Senate Bill No. 397
(By Senators Unger, Kessler (Mr. President) and Beach)
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[Introduced February 28, 2013; referred to the Committee on Government Organization; and then to the Committee on Finance.]
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A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §12-6D-1, §12-6D-2, §12-6D-3, §12-6D-4, §12-6D-5, §12-6D-6, §12-6D-7, §12-6D-8 and §12-6D-9, all relating to investments of the West Virginia Investment Management Board; creating the Protecting West Virginia’s Investments Act; providing legislative findings; providing definitions; requiring the West Virginia Investment Management Board to identify all companies in which public moneys are invested that are doing certain types of investments in Iran; requiring the board to create and maintain certain scrutinized company lists that name all such companies; providing that a company may be removed from the list under certain conditions; providing for reintroduction of a company onto the list; requiring the board to divest of all directly held, publicly traded securities of a scrutinized company under certain conditions; providing exceptions to the divestment requirement; prohibiting the board from acquiring securities of scrutinized companies that have certain active investments; providing exceptions to the investment prohibition; providing an additional exception from the divestment requirement and the investment prohibition to certain indirect holdings in actively managed investment funds; requiring the board to file a report with each member of the West Virginia Investment Management Board, the President of the Senate and the Speaker of the House of Delegates within a specified period after creation of each scrutinized companies list; requiring the annual filing of an updated report; requiring that the report contain certain information; requiring annual updates to such reports when applicable; requiring certain information to be included in the investment policy statement; providing for severability; and providing an effective date.
Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new article, designated §12-6D-1, §12-6D-2, §12-6D-3, §12-6D-4, §12-6D-5, §12-6D-6, §12-6D-7, §12-6D-8 and §12-6D-9, all to read as follows:
ARTICLE 6D. PROTECTING WEST VIRGINIA’S INVESTMENTS ACT.
§12-6D-1. Short Title.
This Act may be cited as the "Protecting West Virginia’s Investments Act."
§12-6D-2. Legislative Findings.
The West Virginia Legislature hereby makes the following findings:
(a) That in 2001, the Securities and Exchange Commission (SEC) determined that companies with business operations in terrorist-sponsoring states are exposed to a special risk category known as Global Security Risk: The risk to share 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;
(b) That in response to the financial risk posed by investments in companies doing business with a state that sponsors terrorists, the Securities and Exchange Commission established its Office of Global Security Risk to provide for enhanced disclosure of material information regarding such companies;
(c) That according to the former chair of the United States Securities and Exchange Commission Laura Unger, the fact that a foreign company is doing material business with a country, government, or entity on OFAC's sanctions list is, in the SEC staff's view, substantially likely to be significant to a reasonable investor's decision about whether to invest in that company;
(d) That Iran tops the United States. State department's list of state sponsors of terrorism, funding such groups as Hamas, Hizballah, Islamic Jihad, as well as fueling the insurgency in Iraq via its Al-Quds force;
(e) That the United States imposed sanctions on Iran by designating the Islamic Revolutionary Guard Corps (IRGC), its al-Quds Force and three state-owned banks as weapons proliferators and supporters of terrorism;
(f) That the United Nations Security Council has twice voted unanimously to impose sanctions on Iran for its failure to suspend its uranium-enrichment activities calling for an additional embargo on Iranian arms exports, which is a freeze on assets abroad of an expanded list of individuals and companies involved in Iran's nuclear and ballistic missile programs, and calls for nations and institutions to bar new grants or loans to Iran except for humanitarian and developmental purposes;
(g) That foreign entities have invested in Iran's petroleum-energy sector despite United States and United Nations sanctions against Iran;
(h) That all entities that have invested more than $20 million in any given year in Iran's petroleum sector since August 5, 1996 are subject to sanctions under United States law pursuant to the Iran Sanctions Act of 1996;
(i) That the United States renewed the Iran Sanctions Act of 1996 in 2001 and 2006;
(j) That it is a fundamental responsibility of the State of West Virginia to decide where, how, and by whom financial resources in its control should be invested, taking into account numerous pertinent factors;
(k) That divestiture should be considered with the intent to improve investment performance and, by the rules of prudence, fiduciaries must take into account all relevant substantive factors in arriving at an investment decision;
(l) That the State of West Virginia is deeply concerned about investments in publicly traded companies that have investments in Iran's petroleum sector as a financial risk to the shareholders;
(m) That by investing in publicly traded companies having investments in Iran's petroleum sector, the West Virginia Investment Management Board is putting the funds it oversees at substantial financial risk;
(n) That divestiture from markets that are vulnerable to embargo, loan restrictions, and sanctions from the United States and the international community, including the United Nations Security Council, is in accordance with the rules of prudence;
(o) That this article should remain in effect only insofar as it continues to be consistent with and does not unduly interfere with the foreign policy of the United States as determined by the Federal Government; and
(p) That to protect West Virginia's assets, it is in the best interest of the state to enact a statutory prohibition regarding the investments managed by the West Virginia Investment Management Board doing business in Iran's petroleum-energy sector.
