Session of 2024
House Substitute for SENATE BILL No. 37
By Committee on Financial Institutions and Pensions
3-14
AN ACT concerning state moneys; relating to state-managed funds and
state contracts; enacting the countries of concern divestment and
procurement protection act; requiring divestment from investments
with countries of concern and providing exceptions therefor;
prohibiting investments and deposits with any bank or company
domiciled in a country of concern; state agencies from procuring final
or finished goods or services from a foreign principal; indemnifying
state-managed funds with respect to actions taken in compliance with
such act; providing an expiration date for such act.
Be it enacted by the Legislature of the State of Kansas:
Section 1. The provisions of sections 1 through 8, and amendments
thereto, shall be known and may be cited as the countries of concern
divestment and procurement protection act.
Sec. 2. As used in this act:
(a) "Act" means the countries of concern divestment and procurement
protection act.
(b) "Company" means any:
(1) For-profit corporation, partnership, limited partnership, limited
liability partnership, limited liability company, joint venture, trust,
association, sole proprietorship or other organization, including any:
(A) Subsidiary of such company, a majority ownership interest of
which is held by such company;
(B) parent company that holds a majority ownership of such
company; and
(C) other affiliate or business association of such company whose
primary purpose is to make a profit; or
(2) nonprofit organization.
(c) (1) "Country of concern" means the following:
(A) People's republic of China, including the Hong Kong special
administrative region;
(B) republic of Cuba;
(C) islamic republic of Iran;
(D) democratic people's republic of Korea;
(E) Russian federation; and
(F) Bolivarian republic of Venezuela.
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(2) "Country of concern" does not include the republic of China
(Taiwan).
(d) "Covered transaction" means the same as defined in 31 C.F.R. §
800.213, as in effect on July 1, 2024.
(e) "Covered control transaction" means the same as defined in 31
C.F.R. § 800.210, as in effect on July 1, 2024.
(f) "Domicile" means the country where:
(1) A company is organized;
(2) a company completes a substantial portion of its business; or
(3) a majority of a company's ownership interest is held.
(g) "Foreign principal" means:
(1) The government or any official of the government of a country of
concern;
(2) any political party, subdivision thereof or any member of a
political party of a country of concern;
(3) any corporation, partnership, association, organization or other
combination of persons organized under the laws of or having its principal
place of business in a country of concern. "Foreign principal" includes any
subsidiary owned or wholly controlled by any such entity;
(4) any agent of or any entity otherwise under the control of a country
of concern;
(5) any individual whose residence is in a country of concern and
who is not a citizen or lawful permanent resident of the United States; or
(6) any individual, entity or combination thereof described in
paragraphs (1) through (5) that has a controlling interest in any company
formed for the purpose of holding any interest in real property.
(h) "Person" means an individual.
(i) "Person owned or controlled by or subject to the jurisdiction or
direction of a country of concern" means any:
(1) Person, wherever located, who is a citizen of a nation-state
controlled by a country of concern, unless such person is a lawful
permanent resident of the United States; or
(2) corporation, partnership, association or other organization
organized under the laws of a nation-state controlled by a country of
concern.
(j) "State agency" means any department, authority, bureau, division,
office or other governmental agency of this state.
(k) "State-managed fund" means:
(1) The Kansas public employees retirement fund managed by the
board of trustees of the Kansas public employees retirement system in
accordance with K.S.A. 74-4921, and amendments thereto;
(2) the pooled money investment portfolio managed by the pooled
money investment board in accordance with article 42 of chapter 75 of the
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Kansas Statutes Annotated, and amendments thereto; and
(3) any other fund that is sponsored or managed by a state agency.
Sec. 3. (a) (1) Notwithstanding the provisions of K.S.A. 74-4921, and
amendments thereto, or any other statute to the contrary, and except as
provided in paragraph (2), a state-managed fund shall sell, redeem, divest
or withdraw all publicly traded securities of any country of concern or
person owned or controlled by or subject to the jurisdiction or direction of
a country of concern in accordance with the following schedule:
(A) At least 50% of such assets shall be removed from the state-
managed fund's assets under management not later than July 1, 2025, or
one year from the date section 2, and amendments thereto, is amended to
include such country of concern if amended after July 1, 2024, unless the
state-managed fund determines that a later date is more prudent based on a
good faith exercise of the state-managed fund's fiduciary discretion and
subject to subparagraph (B); and
(B) 100% of such assets shall be removed from the state-managed
fund's assets under management not later than January 1, 2026, or one year
from the date section 2, and amendments thereto, is amended to include
such country of concern if amended after July 1, 2024.
