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H.B. 138

This document includes House Committee Amendments incorporated into the bill on Fri, Feb 22, 2008 at 2:59 PM by jeyring. -->              1     

SUDAN DIVESTMENT ACT

             2     
2008 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: David Litvack

             5     
Senate Sponsor: ____________

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Utah State Retirement and Insurance Benefit Act by restricting
             10      investment of Retirement System funds in certain entities.
             11      Highlighted Provisions:
             12          This bill:
             13          .    provides definitions;
             14          .    requires the Utah State Retirement Board to ensure that the monies of the Utah State
             15      Retirement Investment Fund are not invested in any business operations with
             16      companies that have certain business operations with the Khartoum government of
             17      the Republic of the Sudan, which is perpetuating the conflict in Darfur;
             18      H. . provides certain exceptions for investments in private equity, alternative
             18a      investments, or commingled funds. .H    
             18b          .    requires the board to identify scrutinized companies, provide notice of potential
             19      investment withdrawal, and divest from certain entities;
             20          .    puts certain limits on divestment;
             21          .    exempts the board from certain conflicting statutes or common law obligations that
             22      conflict with divestment requirements;
             23          .    requires the board to make reports to the Legislature and the attorney general; and
             24          .    requires the Office of Legislative Research and General Counsel to send notice of
             25      passage of the bill in order to comply with federal law.
             26      Monies Appropriated in this Bill:
             27          None


             28      Other Special Clauses:
             29          None
             30      Utah Code Sections Affected:
             31      ENACTS:
             32          49-11-306, Utah Code Annotated 1953
             33      Uncodified Material Affected:
             34      ENACTS UNCODIFIED MATERIAL
             35     
             36      Be it enacted by the Legislature of the state of Utah:
             37          Section 1. Section 49-11-306 is enacted to read:
             38          49-11-306. Definitions -- Investment prohibitions -- Rules -- Exceptions -- Annual
             39      report -- Expiration.
             40          (1) As used in this section:
             41          (a) "Active business operations" means all business operations that are not inactive
             42      business operations.
             43          (b) "Actively managed investment funds" includes private equity funds.
             44          (c) (i) "Business operations" means engaging in commerce in any form, including
             45      acquiring, developing, maintaining, owning, selling, possessing, leasing or operating any
             46      apparatus of business or commerce, which includes equipment, facilities, personnel, products,
             47      services, personal property, and real property.
             48          (ii) "Business operations" does not include providing humanitarian aid.
             49          (d) "Marginalized populations of Sudan" include:
             50          (i) the portion of the population in the Darfur region that has been genocidally
             51      victimized;
             52          (ii) the portion of the population of southern Sudan victimized by Sudan's North-South
             53      civil war;
             54          (iii) the Beja, Rashidiya, and other similarly underserved groups of eastern Sudan;
             55          (iv) the Nubian and other similarly underserved groups in Sudan's Abyei, Southern
             56      Blue Nile, and Nuba Mountain regions; and
             57          (v) the Amri, Hamadab, Manasir, and other similarly underserved groups of northern
             58      Sudan.


