81R1679 BEF-F
By: Patrick, Dan S.B. No. 450
A BILL TO BE ENTITLED
AN ACT
relating to prohibiting the investment of retirement system funds
in certain private business entities doing business in Iran.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The legislature finds that:
(1) Iran is a leading sponsor of international
terrorism;
(2) United Nations Security Council Resolution 1737
imposes sanctions on Iran for its failure to suspend
uranium-enrichment activities;
(3) foreign entities have active business operations
involving the government of Iran despite Iran's support of
international terrorism and clandestine nuclear program, affording
Iran a free pass while many United States entities have unknowingly
invested in those same foreign entities;
(4) all United States and foreign entities that have
invested more than $20 million in Iran's energy sector since August
5, 1996, are subject to sanctions under United States law pursuant
to the Iran and Libya Sanctions Act of 1996, renewed in 2001, and
renewed in 2006 as the Iran Freedom Support Act;
(5) investors from Texas can have considerable
influence over the commercial decisions of the foreign entities in
which they invest;
(6) support for terrorism and the acquisition of
weapons of mass destruction represent a grave threat to the
security of the United States and to the residents of the State of
Texas;
(7) the State of Texas is deeply concerned about
investments in publicly traded companies that have active business
operations involving the government of Iran as both a global
security and a financial risk to the shareholders;
(8) the Securities and Exchange Commission has
determined that companies having business operations in
terrorist-sponsoring states are exposed to a special risk category
known as "global security risk," which is the risk to stock value
and corporate reputation stemming from the intersection of a
publicly traded company's international business activities and
security-related concerns, such as terrorism and weapons
proliferation;
(9) by investing in publicly traded companies having
active business operations involving the government of Iran, the
State of Texas is putting the pensions of its current and former
public employees and teachers at risk;
(10) it is a fundamental responsibility of the state
to decide where, how, and by whom financial resources in its control
should be invested, taking into account numerous pertinent factors;
(11) to protect Texas' public assets, it is in the best
interest of the state to enact a statutory prohibition against the
investment of public employee retirement funds in companies having
active business operations involving the government of Iran;
(12) this Act should remain in effect only as long as
it continues to be consistent with, and does not unduly interfere
with, the foreign policy of the United States as determined by the
United States government;
(13) this Act is not intended to interfere with the
performance of the fiduciary duties of a manager of funds subject to
this Act; and
(14) mandatory divestment of public funds from certain
companies is a measure that should be employed sparingly and
judiciously and a congressional and presidential declaration that
Iran poses a serious threat to the national security of the United
States satisfies this high threshold.
SECTION 2. Subtitle A, Title 8, Government Code, is amended
by adding Chapter 807 to read as follows:
CHAPTER 807. PROHIBITION ON INVESTMENT IN IRAN
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 807.001. DEFINITIONS. In this chapter:
(1) "Active business operations" means all business
operations that are not inactive business operations.
(2) "Business operations" means engaging in commerce
in any form in Iran, including by acquiring, developing,
maintaining, owning, selling, possessing, leasing, or operating
equipment, facilities, personnel, products, services, personal
property, real property, or any other apparatus of business or
commerce.
(3) "Company" means a sole proprietorship,
organization, association, corporation, partnership, joint
venture, limited partnership, limited liability partnership,
limited liability company, or other entity or business association
whose securities are publicly traded, including a wholly owned
subsidiary, majority-owned subsidiary, parent company, or
affiliate of those entities or business associations, that exists
to make a profit.
(4) "Direct holdings in a company" means all
securities of that company held directly by a state governmental
entity in an account or fund in which a state governmental entity
owns all shares or interests.
(5) "Inactive business operations" means the mere
continued holding or renewal of rights to property previously
operated to generate revenue but not presently deployed to generate
revenue.
(6) "Indirect holdings in a company" means all
securities of that company held in an account or fund, such as a
mutual fund, managed by one or more persons not employed by a state
governmental entity, in which the state governmental entity owns
shares or interests together with other investors not subject to
the provisions of this chapter. The term does not include money
invested under a plan described by Section 401(k) or 457 of the
Internal Revenue Code of 1986.
(7) "Listed company" means a company listed by the
comptroller under Section 807.051.
(8) "Military equipment" means weapons, arms,
military supplies, and equipment that readily may be used for
military purposes, including radar systems and military-grade
transport vehicles.
(9) "Scrutinized company" means a company that engages
in scrutinized business operations described by Section 807.002.
(10) "State governmental entity" means the Employees
Retirement System of Texas or the Teacher Retirement System of
Texas.
Sec. 807.002. SCRUTINIZED BUSINESS OPERATIONS. A company
engages in scrutinized business operations if:
(1) the company has business operations that involve
contracts with or providing supplies or services to the government
of Iran, a company in which the government of Iran has any direct or
indirect equity share, a consortium or project commissioned by the
government of Iran, or a company involved in a consortium or project
commissioned by the government of Iran; or
(2) the company supplies military equipment to Iran.