§12-6D-3. Definitions.
As used in this article, the term:
(a) "Company" means any sole proprietorship, organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership, limited liability company, or other entity or business association that exists for the purpose of making profit.
(b) "Direct holdings" in a company means all securities of that company that are held directly by the public fund or in an account or fund in which the public fund owns all shares or interests.
(c) "Government of Iran" means the government of Iran, its instrumentalities, and companies owned or controlled by the government of Iran.
(d) "Inactive business Activities" means the mere continued holding or renewal of rights to property previously operated for the purpose of generating revenues but not presently deployed for such purpose.
(e) "Indirect holdings" in a company means all securities of that company that are held in an account or fund, such as a mutual fund, managed by one or more persons not employed by the public fund, in which the public fund owns shares or interests together with other investors not subject to the provisions of this article.
(f) "Iran" means the Islamic Republic of Iran.
(g) "Petroleum resources" means petroleum or natural gas.
(h) "Public fund" means all funds, assets, trustee, and other designates controlled by article six of this chapter.
(i) "Scrutinized business Activities" means business Activities that have resulted in a company becoming a scrutinized company.
(j) "Scrutinized company" means any company that has, with actual knowledge, on or after August 5, 1996, made an investment of $20 million or more in Iran’s petroleum sector which directly or significantly contributes to the enhancement of Iran's ability to develop the petroleum resources of Iran.
(k) "Substantial action specific to Iran" means adopting, publicizing, and implementing a formal plan to cease scrutinized business Activities within one year and to refrain from any such new business Activities.
§12-6D-4. Identification of companies.
(a) Within forty five days after the effective date of this Act, the public fund shall make its best efforts to identify all scrutinized companies in which the public fund has direct or indirect holdings. Such efforts include: Reviewing and relying, as appropriate in the public fund's judgment, on publicly available information regarding companies that have invested more than $20 million in any given year since August 5, 1996 in Iran’s petroleum energy sector, including information provided by nonprofit organizations, research firms, international organizations, and government entities;
(b) By the first meeting of the public fund following the forty-five day period described in paragraph (a), the public fund shall assemble all scrutinized companies that fit criteria specified in subsection (j), section three of this article into a "Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List."
(c) The public fund shall update and make publicly available annually from the effective date of this article the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List based on evolving information from, among other sources, those listed in subsection (a).
§12-6D-5. Required Action.
The public fund shall adhere to the following procedure for assembling companies on the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List:
(a) Engagement.--
(1) For each company in which the public fund has direct holdings newly identified under subsection (b), section four of this article, the public fund shall send a written notice informing the company of its scrutinized company status and that it may become subject to divestment by the public fund. The notice must inform the company of the opportunity to clarify its Iran-related Activities and encourage the company, within ninety days, to cease its scrutinized business activities or convert such activities to inactive business activities in order to avoid qualifying for divestment by the public fund. Such notice shall be sent no later than one hundred thirty-five days after the effective date of this Act.
(2) If, within ninety days after the public fund's first engagement with a company pursuant to this subsection, the company announces by public disclosure substantial action specific to Iran, the public fund may maintain its direct holdings, but the company shall remain on the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List pending completion of its cessation of scrutinized business activities.
(b) Divestment.--
(1) If, after ninety days following the public fund's first engagement with a company pursuant to subsection (a), the company has not announced by public disclosure substantial action specific to Iran, or the public fund determines or becomes aware that the company continues to have scrutinized business activities, the public fund within eight months after the expiration of such ninety day period shall sell, redeem, divest, or withdraw all publicly traded securities of the company from the public fund's direct holdings.
(2) If the public fund determines or becomes aware that a company that ceased scrutinized business activities following engagement pursuant to subsection (a) has resumed such activities, the public fund shall send a written notice to the company under subsection (a) and this subsection also applies. The company also shall be immediately reintroduced onto the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List.