             59          (e) "Company" means any sole proprietorship, organization, association, corporation,
             60      partnership, joint venture, limited partnership, limited liability partnership, limited liability
             61      company, or other entity or business association, including any wholly-owned subsidiary,
             62      majority-owned subsidiary, parent company, or affiliate that exists for profit-making purposes.
             63          (f) "Complicit in the Darfur genocide" means taking actions during any preceding 20
             64      month period that have directly supported or promoted the genocidal campaign in Darfur,
             65      including:
             66          (i) preventing the marginalized populations of Sudan from communicating with each
             67      other;
             68          (ii) encouraging Sudanese citizens to speak out against an internationally approved
             69      security force for Darfur; or
             70          (iii) actively working to deny, cover up, or alter the record on human rights abuses in
             71      Darfur.
             72          (g) H. (i) .H "Direct holdings" means all securities of a company that are held
             72a      directly by the
             73      public fund or in an account or fund in which the public fund owns all shares or interests.
             73a      H. (ii) "Direct holdings" does not include investments in private equity, alternative
             73b      investments, or commingled funds. .H
             74          (h) (i) "Government of Sudan" means the government in Khartoum, Sudan, which is
             75      led by the National Congress Party (formerly known as the National Islamic Front) or any
             76      successor government formed on or after October 13, 2006, including the coalition National
             77      Unity Government agreed upon in the Comprehensive Peace Agreement for Sudan.
             78          (ii) "Government of Sudan" does not mean the regional government of southern Sudan.
             79          (i) "Inactive business operations" means the continued holding or renewal of rights to
             80      property previously operated solely for the purpose of generating revenues but not presently
             81      deployed for such purpose.
             82          (j) H. (i) .H "Indirect holdings" means all securities of a company held in an account
             82a      or fund,
             83      such as a mutual fund, managed by one or more persons not employed by the public fund, in
             84      which the public fund owns shares or interests together with other investors not subject to the
             85      provisions of this section.
             85a          H. (ii) "Indirect holdings" does not include investments in private equity, alternative
             85b      investments, or commingled funds. .H
             86          (k) "Military equipment" means weapons, arms, military supplies, and equipment that
             87      readily may be used for military purposes, including radar systems, military-grade transport
             88      vehicles, or supplies or services sold or provided directly or indirectly to any force actively
             89      participating in armed conflict in Sudan.


             90          (l) "Mineral extraction activities" include the exploring, extracting, processing,
             91      transporting, or wholesale selling or trading of elemental minerals or associated metal alloys,
             92      oxides, or ore, including gold, copper, chromium, chromite, diamonds, iron, iron ore, silver,
             93      tungsten, uranium, and zinc, as well as facilitating the activities, including providing supplies
             94      or services in support of the activities.
             95          (m) (i) "Oil-related activities" include:
             96          (A) owning rights to oil blocks, exporting, extracting, producing, refining, processing,
             97      exploring for, transporting, selling, or trading of oil;
             98          (B) constructing, maintaining, or operating a pipeline, refinery, or other oil-field
             99      infrastructure; and
             100          (C) facilitating the activities like those described in Subsections (1)(l)(i)(A) and
             101      (1)(l)(i)(B), including providing supplies or services in support of the activities.
             102          (ii) "Oil-related activities" does not mean the mere retail sale of gasoline and related
             103      consumer products.
             104          (n) "Power production activities" means any business operation that involves a project
             105      commissioned by the National Electricity Corporation of Sudan or other similar government of
             106      Sudan entity whose purpose is to facilitate power generation and delivery, including:
             107          (i) establishing power-generating plants or hydroelectric dams, selling or installing
             108      components for the project, providing service contracts related to the installation or
             109      maintenance of the project; or
             110          (ii) facilitating activities like those described in Subsection (1)(m)(i), including
             111      providing supplies or services in support of those activities.
             112          (o) "Public fund" means:
             113          (i) the Utah State Retirement Investment Fund; or
             114          (ii) the Utah State Retirement Board in charge of the Utah State Retirement Investment
             115      Fund.
             116          (p) "Scrutinized company" means a company that:
             117          (i) has business operations that involve contracts with or provision of supplies or
             118      services to the government of Sudan, companies in which the government of Sudan has any
             119      direct or indirect equity share, consortiums or projects commissioned by the government of
             120      Sudan, or companies involved in consortiums or projects commissioned by the government of


