PRINTER'S NO. 1390
No. 1140 Session of 2007
INTRODUCED BY JOSEPHS, LENTZ, DeWEESE, BAKER, BARRAR, BASTIAN,
BELFANTI, BENNINGHOFF, BENNINGTON, BEYER, BIANCUCCI, BISHOP,
BLACKWELL, BOBACK, BRENNAN, BUXTON, CALTAGIRONE, CARROLL,
CLYMER, COHEN, CONKLIN, COSTA, CRUZ, CURRY, DALLY, DeLUCA,
DePASQUALE, DERMODY, DiGIROLAMO, EACHUS, FABRIZIO, FRANKEL,
FREEMAN, GABIG, GEORGE, GIBBONS, GOODMAN, GRELL, GRUCELA,
HANNA, HARPER, HELM, HORNAMAN, JAMES, W. KELLER, KENNEY,
KING, KIRKLAND, KORTZ, KULA, LEACH, LEVDANSKY, MANDERINO,
MANN, MARSHALL, McCALL, McGEEHAN, McILVAINE SMITH, MILNE,
MOUL, MUNDY, MURT, MYERS, D. O'BRIEN, M. O'BRIEN, OLIVER,
PALLONE, PARKER, PAYTON, PETRARCA, PETRI, PETRONE, PRESTON,
QUINN, RAMALEY, RAPP, READSHAW, REICHLEY, ROEBUCK, ROHRER,
RUBLEY, SABATINA, SAMUELSON, SANTONI, SAYLOR, SCAVELLO, SEIP,
SHAPIRO, SIPTROTH, M. SMITH, SOLOBAY, STABACK, STAIRS,
STURLA, SURRA, TANGRETTI, J. TAYLOR, R. TAYLOR, THOMAS,
VITALI, WAGNER, WALKO, WATERS, WATSON, WHEATLEY, J. WHITE,
WILLIAMS, WOJNAROSKI AND YOUNGBLOOD, APRIL 23, 2007
REFERRED TO COMMITTEE ON STATE GOVERNMENT, APRIL 23, 2007
AN ACT
1 Prohibiting the investment of State funds in certain private
2 business entities doing business in Sudan.
3 The General Assembly of the Commonwealth of Pennsylvania
4 hereby enacts as follows:
5 Section 1. Short title.
6 This act shall be known and may be cited as the Sudan
7 Divestment Act.
8 Section 2. Declaration of policy.
9 The General Assembly finds and declares as follows:
10 (1) On July 23, 2004, the United States Congress
1 declared that "the atrocities unfolding in Darfur, Sudan, are
2 genocide."
3 (2) On September 9, 2004, Secretary of State Colin L.
4 Powell told the United States Senate Foreign Relations
5 Committee that "genocide has occurred and may still be
6 occurring in Darfur" and "the Government of Sudan and the
7 Janjaweed bear responsibility."
8 (3) On September 21, 2004, addressing the United Nations
9 General Assembly, President George W. Bush affirmed the
10 Secretary of State's finding and stated, "At this hour, the
11 world is witnessing terrible suffering and horrible crimes in
12 the Darfur region of Sudan, crimes my government has
13 concluded are genocide."
14 (4) On December 7, 2004, the United States Congress
15 noted that the genocidal policy in Darfur has led to reports
16 of "systematic rape of thousands of women and girls, the
17 abduction of women and children, and the destruction of
18 hundreds of ethnically African villages, including the
19 poisoning of their wells and the plunder of their crops and
20 cattle upon which the people of such villages sustain
21 themselves."
22 (5) Also on December 7, 2004, Congress found that "the
23 Government of Sudan has restricted access by humanitarian and
24 human rights workers to the Darfur area through intimidation
25 by military and security forces, and through bureaucratic and
26 administrative obstruction, in an attempt to inflict the most
27 devastating harm on those individuals displaced from their
28 villages and homes without any means of sustenance or
29 shelter."
