BILL REQ. #:  H-3993.3 

Prefiled 01/11/08. Read first time 01/14/08.   Referred to Committee on Appropriations.

     AN ACT Relating to investment of public employee retirement funds in certain entities with business operations in Iran; amending RCW 43.33A.110; adding new sections to chapter 43.33A RCW; creating a new section; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) The legislature finds that the securities and exchange commission has determined that business activities in foreign states such as Iran sponsoring terrorism and that are subject to sanctions by the United States may materially harm the share value of foreign companies. Shares in these foreign companies may be held in the portfolio of public retirement systems in this state.
     (2) The legislature finds that publicly traded companies in the United States are substantially restricted in doing business in or with foreign states such as Iran that the United States department of state has identified as sponsoring terrorism.
     (3) The legislature further finds that public retirement system funds in this state currently invest on behalf of retirement system members and the citizens of Washington in publicly traded foreign companies that may be at risk due to business ties with foreign states such as Iran that sponsor terrorism and are involved in the proliferation of weapons of mass destruction, including the supplying of improvised explosive devices and other weapons to militants in Iraq for use against coalition troops.
     (4) The legislature further finds that investments in publicly traded foreign companies that have business operations in or with foreign states such as Iran are liable for sanctions under United States law and risk the pensions of the public employees of this state. The legislature finds that Public Law 104-172, as renewed and amended in 2001 and 2006, provides for sanctions to be imposed on any entity that has invested at least twenty million dollars in any year since 1996 to develop petroleum or natural resources of Iran.
     (5) The legislature therefore declares that excluding companies with business activities in foreign states such as Iran that sponsor terrorism and divesting from public portfolios will help protect the public retirement systems in this state from investment losses related to these business activities and may improve the investment performance of the public retirement systems.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout sections 1 through 8 of this act unless the context clearly requires otherwise.
     (1) "Board" means the state investment board established in this chapter.
     (2) "Business operations" means maintaining, selling, or leasing equipment, facilities, personnel, or any other apparatus of business or commerce in Iran, including the ownership or possession of real or personal property located in Iran.
     (3) "Company" means a sole proprietorship, organization, association, corporation, partnership, or other entity, its subsidiary or affiliate that exists for profit-making purposes or to otherwise secure economic advantage. "Company" also means a company owned or controlled, either directly or indirectly, by the government of Iran, that is established or organized under the laws of or has its principal place of business in the Islamic Republic of Iran.
     (4) "Government of Iran" means the government of Iran or its instrumentalities or political subdivisions. "Government of Iran" also means an individual, company, or public agency located in Iran that provides material or financial support to the Islam Republic of Iran.
     (5) "Invest" or "investment" means the purchase, ownership, or control of stock of a company, association, or corporation, the capital stock of a mutual water company or corporation, bonds issued by the government or a political subdivision of Iran, corporate bonds or other debt instruments issued by a company, or the commitment of funds or other assets to a company, including a loan or extension of credit to that company.
     (6) "Iran" means the Islamic Republic of Iran or a territory under the administration or control of Iran.
     (7) "Military equipment" means weapons, arms, or military defense supplies.
     (8) "Public employee retirement funds" means funds administered by the department of retirement systems and the law enforcement officers' and firefighters' plan 2 board.
     (9) "Substantial action" means a refusal to do business with the government of Iran, curtailing business in Iran, or selling company assets, equipment, or real and personal property located in Iran.

NEW SECTION.  Sec. 3   (1) The board shall not invest public employee retirement funds in a company that has business operations in Iran as identified by the board through, as the board deems appropriate, publicly available information, including but not limited to information provided by government entities and nongovernmental organizations, that meets either of the following criteria:
     (a) The company is invested in or engaged in business operations with entities in the defense or nuclear sectors of Iran, or is invested in or engaged in business operations with entities involved in the development of petroleum or natural gas resources of Iran, and that company is subject to sanctions under Public Law 104-172, as renewed and amended in 2001 and 2006.
     (b) The company has demonstrated complicity with an Iranian organization that has been named as a terrorist organization by the United States government before the effective date of this act.
     (2) On or before January 1, 2009, the board shall determine which companies are subject to divestment.
     (3) After the determination described in subsection (2) of this section, the board shall determine, by the next applicable board meeting, if a company meets the criteria described in subsection (1) of this section. If the board plans to invest or has investments in a company that meets the criteria described in subsection (1) of this section, that planned or existing investment shall be subject to section 4 (1) and (2) of this act.
     (4) Investments of the board in a company that does not meet the criteria described in subsection (1) of this section are not subject to section 4 of this act if the company does not subsequently meet the criteria described in subsection (1) of this section. The board shall identify the reasons why that company does not satisfy the criteria described in subsection (1) of this section in the report to the legislature required by section 5 of this act.
     (5) Notwithstanding subsections (3) and (4) of this section, if the board's investment in a company described in subsection (1) of this section is limited to investment via an externally and actively managed commingled fund, the board shall contact the fund manager in writing and request that the fund remove the company from the fund as described in section 4 of this act. On or before January 1, 2009, if the fund manager creates a fund or account devoid of companies described in subsection (1) of this section, the transfer of board investments from the prior fund or account to the fund or account devoid of companies with business operations in Iran shall be deemed to satisfy subsection (1) of this section.
     (6) If the board's investment in a company described in subsection (1) of this section is limited to an alternative fund or account, the alternative fund or account manager creates an actively managed, commingled fund that excludes companies described in subsection (1) of this section, and the new fund or account is deemed to be financially equivalent to the existing fund or account, the transfer of board investments from the existing fund or account to the new fund or account shall be deemed to satisfy section 4 of this act. If the board determines that the new fund or account is not financially equivalent to the existing fund, the board shall include the reasons for that determination in the report required in section 5 of this act.
     (7) The board shall make a good faith effort to identify any private equity investments that involve companies described in subsection (1) of this section, or are linked to the government of Iran. If the board determines that a private equity investment clearly involves a company described in subsection (1) of this section, or is linked to the government of Iran, the board shall consider, at its discretion, if those private equity investments shall be subject to section 4 of this act. If the board determines that a private equity investment clearly involves a company described in subsection (1) of this section, or is linked to the government of Iran and the board does not take action as described in section 4 of this act, the board shall include the reasons for its decision in the report required in section 5 of this act.
     (8) Except as described in subsections (4) and (5) of this section, the board, in its capacity as shareholder or investor, shall notify any company described in subsection (3) of this section that the company is subject to subsection (1) of this section and permit the company to respond to the board. The board shall request that the company take substantial action no later than ninety days from the date the board notified the company under this subsection. If the board determines that a company has taken substantial action or has made sufficient progress toward substantial action before the expiration of that ninety-day period, that company shall not be subject to section 4 of this act. The board shall, at intervals not to exceed ninety days, continue to monitor and review the progress of the company until that company has taken substantial action in Iran. A company that fails to complete substantial action within one year from the date of the initial notice by the board is subject to section 4 of this act.