Sec. 807.003. EXCEPTION. Notwithstanding any provision of
this chapter, a company that the United States government
affirmatively declares to be excluded from its federal sanctions
regime relating to Iran is not subject to divestment or investment
prohibition under this chapter.
Sec. 807.004. OTHER LEGAL OBLIGATIONS. With respect to
actions taken in compliance with this chapter, including all good
faith determinations regarding companies as required by this
chapter, a state governmental entity is exempt from any conflicting
statutory or common law obligations, including any obligations with
respect to making investments, divesting from any investment,
preparing or maintaining any list of companies, or choosing asset
managers, investment funds, or investments for the state
governmental entity's securities portfolios.
Sec. 807.005. INDEMNIFICATION OF STATE GOVERNMENTAL
ENTITIES, EMPLOYEES, AND OTHERS. In a cause of action based on an
action, inaction, decision, divestment, investment, company
communication, report, or other determination made or taken in
connection with this chapter, the state shall, without regard to
whether the person performed services for compensation, indemnify
and hold harmless for actual damages, court costs, and attorney's
fees adjudged against, and defend:
(1) an employee, a member of the governing body, or any
other officer of a state governmental entity;
(2) a contractor of a state governmental entity;
(3) a former employee, a former member of the
governing body, or any other former officer of a state governmental
entity who was an employee or officer when the act or omission on
which the damages are based occurred; and
(4) a former contractor of a state governmental entity
who was a contractor when the act or omission on which the damages
are based occurred.
Sec. 807.006. NO PRIVATE CAUSE OF ACTION. (a) A person,
including a member, retiree, and beneficiary of a retirement system
to which this chapter applies, an association, a research firm, a
company, or any other person may not sue or pursue a private cause
of action against the state, a state governmental entity, an
employee, a member of the governing body, or any other officer of a
state governmental entity, or a contractor of a state governmental
entity, for any claim or cause of action, including breach of
fiduciary duty, or for violation of any constitutional, statutory,
or regulatory requirement in connection with any action, inaction,
decision, divestment, investment, company communication, report,
or other determination made or taken in connection with this
chapter.
(b) A person who files suit against the state, a state
governmental entity, an employee, a member of the governing body,
or any other officer of a state governmental entity, or a contractor
of a state governmental entity, is liable for paying the costs and
attorney's fees of a person sued in violation of this section.
[Sections 807.007-807.050 reserved for expansion]
SUBCHAPTER B. DUTIES REGARDING INVESTMENTS
Sec. 807.051. LISTED COMPANIES. (a) The comptroller shall
prepare and maintain, and provide to each state governmental
entity, a list of all scrutinized companies. In maintaining the
list, the comptroller may review and rely, as appropriate in the
comptroller's judgment, on publicly available information
regarding companies with business operations in Iran, including
information provided by the state, nonprofit organizations,
research firms, international organizations, and governmental
entities.
(b) The comptroller shall update the list annually or more
often as the comptroller considers necessary, but not more often
than quarterly, based on information from, among other sources,
those listed in Subsection (a).
(c) Not later than the 30th day after the date the list of
scrutinized companies is first provided or updated, the comptroller
shall file the list with the presiding officer of each house of the
legislature and the attorney general.
Sec. 807.052. IDENTIFICATION OF INVESTMENT IN LISTED
COMPANIES. Not later than the 14th day after the date a state
governmental entity receives the list provided under Section
807.051, the state governmental entity shall notify the comptroller
of the listed companies in which the state governmental entity owns
direct or indirect holdings.
Sec. 807.053. NOTICE TO LISTED COMPANY ENGAGED IN INACTIVE
BUSINESS OPERATIONS. For each listed company identified under
Section 807.052 that is engaged in only inactive scrutinized
business operations, the state governmental entity shall send a
written notice informing the company of this chapter and
encouraging the company to continue to refrain from initiating
active business operations in Iran until it is able to avoid being
considered a listed company. The state governmental entity shall
continue the correspondence as the entity considers necessary, but
is not required to initiate correspondence more often than
semiannually.
Sec. 807.054. ACTIONS RELATING TO LISTED COMPANY ENGAGED IN
ACTIVE BUSINESS OPERATIONS. (a) For each listed company
identified under Section 807.052 that is engaged in scrutinized
active business operations, the state governmental entity shall
send a written notice informing the company of its listed company
status and warning the company that it may become subject to
divestment by state governmental entities.
(b) The notice shall offer the company the opportunity to
clarify its Iran-related activities and shall encourage the
company, not later than the 90th day after the date the company
receives notice under this section, to either cease its scrutinized
business operations or convert such operations to inactive business
operations in order to avoid qualifying for divestment by state
governmental entities.
(c) If, during the time provided by Subsection (b), the
company ceases scrutinized business operations, the comptroller
shall remove the company from the list maintained under Section
807.051 and this chapter will no longer apply to the company unless
it resumes scrutinized business operations.
(d) If, during the time provided by Subsection (b), the
company converts its scrutinized active business operations to
inactive business operations, the company is subject to all
provisions of this chapter relating to inactive business
operations.