             121      Sudan and had:
             122          (A) (I) more than 10% of the company's revenues or assets linked to Sudan involve
             123      oil-related activities or mineral-extraction activities;
             124          (II) less than 75% of the company's revenues or assets linked to Sudan involve
             125      contracts with or provision of oil-related or mineral-extracting products or services to the
             126      regional government of southern Sudan or a project or consortium created exclusively by that
             127      regional government; and
             128          (III) failed to take substantial action; or
             129          (B) (I) more than 10% of the company's revenues or assets linked to Sudan involve
             130      power-production activities;
             131          (II) less than 75% of the company's power-production activities include projects whose
             132      intent is to provide power or electricity to the marginalized populations of Sudan; and
             133          (III) failed to take substantial action;
             134          (ii) the company supplies military equipment within Sudan, unless:
             135          (A) the company clearly shows that the military equipment cannot be used to facilitate
             136      offensive military actions in Sudan; or
             137          (B) the company implements rigorous and verifiable safeguards to prevent use of the
             138      military equipment by forces actively participating in armed conflict, which safeguards may
             139      include post-sale tracking of such equipment by the company, certification from a reputable
             140      and objective third party that such equipment is not being used by a party participating in
             141      armed conflict in Sudan, or sale of such equipment solely to the regional government of
             142      southern Sudan or any internationally recognized peacekeeping force or humanitarian
             143      organization; or
             144          (iii) the company is complicit in the Darfur genocide.
             145          (q) "Social development company" means a company whose primary purpose in Sudan
             146      is to provide humanitarian goods or services, including medicine or medical equipment,
             147      agricultural supplies or infrastructure, educational opportunities, journalism-related activities,
             148      information or information materials, spiritual-related activities, services of a purely clerical or
             149      reporting nature, food, clothing, or general consumer goods that are unrelated to oil-related
             150      activities, mineral extraction activities, or power production activities.
             151          (r) "Substantial action" means:


             152          (i) adopting, publicizing, and implementing a formal plan to cease scrutinized business
             153      operations within one year and to refrain from any new scrutinized business operations;
             154          (ii) undertaking significant humanitarian efforts in conjunction with an international
             155      organization, the government of Sudan, the regional government of southern Sudan, or a
             156      non-profit entity, provided that the efforts are evaluated and certified by an independent third
             157      party to be substantial in relationship to the company's Sudan business operations and of
             158      benefit to one or more marginalized populations of Sudan; or
             159          (iii) through engagement with the government of Sudan, materially improving
             160      conditions for the genocidally victimized population in Darfur.
             161          (2) (a) (i) By no later than August 5, 2008, the public fund shall make its best efforts to
             162      identify all scrutinized companies in which the public fund has direct holdings or indirect
             163      holdings or could possibly have direct or indirect holdings in the future.
             164          (ii) The identification process required by Subsection (2)(a)(i) may include, as
             165      considered appropriate by the public fund:
             166          (A) reviewing and relying on publicly available information regarding companies with
             167      business operations in Sudan, including information provided by non-profit organizations,
             168      research firms, international organizations, and government entities;
             169          (B) contacting asset managers that are contracted by the public fund that invest in
             170      companies with business operations in Sudan; and
             171          (C) contacting other institutional investors that have divested from or engaged with
             172      companies that have business operations in Sudan.
             173          (b) By the first meeting of the public fund that is held after August 5, 2008, the public
             174      fund shall assemble the names of all scrutinized companies identified into a scrutinized
             175      companies list.
             176          (c) The public fund shall update the scrutinized companies list on a quarterly basis by
             177      using evolving information from, among other sources, those listed in Subsection (2)(a)(ii).
             178          (d) Within 30 days after the initial creation of the scrutinized companies list, the public
             179      fund shall provide a copy of the list to:
             180          (i) the Legislature; and
             181          (ii) the attorney general.
             182          (3) The public fund shall adhere to the following procedures in relation to companies


