traded companies having
3 investments in Iran's petroleum-energy sector, the
4 Commonwealth's State Employees' Retirement System and Public
5 School Employees' Retirement System are putting the funds it
6 oversees at substantial financial risk.
7 (15) Divestiture from markets that are vulnerable to
8 embargo, loan restrictions and sanctions from the United
9 States and the international community, including the United
10 Nations Security Council, is in accordance with the rules of
11 prudence.
12 (16) The General Assembly finds that this act should
13 remain in effect only insofar as it continues to be
14 consistent with and does not unduly interfere with the
15 foreign policy of the United States as determined by the
16 Federal Government.
17 (17) To protect the Commonwealth's assets, it is in the
18 best interest of the Commonwealth to enact a statutory
19 prohibition regarding the investments managed by the State
20 Treasurer, the State Employees' Retirement System and Public
21 School Employees' Retirement System doing business in Iran's
22 petroleum-energy sector.
23 Section 3. Definitions.
24 The following words and phrases when used in this act shall
25 have the meanings given to them in this section unless the
26 context clearly indicates otherwise:
27 "Board." As defined in 71 Pa.C.S. Pt. XXV (relating to
28 retirement for State employees and officers) or 24 Pa.C.S. Pt.
29 IV (relating to retirement for school employees).
30 "Company." Any sole proprietorship, organization,
20080S1279B1779 - 4 -
1 association, corporation, partnership, joint venture, limited
2 partnership, limited liability partnership, limited liability
3 company or other entity or business association that exists for
4 the purpose of making a profit.
5 "Direct holdings." All securities of a company that are held
6 directly by the public fund or in an account or fund in which
7 the public fund owns all shares and interests.
8 "Government of Iran." The government of Iran and its
9 instrumentalities and companies owned or controlled by the
10 government of Iran.
11 "Inactive business activities." The continued holding or
12 renewal of rights to property previously operated for the
13 purpose of generating revenues but not presently deployed for
14 that purpose.
15 "Indirect holdings." All securities of a company that are
16 held in an account or fund, such as a mutual fund, managed by
17 one or more persons not employed by the public fund, in which
18 the public fund owns shares or interests together with other
19 investors not subject to the provisions of this act.
20 "Iran." The Islamic Republic of Iran.
21 "List." The scrutinized companies with activities in the
22 Iran petroleum-energy sector list.
23 "Petroleum resources." Petroleum or natural gas.
24 "Public fund." Any of the following:
25 (1) The State Employees' Retirement Fund established
26 pursuant to 71 Pa.C.S. Pt. XXV (relating to retirement for
27 State employees and officers).
28 (2) The Public School Employees' Retirement Fund
29 established pursuant to 24 Pa.C.S. Pt. IV (relating to
30 retirement for school employees).
20080S1279B1779 - 5 -
1 (3) Any Commonwealth fund administered by the State
2 Treasurer.
3 "Scrutinized business activities." Business activities that
4 have resulted in a company becoming a scrutinized company.
5 "Scrutinized company." Any company that has, with actual
6 knowledge, on or after August 5, 1996, made an investment of at
7 least $20,000,000 in Iran in any 12-month period and which
8 directly or significantly contributes to the enhancement of
9 Iran's ability to develop the petroleum resources of Iran.
10 "Substantial action specific to Iran." Adopting, publicizing
11 and implementing a formal plan to cease scrutinized business
12 activities within one year and to refrain from any such new
13 business activities.
14 Section 4. Identification of companies.
15 (a) Best effort.--Within 30 days after the effective date of
16 this section, the public fund shall make its best effort to
17 identify all scrutinized companies in which the public fund has
18 direct or indirect holdings. The public fund shall, at a
19 minimum, review and rely, as appropriate in the public fund's
20 judgment, on publicly available information regarding companies
21 that have invested more than $20,000,000 in any given year since
22 August 5, 1996, in Iran's petroleum-energy sector, including
23 information provided by nonprofit organizations, research firms,
24 international organizations and government entities.
25 (b) Assembly.--By the first meeting of the public fund
26 following the 30-day period under subsection (a), the public
27 fund shall assemble all scrutinized companies into a scrutinized
28 companies with activities in the Iran petroleum-energy sector
29 list.
30 (c) Update.--The public fund shall, from the effective date
20080S1279B1779 - 6 -
1 of this section, annually update and make publicly available the
2 list based on evolving information from, among other sources,
3 those listed under subsection (a).
4 Section 5. Required actions.
5 (a) Procedure.--The public fund shall adhere to the
6 procedures under this section for assembling companies on the
7 list.
8 (b) Engagement.--
9 (1) For each company in which the public fund has direct
10 holdings, it shall send a written notice informing the
11 company of its scrutinized company status and that it may
12 become subject to divestment by the public fund. The notice
13 must inform the company of the opportunity to clarify its
14 Iran-related activities and encourage the company, within 90
15 days of the date of receipt of the notice, to cease its
16 scrutinized business activities or convert the activities to
17 inactive business activities in order to avoid qualifying for
18 divestment by the public fund. The notice shall be sent no
19 later than 120 days after the effective date of this section.
