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                                                      PRINTER'S NO. 1779



No. 1279 Session of 2008

           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.
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     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
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     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,
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     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).
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     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
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     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
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     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,
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     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.
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     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.

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