By: Hughes, Parker S.B. No. 667
A BILL TO BE ENTITLED
AN ACT
relating to prohibiting certain state governmental entities from
investing in certain Chinese-affiliated entities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle A, Title 8, Government Code, is amended
by adding Chapter 809A to read as follows:
CHAPTER 809A. PROHIBITION ON INVESTMENT IN CERTAIN
CHINESE-AFFILIATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 809A.001. DEFINITIONS. In this chapter:
(1) "Chinese-affiliated entity" means a publicly
traded entity that:
(A) is both:
(i) incorporated or headquartered in the
People's Republic of China, including in the Hong Kong special
administrative region, other than a U.S. subsidiary, as that term
is defined by 15 C.F.R. Section 772.1; and
(ii) publicly confirmed to be controlled by
the People's Republic of China, the Chinese Communist Party, or a
provincial division, municipality, governmental agency, sovereign
wealth fund, or political instrumentality of the People's Republic
of China; or
(B) is identified by one or more of the
appropriate government agencies to be required by the National
Intelligence Law of the People's Republic of China (2017), as
amended in 2018, or any successor law, to support, assist, and
cooperate with the state intelligence work of the People's Republic
of China and keep the secrets of the national intelligence work of
the People's Republic of China.
(2) "Direct holdings" means, with respect to a
restricted entity, all securities of that restricted entity held
directly by a state governmental entity in an account or fund in
which a state governmental entity owns all shares or interests.
(3) "Entity" means a for-profit sole proprietorship,
organization, association, corporation, partnership, joint
venture, limited partnership, limited liability partnership, or
limited liability company, 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) "Indirect holdings" means, with respect to a
restricted entity, all securities of that restricted entity 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 (26
U.S.C. Section 401(k) or 457).
(5) "Listed restricted entity" means a restricted
entity listed by the comptroller under Section 809A.051.
(6) "Restricted entity" means a Chinese-affiliated
entity or other entity associated with the People's Republic of
China that is identified or included on an entities list maintained
by the federal government for the purpose of imposing prohibitions
or restrictions on or against entities to address national security
concerns, protect human rights, or combat unfair trade practices.
The term includes an entity that:
(A) is listed on the entity list under supplement
No. 4 to 15 C.F.R. Part 744 as associated with the People's Republic
of China because there is reasonable cause to believe the entity is
involved, has been involved, or poses a significant risk of being or
becoming involved in activities contrary to the national security
or foreign policy interests of the United States of America; and
(B) is listed in the Federal Register by the
United States Secretary of Defense as a Chinese military company
operating directly or indirectly in the United States or in any
territory or possession of the United States on the most recent list
compiled under Section 1260H of the William M. (Mac) Thornberry
National Defense Authorization Act for Fiscal Year 2021 (Pub. L.
No. 116-283, reprinted in note, 10 U.S.C. Section 113), or any
successor list of Chinese military companies the secretary is
required by law to compile and publish.
(7) "State governmental entity" means:
(A) the Employees Retirement System of Texas,
including a retirement system administered by that system;
(B) the Teacher Retirement System of Texas;
(C) the Texas Municipal Retirement System;
(D) the Texas County and District Retirement
System;
(E) the Texas Emergency Services Retirement
System; or
(F) the permanent school fund.
Sec. 809A.002. OTHER LEGAL OBLIGATIONS. With respect to
actions taken in compliance with this chapter, including all good
faith determinations regarding restricted entities as required by
this chapter, a state governmental entity and the comptroller are
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
restricted entities, or choosing asset managers, investment funds,
or investments for the state governmental entity's securities
portfolios.
Sec. 809A.003. INDEMNIFICATION OF STATE GOVERNMENTAL
ENTITIES, EMPLOYEES, AND OTHERS. In a cause of action based on an
action, inaction, decision, divestment, investment, restricted
entity 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, member of the governing body, or other
officer when the act or omission on which the damages are based
occurred;
(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; and
(5) a state governmental entity.
Sec. 809A.004. NO PRIVATE CAUSE OF ACTION. (a) A person,
including a member, retiree, or beneficiary of a retirement system
to which this chapter applies, an association, a research firm, a
restricted entity, or any other person may not sue or pursue a
private cause of action against the state, a state governmental
entity, a current or former 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,
restricted entity 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.
Sec. 809A.005. INAPPLICABILITY OF REQUIREMENTS
INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES. A
state governmental entity is not subject to a requirement of this
chapter if the state governmental entity determines that the
requirement would be inconsistent with its fiduciary
responsibility with respect to the investment of its assets or
other duties imposed by law relating to the investment of its
assets, including the duty of care established under Section 67,
Article XVI, Texas Constitution.
Sec. 809A.006. RELIANCE ON FEDERAL DETERMINATION AND
RESTRICTED ENTITY RESPONSE. The comptroller may rely on the
following, in the following order of priority, without conducting
any further investigation, research, or inquiry:
(1) a determination by a federal agency or officer
made under a federal law, regulation, or executive order regarding
whether an entity is a restricted entity; and
(2) a restricted entity's response to a communication
made under this chapter.