20 (2) If, within 90 days of the date of receipt of the
21 notice under paragraph (1), the company announces by public
22 disclosure substantial action specific to Iran, the public
23 fund may maintain its direct holdings, but the company shall
24 remain on the list pending completion of its cessation of
25 scrutinized business activities.
26 (c) Divestment.--
27 (1) If, after 90 days following the effective date of
28 receipt of the notice under subsection (b)(1), the company
29 has not announced by public disclosure substantial action
30 specific to Iran or the public fund determines or becomes
20080S1279B1779 - 7 -
1 aware that the company continues to have scrutinized business
2 activities, the public fund, within nine months after the
3 expiration of the 90-day period, shall sell, redeem, divest
4 or withdraw all publicly traded securities of the company
5 from the public fund's direct holdings.
6 (2) If the public fund determines or becomes aware that
7 a company that ceased scrutinized business activities
8 following engagement under subsection (b) has resumed the
9 activities, the public fund shall send a written notice to
10 the company under subsection (b) and the company shall be
11 immediately reintroduced onto the list.
12 (3) The public fund shall monitor the scrutinized
13 company that has announced by public disclosure substantial
14 action specific to Iran and, if after one year the public
15 fund determines or becomes aware that the company has not
16 implemented the plan, within six months after the expiration
17 of the one-year period shall sell, redeem, divest or withdraw
18 all publicly traded securities of the company from the public
19 fund's direct holdings and the company shall be immediately
20 reintroduced onto the list.
21 (d) Prohibition.--The public fund may not acquire securities
22 of companies on the list.
23 (e) Excluded securities.--Subsections (c) and (f) shall not
24 apply to the public fund's indirect holdings. The public fund
25 shall submit letters to the managers of any managed investment
26 funds containing companies on the list that the managers
27 consider removing the companies from the fund or creating a
28 similar actively managed fund having indirect holdings devoid of
29 the companies. If the manager creates a similar fund devoid of
30 the securities, the board or the State Treasurer, as applicable,
20080S1279B1779 - 8 -
1 shall determine, within six months of a fund's creation, whether
2 to replace all applicable investments with investments in the
3 similar fund in an expedited time frame, consistent with prudent
4 investing standards. For the purposes of this subsection, a
5 private equity fund is deemed to be an actively managed
6 investment fund.
7 (f) Further exclusions.--Notwithstanding any other provision
8 of this act, the public fund, when discharging its
9 responsibility for operation of a defined contribution plan,
10 shall engage the manager of the investment offerings in the
11 plans requesting that they consider removing scrutinized
12 companies from the investment offerings or create an alternative
13 investment offering devoid of scrutinized companies. If the
14 manager created an alternative investment offering and the
15 offering is deemed by the public fund to be consistent with
16 prudent investor standards, the public fund shall consider
17 including the investment offering in the plan.
18 Section 6. Reporting.
19 (a) Duty of public fund.--The public fund shall, within 30
20 days of the creation of the list, provide a report to the
21 Governor, the President pro tempore of the Senate, the Speaker
22 of the House of Representatives and each member of the boards of
23 the State Employees' Retirement System and Public School
24 Employees' Retirement System that includes the items required
25 under subsection (b). The report shall be made available to the
26 public.
27 (b) Contents.--The report under subsection (a) shall include
28 the list and all of the following:
29 (1) A summary of correspondence with companies engaged
30 by the public fund under section 5.
20080S1279B1779 - 9 -
1 (2) All investments sold, redeemed, divested or
2 withdrawn in compliance with section 5(c).
3 (3) All prohibited investments under section 5(d).
4 (4) Any progress made under section 5(e).
5 (5) A list of all publicly traded securities held
6 directly by the Commonwealth.
7 Section 7. Expiration.
8 (a) Notice.--The Secretary of the Commonwealth shall submit
9 to the Legislative Reference Bureau for publication in the
10 Pennsylvania Bulletin notice of the occurrence of any of the
11 following:
12 (1) The President or the Congress of the United States
13 affirmatively and unambiguously stating that the government
14 of Iran has ceased to pursue weapons of mass destruction and
15 support international terrorism.
16 (2) The United States revoking all sanctions imposed
17 against the government of Iran.
18 (3) The President and the Congress of the United States
19 affirmatively and unambiguously declaring that mandatory
20 divestment of the type provided for under this act interferes
21 with the conduct of United States foreign policy.
22 (b) Expiration.--This act shall expire on the date of the
23 publication of notice under subsection (a).
24 Section 8. Conflict with other laws.
25 The public fund may perform any action necessary to comply
26 with this act, notwithstanding the provisions of any other law.
27 Section 9. Severability.
28 If any provision of this act or its application to any person
29 or circumstances is held invalid, the invalidity shall not
30 affect other provisions or applications of this act that can be
20080S1279B1779 - 10 -
1 given effect without the invalid provision or application.
2 Section 20. Effective date.
3 This act shall take effect immediately.
B6L71MSP/20080S1279B1779 - 11 -