30 (6) On September 25, 2006, Congress reaffirmed that "the
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1 genocide unfolding in the Darfur region of Sudan is
2 characterized by acts of terrorism and atrocities directed
3 against civilians, including mass murder, rape, and sexual
4 violence committed by the Janjaweed and associated militias
5 with the complicity and support of the National Congress
6 Party-led faction of the Government of Sudan."
7 (7) On September 26, 2006, the United States House of
8 Representatives stated that "an estimated 300,000 to 400,000
9 people have been killed by the Government of Sudan and its
10 Janjaweed allies since the Darfur crisis began in 2003, more
11 than 2,000,000 people have been displaced from their homes,
12 and more than 250,000 people from Darfur remain in refugee
13 camps in Chad."
14 (8) The Darfur crisis represents the first time the
15 United States Government has labeled ongoing atrocities a
16 genocide.
17 (9) The United States Government has imposed sanctions
18 against the Government of Sudan since 1997. These sanctions
19 are monitored through the United States Treasury Department's
20 Office of Foreign Assets Control (OFAC).
21 (10) According to a former chair of the United States
22 Securities and Exchange Commission, "the fact that a foreign
23 company is doing material business with a country,
24 government, or entity on OFAC's sanctions list is, in the SEC
25 staff's view, substantially likely to be significant to the
26 reasonable investor's decision about whether to invest in
27 that company."
28 (11) Since 1993, the United States Secretary of State
29 has determined that Sudan is a country the government of
30 which has repeatedly provided support for acts of
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1 international terrorism, thereby incurring restrictions of
2 United States assistance, defense exports and sales, and
3 financial and other transactions with the Government of
4 Sudan.
5 (12) A 2006 United States House of Representatives
6 report states that "a company's association with sponsors of
7 terrorism and human rights abuses, no matter how large or
8 small, can have a materially adverse result on a public
9 company's operations, financial condition, earnings, and
10 stock prices, all of which can negatively affect the value of
11 an investment."
12 (13) In response to the financial risk posed by
13 investments in companies doing business with a terrorist-
14 sponsoring state, the Securities and Exchange Commission
15 established its Office of Global Security Risk to provide for
16 enhanced disclosure of material information regarding such
17 companies.
18 (14) The current Sudan divestment movement encompasses
19 nearly 100 universities, cities, states and private pension
20 plans.
21 (15) The following are to be commended:
22 (i) The City of Philadelphia, which in September
23 2006 divested its funds from companies doing business in
24 Sudan, the largest city in the United States to do so to
25 date.
26 (ii) The City of Pittsburgh, which in March 2007
27 divested its funds from companies doing business in
28 Sudan.
29 (iii) The over half dozen Pennsylvania colleges and
30 universities which have already divested from companies
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1 doing business in Sudan or are considering doing so.
2 (16) Companies facing such widespread divestment present
3 further material risk to remaining investors.
4 (17) It is a fundamental responsibility of the
5 Commonwealth to decide where, how, and by whom financial
6 resources in its control should be invested, taking into
7 account numerous pertinent factors.
8 (18) It is the prerogative and desire of the
9 Commonwealth, in respect to investment resources in its
10 control and to the extent reasonable, with due consideration
11 for, among other things, return on investment, on behalf of
12 itself and its investment beneficiaries, not to participate
13 in an ownership or capital-providing capacity with entities
14 that provide significant practical support for genocide,
15 including certain non-United States companies presently doing
16 business in Sudan.
17 (19) It is the judgment of the General Assembly that
18 this act should remain in effect only insofar as it continues
19 to be consistent with, and does not unduly interfere with,
20 the foreign policy of the United States as determined by the
21 United States Government.
22 (20) It is the judgment of the General Assembly that
23 mandatory divestment of public funds from certain companies
24 is a measure that should be employed sparingly and
25 judiciously. A congressional and presidential declaration of
26 genocide satisfies this high threshold.
27 Section 3. Definitions.
28 The following words and phrases when used in this act shall
29 have the meanings given to them in this section unless the
30 context clearly indicates otherwise:
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1 "Active business operations." All business operations that
2 are not inactive business operations.