SUBCHAPTER B. DUTIES REGARDING INVESTMENTS
Sec. 809A.051. LISTED RESTRICTED ENTITIES. (a) The
comptroller shall prepare and maintain, and provide to each state
governmental entity, a list of all restricted entities. In
maintaining the list, the comptroller may:
(1) review and rely, as appropriate in the
comptroller's judgment, on publicly available information
regarding restricted entities, including information provided or
made available by federal, state, or local governments, nonprofit
organizations, research firms, and international organizations;
and
(2) request written verification from a restricted
entity that it does not meet any of the criteria in Section
809A.001(6) and rely, as appropriate in the comptroller's judgment
and without conducting further investigation, research, or
inquiry, on the entity's written response to the request.
(b) A restricted entity that fails to provide to the
comptroller a written verification under Subsection (a)(2) before
the 61st day after receiving the request from the comptroller is
presumed to be a restricted entity.
(c) 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).
(d) Not later than the 30th day after the date the list of
restricted entities 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 and post the list on a publicly
available Internet website.
Sec. 809A.052. IDENTIFICATION OF INVESTMENT IN LISTED
RESTRICTED ENTITIES. Not later than the 30th day after the date a
state governmental entity receives the list provided under Section
809A.051, the state governmental entity shall notify the
comptroller of the restricted entities in which the state
governmental entity owns direct holdings or indirect holdings.
Sec. 809A.053. NOTICE OF DIVESTMENT TO LISTED RESTRICTED
ENTITY. For each listed restricted entity identified under Section
809A.052, the state governmental entity shall send a written
notice:
(1) informing the restricted entity of its status as a
restricted entity; and
(2) warning the restricted entity that it may become
subject to divestment by the state governmental entity.
Sec. 809A.054. DIVESTMENT OF ASSETS. (a) A state
governmental entity required to sell, redeem, divest, or withdraw
all publicly traded securities of a listed restricted entity shall
comply with the following schedule:
(1) at least 50 percent of those assets must be removed
from the state governmental entity's assets under management not
later than the 180th day after the date the restricted entity
receives notice under Section 809A.053 unless the state
governmental entity determines, based on a good faith exercise of
its fiduciary discretion and subject to Subdivision (2), that a
later date is more prudent; and
(2) 100 percent of those assets must be removed from
the state governmental entity's assets under management not later
than the 360th day after the date the restricted entity receives
notice under Section 809A.053.
(b) Except as provided by Subsection (a), a state
governmental entity may delay the schedule for divestment under
that subsection only to the extent that the state governmental
entity determines, in the state governmental entity's good faith
judgment, and consistent with the state governmental entity's
fiduciary duty, that divestment from listed restricted entities
will likely result in a loss in value or a benchmark deviation
described by Section 809A.056(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 reason and
justification for the state governmental entity's delay in
divestment from listed restricted entities. The report must
include documentation supporting its determination that the
divestment would result in a loss in value or a benchmark deviation
described by Section 809A.056(a), including objective numerical
estimates. The state governmental entity shall update the report
every six months.
Sec. 809A.055. INVESTMENTS EXEMPTED FROM DIVESTMENT. A
state governmental entity is not required to divest from any
indirect holdings in actively or passively managed investment funds
or private equity funds. The state governmental entity shall
submit letters to the managers of each investment fund containing
listed restricted entities requesting that they remove those
restricted entities from the fund or create a similar actively or
passively managed fund with indirect holdings devoid of listed
restricted entities. If a manager creates a similar fund with
substantially the same management fees and same level of investment
risk and anticipated return, the state governmental entity 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 450th day after the date the fund is created.
Sec. 809A.056. AUTHORIZED INVESTMENT IN LISTED RESTRICTED
ENTITIES. (a) A state governmental entity may cease divesting from
one or more listed restricted entities only if clear and convincing
evidence shows that:
(1) the state governmental entity has suffered or will
suffer a loss in the hypothetical value of all assets under
management by the state governmental entity as a result of having to
divest from listed restricted entities under this chapter; or
(2) an individual portfolio that uses a
benchmark-aware strategy would be subject to an aggregate expected
deviation from its benchmark as a result of having to divest from
listed restricted entities under this chapter.
(b) A state governmental entity may cease divesting from a
listed restricted entity as provided by this section only to the
extent necessary to ensure that the state governmental entity does
not suffer a loss in value or deviate from its benchmark as
described by Subsection (a).
(c) Before a state governmental entity may cease divesting
from a listed restricted entity under this section, the state
governmental entity must provide a written report to the
comptroller, 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
deciding to cease divestment or to remain invested in a listed
restricted entity.
(d) The state governmental entity shall update the report
required by Subsection (c) semiannually, as applicable.
Sec. 809A.057. PROHIBITED INVESTMENTS. Except as provided
by Section 809A.056, a state governmental entity may not acquire
securities of a listed restricted entity.
SUBCHAPTER C. REPORT; ENFORCEMENT
Sec. 809A.101. REPORT. Not later than January 5 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 809A.054;
(2) identifies all prohibited investments under
Section 809A.057; and
(3) summarizes any changes made under Section
809A.055.
Sec. 809A.102. ENFORCEMENT. The attorney general may bring
any action necessary to enforce this chapter.
SECTION 2. This Act takes effect September 1, 2025.