             183      listed on the scrutinized companies list required under Subsection (2):
             184          (a) (i) The public fund shall immediately determine those companies on the scrutinized
             185      companies list in which the public fund owns direct holdings or indirect holdings.
             186          (ii) For each company identified in Subsection (3)(a)(i) that has only inactive business
             187      operations, the public fund shall:
             188          (A) send the company a written notice that:
             189          (I) informs the company of the requirements of this section; and
             190          (II) encourages the company to continue to refrain from initiating active business
             191      operations in Sudan until it is able to avoid scrutinized business operations; and
             192          (B) continue the correspondence required by Subsection (3)(a)(ii)(A) on a semi-annual
             193      basis.
             194          (iii) For each company that is newly identified in Subsection (3)(a)(i) as having active
             195      business operations, the public fund shall send a written notice that informs the company that:
             196          (A) it has been identified as a scrutinized company;
             197          (B) it may become subject to divestment by the public fund;
             198          (C) offers the company the opportunity to clarify its Sudan-related activities; and
             199          (D) encourages the company, within 90 days, to either:
             200          (I) cease its scrutinized business operations; or
             201          (II) convert its scrutinized business operations to inactive business operations in order
             202      to avoid qualifying for divestment by the public fund.
             203          (iv) (A) If the company ceases scrutinized business operations within 90 days
             204      following the public fund's first notice to a company according to the requirements of
             205      Subsection (3)(a)(iii):
             206          (I) the company shall be removed from the scrutinized companies list; and
             207          (II) the provisions of this section shall cease to apply to the company unless the
             208      company resumes scrutinized business operations.
             209          (B) If the company converts its scrutinized active business operations to inactive
             210      business operations within 90 days following the public fund's first notice to a company under
             211      Subsection (3)(a)(iii), the company shall be subject to the requirements of Subsection (3)(a)(ii).
             212          (b) (i) If the company continues to have scrutinized active business operations more
             213      than 90 days following the public fund's first notice to a company according to the


             214      requirements of Subsection (3)(a)(iii), and only while the company continues to have
             215      scrutinized active business operations, the public fund shall sell, redeem, divest, or withdraw
             216      all publicly-traded securities of the company as follows:
             217          (A) No later than nine months after the company's most recent appearance on the
             218      scrutinized companies list, at least 33% of the company's assets shall be removed from the
             219      public fund's assets under management.
             220          (B) No later than 12 months after the company's most recent appearance on the
             221      scrutinized companies list, at least 66% of the company's assets shall be removed from the
             222      public fund's assets under management.
             223          (C) No later than 15 months after the company's most recent appearance on the
             224      scrutinized companies list, all of the company's assets shall be removed from the public fund's
             225      assets under management.
             226          (ii) If a company that ceased scrutinized active business operations following notice
             227      provided under Subsection (3)(a)(iii), resumes scrutinized active business operations:
             228          (A) the requirements of Subsection (3)(b)(i) shall immediately apply;
             229          (B) the public fund shall immediately send a written notice to the company in the form
             230      required under Subsection (3)(a)(iii); and
             231          (C) the company shall be immediately included on the scrutinized companies list.
             232          (c) The public fund may not acquire securities of companies on the scrutinized
             233      companies list that have active business operations, except as follows:
             234          (i) a company that the United States government affirmatively declares to be excluded
             235      from its present federal sanctions regime relating to Sudan or any future federal sanctions
             236      regime relating to Sudan shall not be subject to the requirements of this section; and
             237          (ii) except as otherwise specifically provided in this section, the requirements of this
             238      section do not apply to indirect holdings in an actively managed investment fund, except that
             239      the public fund shall be required to:
             240          (A) submit a letter to each manager of each actively managed investment fund
             241      containing companies with scrutinized active business operations that requests that the
             242      managers consider:
             243          (I) removing the companies from the fund; or
             244          (II) creating a similar actively managed investment fund with indirect holdings devoid