3 "Business operations." Engaging in commerce in any form in
4 Sudan, including by acquiring, developing, maintaining, owning,
5 selling, possessing, leasing or operating equipment, facilities,
6 personnel, products, services, personal property, real property
7 or any other apparatus of business or commerce.
8 "Company." A sole proprietorship, organization, association,
9 corporation, partnership, joint venture, limited partnership,
10 limited liability partnership, limited liability company or
11 other entity or business association, including a wholly owned
12 subsidiary, majority-owned subsidiary, parent company or
13 affiliate of such entities or business associations, that exists
14 for profit-making purposes.
15 "Complicit." Taking actions during any preceding 20-month
16 period that have directly supported or promoted the genocidal
17 campaign in Darfur, including, but not limited to:
18 (1) preventing members of Darfur's victimized population
19 from communicating with each other;
20 (2) encouraging Sudanese citizens to speak out against
21 an internationally approved security force for Darfur;
22 (3) actively working to deny, cover-up or alter the
23 record on human rights abuses in Darfur; or
24 (4) other similar actions.
25 "Direct holdings in a company." All securities of that
26 company held directly by the public fund in an account or fund
27 in which the public fund owns all shares or interests.
28 "Government of Sudan." The government in Khartoum, Sudan,
29 which is led by the National Congress Party, formerly known as
30 the National Islamic Front, or any successor government formed
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1 on or after October 13, 2006, including the coalition National
2 Unity Government agreed upon in the Comprehensive Peace
3 Agreement for Sudan. The term does not include the regional
4 government of southern Sudan.
5 "Inactive business operations." The mere continued holding
6 or renewal of rights to property previously operated for the
7 purpose of generating revenues but not presently deployed for
8 such purpose.
9 "Indirect holdings in a company." All securities of that
10 company held in an account or fund, such as a mutual fund,
11 managed by one or more persons not employed by a public fund, in
12 which the public fund owns shares or interests together with
13 other investors not subject to the provisions of this act.
14 "Marginalized populations of Sudan." Includes, but are not
15 limited to:
16 (1) the portion of the population in the Darfur region
17 that has been genocidally victimized;
18 (2) the portion of the population of southern Sudan
19 victimized by Sudan's North-South civil war;
20 (3) the Beja, Rashidiya and other similarly underserved
21 groups of eastern Sudan;
22 (4) the Nubian and other similarly underserved groups in
23 Sudan's Abyei, Southern Blue Nile and Nuba Mountain regions;
24 and
25 (5) the Amri, Hamadab, Manasir and other similarly
26 underserved groups of northern Sudan.
27 "Military equipment." Weapons, arms, military supplies and
28 equipment that readily may be used for military purposes,
29 including radar systems or military-grade transport vehicles or
30 supplies or services sold or provided directly or indirectly to
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1 any force actively participating in armed conflict in Sudan.
2 "Mineral extraction activities." Includes exploring,
3 extracting, processing, transporting or wholesale selling or
4 trading of elemental minerals or associated metal alloys or
5 oxides (ore), including gold, copper, chromium, chromite,
6 diamonds, iron, iron ore, silver, tungsten, uranium and zinc, as
7 well as facilitating such activities, including by providing
8 supplies or services in support of such activities.
9 "Oil-related activities." Includes, but are not limited to:
10 (1) owning rights to oil blocks;
11 (2) exporting, extracting, producing, refining,
12 processing, exploring for, transporting, selling or trading
13 oil;
14 (3) constructing, maintaining or operating a pipeline,
15 refinery or other oil-field infrastructure; or
16 (4) facilitating such activities, including by providing
17 supplies or services in support of such activities, except
18 that the mere retail sale of gasoline and related consumer
19 products are not oil-related activities.
20 "Power production activities." Any business operation that
21 involves a project commissioned by the National Electricity
22 Corporation of Sudan or another similar Government of Sudan
23 entity whose purpose is to facilitate power generation and
24 delivery, including, but not limited to, establishing power-
25 generating plants or hydroelectric dams, selling or installing
26 components for the project, and providing service contracts
27 related to the installation or maintenance of the project, as
28 well as facilitating such activities, including by providing
29 supplies or services in support of such activities.