NEW SECTION.  Sec. 4   If a company described in section 3(3) of this act fails to complete substantial action by the time described in section 3(8) of this act, the board shall take the following actions:
     (1) The board shall not make additional or new investments or renew existing investments in that company.
     (2) The board shall liquidate the investments of the board in that company no later than eighteen months after this section applies to that company. The board shall liquidate those investments in a manner to address the need for companies to take substantial action in Iran and consistent with the board's fiduciary responsibilities as described in RCW 43.33A.140.

NEW SECTION.  Sec. 5   On or before July 1, 2009, and every year thereafter, the board shall submit a report to the governor and legislature. The report shall include the following:
     (1) A list of investments the board has in companies with business operations that satisfy the criteria in section 3(1) of this act, including, but not limited to, the issuer, by name, of the stock, bonds, securities, and other evidence of indebtedness;
     (2) A detailed summary of the business operations a company described in subsection (1) of this section has in Iran;
     (3) Whether the board has reduced its investments in a company that satisfies the criteria in section 3(1) of this act;
     (4) If the board has not completely reduced its investments in a company that satisfies the criteria in section 3(1) of this act, when the board anticipates that it will reduce all investments in that company or the reasons why a sale or transfer of investments is inconsistent with the fiduciary responsibilities of the board as described in RCW 43.33A.140;
     (5) Any information described in section 3 (3) and (4) of this act;
     (6) A detailed summary of investments that were transferred to funds or accounts devoid of companies with business operations in Iran as described in section 3(5) of this act; and
     (7) An annual calculation of any costs or investment losses or other financial results incurred in compliance with the provisions of section 4 of this act.

NEW SECTION.  Sec. 6   Nothing in sections 3 through 5, 7, and 8 of this act shall require the board to take action described in sections 3 through 5, 7, and 8 of this act unless the board determines, in good faith, that the actions described in sections 3 through 5, 7, and 8 of this act are consistent with the fiduciary responsibilities of the board as described in RCW 43.33A.140.

NEW SECTION.  Sec. 7   Section 5 of this act shall not apply to any of the following:
     (1) Investments in a company that is primarily engaged in supplying goods or services intended to relieve human suffering in Iran;
     (2) Investments in a company with a principal purpose of promoting health, education, or journalistic, religious, or welfare activities in Iran; and
     (3) Investments in a company that is authorized by the federal government to have business operations in Iran.

NEW SECTION.  Sec. 8   Present, future, and former members of the board, jointly and individually, state officers and employees, and research firms and investment managers under contract with the board shall be indemnified from the state general fund and held harmless by the state of Washington from all claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including court costs and attorneys' fees, and against all liability, losses, and damages of any nature whatsoever that those present, future, or former board members, officers, employees, research firms, or investment managers shall or may at any time sustain by reason of any decision to restrict, reduce, or eliminate investments under sections 3 through 7 of this act.

Sec. 9   RCW 43.33A.110 and 1994 c 154 s 310 are each amended to read as follows:
     The state investment board may make appropriate rules and regulations for the performance of its duties. The board shall, consistent with sections 2 through 8 of this act, establish investment policies and procedures designed exclusively to maximize return at a prudent level of risk. However, in the case of the department of labor and industries' accident, medical aid, and reserve funds, the board shall establish investment policies and procedures designed to attempt to limit fluctuations in industrial insurance premiums and, subject to this purpose, to maximize return at a prudent level of risk. The board shall adopt rules to ensure that its members perform their functions in compliance with chapter 42.52 RCW. Rules adopted by the board shall be adopted pursuant to chapter 34.05 RCW.

NEW SECTION.  Sec. 10   Sections 2 through 8 of this act are each added to chapter 43.33A RCW.

NEW SECTION.  Sec. 11   This act takes effect July 1, 2008.