             245      of companies with scrutinized business operations; and
             246          (B) if a manager creates a similar actively managed investment fund as described in
             247      Subsection (3)(c)(ii)(A)(II), the public fund shall replace all applicable investments with
             248      investments in the similar fund in an expedited time frame consistent with prudent investing
             249      standards.
             250          (d) (i) On an annual basis, the public fund shall provide a publicly-available report to
             251      the Legislature that includes:
             252          (A) a summary of correspondence with companies to whom the public fund has
             253      provided notice under Subsection (3)(a)(iii);
             254          (B) a listing of all investments sold, redeemed, divested, or withdrawn in accordance
             255      with Subsection (3)(b);
             256          (C) a listing of all investments that were prohibited under Subsection (3)(c); and
             257          (D) a description of any replacement investments made under Subsection (3)(c)(ii)(B).
             258          (ii) Copies of the report shall be sent to:
             259          (A) the attorney general;
             260          (B) the attorney general of the United States; and
             261          (C) the United States Presidential Envoy to Sudan, or an appropriate designee or
             262      successor.
             263          (4) With respect to actions taken in compliance with this section, including all good
             264      faith determinations regarding companies as required by this section, the public fund shall be
             265      exempt from any conflicting statutory or common law obligations, including obligations in
             266      respect to choice of asset managers, investment funds, or investments for the public fund's
             267      securities portfolios.
             268          (5) (a) Notwithstanding any provision of law to the contrary, the public fund shall be
             269      permitted to cease divesting from certain scrutinized companies under Subsection (3)(b)(i) or
             270      to reinvest in certain scrutinized companies from which it divested under Subsection (3)(b)(i) if
             271      clear and convincing evidence shows that the value for all assets under management by the
             272      public fund becomes equal to or less than 99.50% (50 basis points) of the hypothetical value of
             273      all assets under management by the public fund assuming no divestment for any company had
             274      occurred under this section.
             275          (b) Cessation of divestment, reinvestment, or any subsequent ongoing investment


             276      authorized by this section shall be strictly limited to the minimum steps necessary to avoid the
             277      contingency set forth in Subsection (5)(a).
             278          (c) Before ceasing divestment, reinvesting, or maintaining a subsequent ongoing
             279      investment based upon an authorization provided by Subsection (5)(a), the public fund shall
             280      provide a written report to the Legislature, which report shall be updated semi-annually
             281      thereafter as applicable, that provides:
             282          (i) the reasons and justification for the public fund's decision to cease divestment,
             283      reinvest, or remain invested in companies with scrutinized active business operations; and
             284          (ii) clear and convincing evidence in support of the reasons and justification provided
             285      in Subsection (5)(c)(i).
             286          (d) This Subsection (5) does not apply to reinvestment in companies on the basis that
             287      they have ceased to have scrutinized active business operations.
             288          (6) This section shall cease to be in effect if:
             289          (a) The Congress of the United States or the President of the United States, through
             290      legislation or executive order, declares that the Darfur genocide has been halted for at least 12
             291      months;
             292          (b) the United States revokes all sanctions imposed against the government of Sudan;
             293          (c) the Congress of the United States or the President of the United States, through
             294      legislation or executive order, declares that the government of Sudan has honored its
             295      commitments to:
             296          (i) cease attacks on civilians;
             297          (ii) demobilize and demilitarize the Janjaweed and associated militias;
             298          (iii) grant free and unfettered access for deliveries of humanitarian assistance; and
             299          (iv) allow for the safe and voluntary return of refugees and internally displaced
             300      persons; or
             301          (d) the Congress of the United States or the President of the United States, through
             302      legislation or executive order, declares that mandatory divestment of the type provided for in
             303      this section interferes with the conduct of United States foreign policy.
             304          Section 2. Notice to the Attorney General of the United States.
             305          Not later than 30 days after the day that this bill is approved by the governor, or the day
             306      following the constitutional time limit of Utah Constitution Article VII, Section 8, without the


             307      governor's signature, the Office of Legislative Research and General Counsel shall submit
             308      written notice of this bill's passage to the Attorney General of the United States in accordance
             309      with the Sudan Accountability and Divestment Act of 2007.




Legislative Review Note
    as of 1-17-08 4:20 PM


Office of Legislative Research and General Counsel


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