30 "Public fund." A Commonwealth fund, including the State
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1 Employees' Retirement Fund and the Public School Employees'
2 Retirement Fund. The term includes the State entity responsible
3 for administering the fund.
4 "Scrutinized company." A company that:
5 (1) engages in scrutinized business operations described
6 under section 4; or
7 (2) is complicit in the Darfur genocide.
8 "Social development company." A company whose primary
9 purpose in Sudan is to provide humanitarian goods or services,
10 including medicine or medical equipment, agricultural supplies
11 or infrastructure, educational opportunities, journalism-related
12 activities, information or information materials, spiritual-
13 related activities, services of a purely clerical or reporting
14 nature, food, clothing or general consumer goods that are
15 unrelated to oil-related activities, mineral extraction
16 activities or power production activities.
17 "Substantial action." Adopting, publicizing and implementing
18 a formal plan to cease scrutinized business operations within
19 one year and to refrain from any such new business operations,
20 undertaking humanitarian efforts in conjunction with an
21 international organization, the Government of Sudan, the
22 regional Government of Southern Sudan or a nonprofit entity and
23 evaluated and certified by an idependent third party to be
24 substantial in relationship to the company's Sudan business
25 operations and of benefit to one or more marginalized
26 populations of Sudan, or, through engagement with the Government
27 of Sudan, materially improving conditions for the genocidally
28 victimized population in Darfur.
29 Section 4. Scrutinized business operations.
30 (a) General rule.--A company engages in scrutinized business
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1 operations if:
2 (1) the company has business operations that involve
3 contracts with or providing supplies or services to the
4 Government of Sudan, a company in which the Government of
5 Sudan has any direct or indirect equity share, a Government
6 of Sudan-commissioned consortium or project or a company
7 involved in a Government of Sudan-commissioned consortium or
8 project and:
9 (i) more than 10% of the company's revenues or
10 assets linked to Sudan involve oil-related activities or
11 mineral extraction activities, less than 75% of the
12 company's revenues or assets linked to Sudan involve
13 contracts with or provision of oil-related or mineral
14 extracting products or services to the regional
15 government of southern Sudan or a project or consortium
16 created exclusively by that regional government and the
17 company has failed to take substantial action; or
18 (ii) more than 10% of the company's revenues or
19 assets linked to Sudan involve power production
20 activities, less than 75% of the company's power
21 production activities include projects whose intent is to
22 provide power or electricity to the marginalized
23 populations of Sudan and the company has failed to take
24 substantial action; or
25 (2) the company supplies military equipment within
26 Sudan, unless:
27 (i) the company clearly shows that the military
28 equipment cannot be used to facilitate offensive military
29 actions in Sudan; or
30 (ii) the company implements rigorous and verifiable
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1 safeguards to prevent use of that equipment by forces
2 actively participating in armed conflict, including:
3 (A) using post-sale tracking of such equipment
4 by the company;
5 (B) certification from a reputable and objective
6 third party that such equipment is not being used by
7 a party participating in armed conflict in Sudan; or
8 (C) selling such equipment solely to the
9 regional government of southern Sudan or any
10 internationally recognized peacekeeping force or
11 humanitarian organization.
12 (b) Social development company.--Notwithstanding any other
13 provision of this act, a social development company that is not
14 complicit in the Darfur genocide may not be considered a
15 scrutinized company.
16 Section 5. Identification of companies.
17 (a) Identification.--Within 90 days following the effective
18 date of this act, the public fund shall make its best efforts to
19 identify all scrutinized companies in which the public fund has
20 direct or indirect holdings or could possibly have such holdings
21 in the future. Efforts shall include, as appropriate, any of the
22 following:
23 (1) reviewing and relying, as appropriate in the public
24 fund's judgment, on publicly available information regarding
25 companies with business operations in Sudan, including
26 information provided by nonprofit organizations, research
27 firms, international organizations and government entities;
28 (2) contacting asset managers contracted by the public
29 fund that invest in companies with business operations in
30 Sudan; or
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1 (3) contacting other institutional investors that have
2 divested from or engaged with companies that have business
3 operations in Sudan.