(3) The public fund shall monitor the scrutinized company that has announced by public disclosure substantial action specific to Iran and, if after one year the public fund determines or becomes aware that the company has not implemented such plan, within three months after the expiration of such one year period shall sell, redeem, divest, or withdraw all publicly traded securities of the company from the public fund's direct holdings, and the company also shall be immediately reintroduced onto the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List.
(c) Prohibition.--The public fund may not acquire securities of companies on the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List.
(d) Excluded securities.-- Notwithstanding the provisions of this article, subsections (b) and (e) do not apply to the public fund’s indirect holdings. However, the public fund shall submit letters to the managers of any managed investment funds containing companies on the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List that they consider removing such companies from the fund or create a similar actively managed fund having indirect holdings devoid of such companies. If the manager creates a similar fund devoid of such securities or if such funds are created elsewhere, the board shall determine within six months whether to replace all applicable investments with investments in the similar fund in an expedited time frame consistent with prudent investing standards. For the purposes of this section, a private equity fund is deemed to be an actively managed investment fund.
(e) Further exclusions.--Notwithstanding any other provision of this article, the public fund, when discharging its responsibility for operation of a defined contribution plan, shall engage the manager of the investment offerings in such plans requesting that they consider removing scrutinized companies from the investment offerings or create an alternative investment offering devoid of scrutinized companies. If the manager creates an alternative investment offering or if such funds are created elsewhere and is deemed by the public fund to be consistent with prudent investor standards, the public fund shall, within three or six months, consider including such investment offering in the plan.
§12-6D-6. Reporting.
(a) The public fund shall file a report with each member of the West Virginia Investment Management Board, the Governor, the President of the Senate, and the Speaker of the House of Representatives that includes the Scrutinized Companies with Activities in the Iran Petroleum Energy Sector List within thirty days after the list is created. This report shall be made available to the public.
(b) Annual meeting of the Board of Trustees thereafter, the public fund shall file a report, which shall be made available to the public and to each member of the West Virginia Investment Management Board, the Governor, the President of the Senate and the Speaker of the House of Representatives which includes:
(1) A summary of correspondence with companies engaged by the public fund under subsection (a), section five of this article;
(2) All investments sold, redeemed, divested, or withdrawn in compliance with subsection (b), section five of this article;
(3) All prohibited investments under subsection (c), section five of this article;
(4) Any progress made under subsection (d), section five of this article; and
(5) A list of all publicly traded securities held directly by this state.
§12-6D-7. Expiration.
This article expires upon the occurrence of any of the following:
(a) The Congress or President of the United States affirmatively and unambiguously states, by means including, but not limited to, legislation, executive order, or written certification from the President to Congress, that the government of Iran has ceased to pursue the capabilities to develop nuclear weapons and support international terrorism;
(b) The United States revokes all sanctions imposed against the government of Iran; or
(c) The Congress or President of the United States affirmatively and unambiguously declares, by means including, but not limited to, legislation, executive order, or written certification from the President to Congress, that mandatory divestment of the type provided for in this article interferes with the conduct of United States foreign policy.
§12-6D-8. Investment policy statement obligations.
With respect to Actions taken in compliance with this article, including all good faith determinations regarding companies as required by this article, the public fund is exempt from any conflicting statutory or common law obligations, including any such obligations with respect to choice of asset managers, investment funds, or investments for the public fund's securities portfolios.
§12-6D-9. Severability.
If any provision of this article or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the article that can be given effect without the invalid provision or application, and to this end the provisions of this article are severable. The Legislature hereby declares that it would have passed this article and each provision of this article, irrespective of the fact that any one or more provisions of this article might be declared invalid, illegal, unenforceable or unconstitutional, including, but not limited to, each of the engagement, divestment, and prohibition provisions of this article.
NOTE: The purpose of this bill is to require the West Virginia Investment Management Board to identify all companies in which public moneys are invested that are doing certain types of investments in Iran; to require the board to create and maintain certain scrutinized company lists that name all such companies; to require the board to divest of all directly-held, publicly traded securities of a scrutinized company under certain conditions; to require the board to file a report with each member of the West Virginia Investment Management Board, the President of the Senate, and the Speaker of the House of Representatives within a specified period after creation of each scrutinized companies list; and to require the annual filing of an updated report.
This article is new; therefore, strike-throughs and underscoring have been omitted.