(e) If, after the time provided by Subsection (b) expires,
the company continues to have scrutinized active business
operations, the state governmental entity shall sell, redeem,
divest, or withdraw all publicly traded securities of the company,
except securities described by Section 807.056, according to the
schedule provided by Section 807.055.
Sec. 807.055. DIVESTMENT OF ASSETS. (a) A state
governmental entity required to sell, redeem, divest, or withdraw
all publicly traded securities of a listed company shall comply
with the following schedule:
(1) at least 50 percent of those assets shall be
removed from the state governmental entity's assets under
management not later than the 270th day after the date the company
receives notice under Section 807.054 or Subsection (b); and
(2) 100 percent of those assets shall be removed from
the state governmental entity's assets under management not later
than the 450th day after the date the company receives notice under
Section 807.054 or Subsection (b).
(b) If a company that ceased scrutinized active business
operations after receiving notice under Section 807.054 resumes
scrutinized active business operations, the state governmental
entity shall send a written notice to the company informing it that
the state governmental entity will sell, redeem, divest, or
withdraw all publicly traded securities of the scrutinized company
according to the schedule in Subsection (a).
(c) A state governmental entity may delay the schedule for
divestment under Subsection (a) only to the extent that the state
governmental entity determines, in the state governmental entity's
good faith judgment, that divestment from listed companies will
likely result in a loss in value described by Section 807.057(a).
If a state governmental entity delays the schedule for divestment,
the state governmental entity shall submit a report to the
presiding officer of each house of the legislature and the attorney
general stating the reasons and justification for the state
governmental entity's delay in divestment from listed companies.
The report must include documentation supporting its determination
that the divestment would result in a loss in value described by
Section 807.057(a), including objective numerical estimates. The
state governmental entity shall update the report every six months.
Sec. 807.056. INVESTMENTS EXEMPTED FROM DIVESTMENT. A
state governmental entity is not required to divest from any
indirect holdings in actively managed investment funds or private
equity funds. The state governmental entity shall submit letters
to the managers of investment funds containing listed companies
requesting that they consider removing those companies from the
fund or create a similar actively managed fund with indirect
holdings devoid of listed companies. If the manager creates a
similar fund with substantially the same management fees and same
level of investment risk, the state governmental entity shall
replace all applicable investments with investments in the similar
fund in an expedited time frame consistent with prudent fiduciary
standards.
Sec. 807.057. AUTHORIZED INVESTMENT IN LISTED COMPANIES.
(a) A state governmental entity may cease divesting from or may
reinvest in one or more listed companies if clear and convincing
evidence shows that the value for all assets under management by the
state governmental entity becomes equal to or less than 99.7
percent of the hypothetical value of all assets under management by
the state governmental entity had the state governmental entity not
divested from listed companies under this chapter.
(b) A state governmental entity may cease divesting from or
may reinvest in a listed company as provided by this section only to
the extent necessary to ensure that the value of the assets managed
by the state governmental entity does not fall below the value
described by Subsection (a).
(c) Before a state governmental entity may cease divesting
from or may reinvest in a listed company under this section, the
state governmental entity must provide a written report to the
presiding officer of each house of the legislature and the attorney
general setting forth the reason and justification, supported by
clear and convincing evidence, for its decisions to cease
divestment, to reinvest, or to remain invested in a listed company.
(d) The state governmental entity shall update the report
required by Subsection (c) semiannually, as applicable.
(e) This section does not apply to reinvestment in a company
that is no longer a listed company.
Sec. 807.058. PROHIBITED INVESTMENTS. Except as provided
by Sections 807.003 and 807.057, a state governmental entity may
not acquire securities of a listed company.
[Sections 807.059-807.100 reserved for expansion]
SUBCHAPTER C. EXPIRATION; REPORT; ENFORCEMENT
Sec. 807.101. EXPIRATION OF CHAPTER. This chapter expires
on the earlier of:
(1) the date the United States revokes its sanctions
against the government of Iran; or
(2) the date the United States Congress or the
president of the United States, through legislation or executive
order, declares that mandatory divestment of the type provided for
in this chapter interferes with the conduct of United States
foreign policy.
Sec. 807.102. REPORT. Not later than December 31 of each
year, each state governmental entity shall file a publicly
available report with the presiding officer of each house of the
legislature and the attorney general, that:
(1) identifies all securities sold, redeemed,
divested, or withdrawn in compliance with Section 807.055;
(2) identifies all prohibited investments under
Section 807.058; and
(3) summarizes any changes made under Section 807.056.
Sec. 807.103. ENFORCEMENT. The attorney general may bring
any action necessary to enforce this chapter.
SECTION 3. Not later than January 1, 2010, the comptroller
of public accounts shall prepare and provide to each state
governmental entity, as defined by Section 807.001, Government
Code, as added by this Act, the list of scrutinized companies
required by Section 807.051, Government Code, as added by this Act.
SECTION 4. This Act takes effect January 1, 2010.