4 (b) List.--By the first meeting of the public fund following
5 the 90-day period described in subsection (a), the public fund
6 shall assemble all scrutinized companies identified into a
7 scrutinized companies list.
8 (c) Update.--The public fund shall update the scrutinized
9 companies list on a quarterly basis based on evolving
10 information from, among other sources, those listed in
11 subsection (a).
12 Section 6. Required actions.
13 (a) Engagement.--The public fund shall adhere to the
14 following procedure for companies on the scrutinized companies
15 list:
16 (1) The public fund shall immediately determine the
17 companies on the scrutinized companies list in which the
18 public fund owns direct or indirect holdings.
19 (2) For each company identified in paragraph (1) with
20 only inactive business operations, the public fund shall send
21 a written notice informing the company of this act and
22 encouraging it to continue to refrain from initiating active
23 business operations in Sudan until it is able to avoid
24 scrutinized business operations. The public fund shall
25 continue such correspondence on a semiannual basis.
26 (3) For each company newly identified in paragraph (1)
27 with active business operations, the public fund shall send a
28 written notice informing the company of its scrutinized
29 company status and that it may become subject to divestment
30 by the public fund. The notice shall offer the company the
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1 opportunity to clarify its Sudan-related activities and shall
2 encourage the company, within 90 days, to either cease its
3 scrutinized business operations or convert the operations to
4 inactive business operations in order to avoid qualifying for
5 divestment by the public fund.
6 (4) If, within 90 days following the public fund's first
7 engagement with a company pursuant to paragraph (3), that
8 company ceases scrutinized business operations, the company
9 shall be removed from the scrutinized companies list and the
10 provisions of this section shall cease to apply to it unless
11 it resumes scrutinized business operations. If, within 90
12 days following the public fund's first engagement, the
13 company converts its scrutinized active business operations
14 to inactive business operations, the company shall be subject
15 to all provisions relating thereto.
16 (b) Divestment.--The public fund shall adhere to the
17 following procedure for companies on the scrutinized companies
18 list:
19 (1) If, after 90 days following the public fund's first
20 engagement with a company pursuant to subsection (a)(3), the
21 company continues to have scrutinized active business
22 operations, and only while the company continues to have
23 scrutinized active business operations, the public fund shall
24 sell, redeem, divest or withdraw all publicly traded
25 securities of the company, except as provided, according to
26 the following schedule:
27 (i) At least 50% of such assets shall be removed
28 from the public fund's assets under management by nine
29 months after the company's most recent appearance on the
30 scrutinized companies list.
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1 (ii) 100% of such assets shall be removed from the
2 public fund's assets under management within 15 months
3 after the company's most recent appearance on the
4 scrutinized companies list.
5 (2) If a company that ceased scrutinized active business
6 operations following engagement pursuant to subsection (a)(3)
7 resumes such operations, paragraph (1) shall immediately
8 apply, and the public fund shall send a written notice to the
9 company. The company shall also be immediately reintroduced
10 onto the scrutinized companies list.
11 (c) Prohibition.--At no time shall the public fund acquire
12 securities of companies on the scrutinized companies list that
13 have active business operations, except as provided in
14 subsection (d).
15 (d) Exemption.--No company which the United States
16 Government affirmatively declares to be excluded from its
17 present or any future Federal sanctions regime relating to Sudan
18 shall be subject to divestment or investment prohibition
19 pursuant to subsections (b) and (c).
20 (e) Excluded securities.--Notwithstanding any provision of
21 this act to the contrary, subsections (b) and (c) shall not
22 apply to indirect holdings in actively managed investment funds.