(2) If a country of concern takes action to prohibit or restrict the
selling, redeeming, divesting or withdrawing of publicly traded securities
of any country of concern or person owned or controlled by or subject to
the jurisdiction or direction of a country of concern beyond the scheduled
removal dates provided in paragraph (1), the state-managed fund shall
remove 100% of such assets from the state-managed fund's assets not later
than one year from the date that such action is ended by such country of
concern.
(b) A state-managed fund shall not knowingly acquire securities of
any country of concern or person owned or controlled by or subject to the
jurisdiction or direction of a country of concern.
(c) A state-managed fund shall not invest or make a deposit in any
bank that is domiciled in a country of concern.
Sec. 4. (a) Notwithstanding the provisions of K.S.A. 74-4921, and
amendments thereto, or any other statute to the contrary, a state-managed
fund shall divest from any indirect holdings in actively or passively
managed investment funds containing publicly traded securities of any
country of concern or person owned or controlled by or subject to the
jurisdiction or direction of a country of concern. Such state-managed fund
may submit letters to the managers of each investment fund containing
publicly traded securities of any country of concern or person owned or
controlled by or subject to the jurisdiction or direction of a country of
concern requesting that they remove such publicly traded securities from
the fund or create a similar actively or passively managed fund with
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indirect holdings devoid of such publicly traded securities. If a manager
creates a similar fund with substantially the same management fees and
substantially the same level of investment risk and anticipated return, the
state-managed fund may replace all applicable investments with
investments in the similar fund in a time frame consistent with prudent
fiduciary standards but not later than the 450
th
day after the date the fund is
created. If a manager does not create such similar fund, the state-managed
fund shall divest from such indirect holdings in actively or passively
managed investment funds.
(b) (1) The provisions of this act shall not apply to any real estate or
private equity investment commitment made by a state-managed fund
prior to July 1, 2024, or to a real estate or private equity investment
commitment made by a state-managed fund prior to the date that section 2,
and amendments thereto, is amended to include a country of concern, if
amended after July 1, 2024.
(2) On and after July 1, 2024, a state-managed fund shall not make
any new real estate or private equity investment commitment in a person
owned or controlled by or subject to the jurisdiction of a country of
concern.
Sec. 5. Not later than the first day of the regular session of the
legislature, each year, each state-managed fund shall file a report with the
legislature and the Kansas public employees retirement system shall also
file such report with the joint committee on pensions, investments and
benefits that:
(a) Identifies all securities sold, redeemed, divested or withdrawn in
compliance with section 3(a), and amendments thereto;
(b) identifies amendments to section 2, and amendments thereto, that
add or remove a country of concern after the later of July 1, 2024, or the
last date such information was reported under this section; and
(c) summarizes any changes made under section 4, and amendments
thereto.
Sec. 6. (a) (1) Except as provided by paragraph (2), no state agency
shall enter into a contract or agreement to procure final or finished goods
or services from a foreign principal.
(2) A state agency may enter into a contract or agreement to procure
final or finished goods or services from a foreign principal if such foreign
principal:
(A) Previously received a determination that there are no unresolved
national security concerns and action under 50 U.S.C. § 4565, as in effect
on July 1, 2024, that has concluded with respect to a covered transaction,
if such foreign principal has not undergone a change in control constituting
a covered control transaction, since such determination to conclude action
was made; or
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(B) has a national security agreement in effect on July 1, 2024, with
the committee on foreign investment in the United States, or the United
States department of defense, under 50 U.S.C. § 4565, as in effect on July
1, 2024, and maintains such national security agreement.
(b) The provisions of this section shall not apply to any contract or
agreement entered into prior to July 1, 2024.
Sec. 7. In a cause of action based on an action, inaction, decision,
divestment, investment, report or other determination made or taken in
compliance with this act, without regard to whether the person performed
services for compensation, the state shall indemnify and hold harmless for
actual damages, court costs and attorney fees adjudged against members of
a state-managed fund or any other officers of such state-managed fund
related to the act or omission on which the damages are based and defend
the state-managed fund and any of such state-managed fund's current and
former employees.
Sec. 8. (a) The provisions of this act shall expire on July 1, 2029.
(b) On or after July 1, 2028, but before July 15, 2028, the Kansas
public employees retirement system shall notify the speaker of the house
of representatives, the president of the senate and the chairperson of the
joint committee on pensions, investments and benefits that this act is
scheduled to expire on July 1, 2029.
Sec. 9. This act shall take effect and be in force from and after its
publication in the statute book.
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