23 The public fund shall, however, submit letters to the managers
24 of such investment funds containing companies with scrutinized
25 active business operations requesting that they consider
26 removing such companies from the fund or create a similar
27 actively managed fund with indirect holdings devoid of such
28 companies. If the manager creates a similar fund, the public
29 fund shall replace all applicable investments with investments
30 in the similar fund in an expedited time frame consistent with
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1 prudent investing standards. For the purposes of this section,
2 "private equity" funds shall be deemed to be actively managed
3 investment funds.
4 Section 7. Reporting.
5 (a) Initial report.--The public fund shall file a publicly
6 available report to the General Assembly and the Attorney
7 General that includes the scrutinized companies list within 30
8 days after the list is created.
9 (b) Subsequent reports.--Annually thereafter, the public
10 fund shall file a publicly available report to the General
11 Assembly and the Attorney General and send a copy of that report
12 to the United States Presidential Special Envoy to Sudan, or an
13 appropriate designee or successor, that includes:
14 (1) A summary of correspondence with companies engaged
15 by the public fund under section 6(a)(2) and (3).
16 (2) All investments sold, redeemed, divested or
17 withdrawn in compliance with section 6(b).
18 (3) All prohibited investments under section 6(c).
19 (4) Any progress made under section 6(e).
20 Section 8. Expiration.
21 This act shall expire upon the occurrence of any of the
22 following:
23 (1) The Congress or President of the United States
24 declares that the Darfur genocide has been halted for at
25 least 12 months.
26 (2) The United States revokes all sanctions imposed
27 against the Government of Sudan.
28 (3) The Congress or President of the United States
29 declares that the Government of Sudan has honored its
30 commitments to cease attacks on civilians, demobilize and
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1 demilitarize the Janjaweed and associated militias, grant
2 free and unfettered access for deliveries of humanitarian
3 assistance and allow for the safe and voluntary return of
4 refugees and internally displaced persons.
5 (4) The Congress or President of the United States,
6 through legislation or executive order, declares that
7 mandatory divestment of the type provided for in this act
8 interferes with the conduct of United States foreign policy.
9 Section 9. Other legal obligations.
10 With respect to actions taken in compliance with this act,
11 including all good faith determinations regarding companies as
12 required by this act, the public fund shall be exempt from any
13 conflicting statutory or common law obligations, including any
14 obligations in respect to choice of asset managers, investment
15 funds or investments for the public fund's securities
16 portfolios.
17 Section 10. Reinvestment in certain companies with scrutinized
18 active business operations.
19 (a) Reinvestment.--Notwithstanding any other provision of
20 this act to the contrary, the public fund shall be permitted to
21 cease divesting from certain scrutinized companies pursuant to
22 section 6(b) or reinvest in certain scrutinized companies from
23 which it divested pursuant to section 6(b) if clear and
24 convincing evidence shows that the value for all assets under
25 management by the public fund becomes equal to or less than
26 99.50% (50 basis points) of the hypothetical value of all assets
27 under management by the public fund assuming no divestment for
28 any company had occurred under section 6(b).
29 (b) Limitation.--Cessation of divestment, reinvestment or
30 any subsequent ongoing investment authorized by this section
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1 shall be strictly limited to the minimum steps necessary to
2 avoid the contingency set forth in subsection (a).
3 (c) Report.--For any cessation of divestment, reinvestment
4 or subsequent ongoing investment authorized by this section, the
5 public fund shall provide a written report to the General
6 Assembly and the Attorney General in advance of initial
7 reinvestment, updated semiannually thereafter as applicable,
8 setting forth the reasons and justification, supported by clear
9 and convincing evidence, for its decisions to cease divestment,
10 reinvest or remain invested in companies with scrutinized active
11 business operations.
12 (d) Application.--This section has no application to
13 reinvestment in companies on the ground that have ceased to have
14 scrutinized active business operations.
15 Section 11. Enforcement.
16 The Attorney General is charged with enforcing the provisions
17 of this act and through any lawful designee may bring such
18 actions in court as are necessary.
19 Section 12. Effective date.
20 This act shall take effect in 60 days.
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