Chapter 093

2007 -- H 5142

Enacted 06/22/07

A N A C T

RELATING TO PUBLIC FINANCE -- STATE INVESTMENT COMMISSION --

INVESTMENTS IN SUDAN

Introduced By: Representatives Almeida, Ajello, Church, Diaz, and Slater

Date Introduced: January 23, 2007

It is enacted by the General Assembly as follows:

SECTION 1. Legislative Findings. -- It is hereby found by the general assembly as

follows:

(a) On July 23, 2004, the United States Congress declared that “the atrocities unfolding in

Darfur, Sudan, are genocide.”

(b) On September 9, 2004, Secretary of State Colin L. Powell told the U.S. Senate

Foreign Relations Committee that “genocide has occurred and may still be occurring in Darfur”

and “the Government of Sudan and the Janjaweed bear responsibility.”

(c) On September 21, 2004, addressing the United Nations General Assembly, President

George W. Bush affirmed the Secretary of State's finding and stated, “At this hour, the world is

witnessing terrible suffering and horrible crimes in the Darfur region of Sudan, crimes my

government has concluded are genocide.”

(d) On December 7, 2004, the U.S. Congress noted that the genocidal policy in Darfur

has led to reports of “systematic rape of thousands of women and girls, the abduction of women

and children, and the destruction of hundreds of ethnically African villages, including the

poisoning of their wells and the plunder of their crops and cattle upon which the people of such

villages sustain themselves.”

(e) Also on December 7, 2004, Congress found that “the Government of Sudan has

restricted access by humanitarian and human rights workers to the Darfur area through

intimidation by military and security forces, and through bureaucratic and administrative

obstruction, in an attempt to inflict the most devastating harm on those individuals displaced from

their villages and homes without any means of sustenance or shelter.”

(f) On September 25, 2006, Congress reaffirmed that “the genocide unfolding in the

Darfur region of Sudan is characterized by acts of terrorism and atrocities directed against

civilians, including mass murder, rape, and sexual violence committed by the Janjaweed and

associated militias with the complicity and support of the National Congress Party-led faction of

the Government of Sudan.”

(g) On September 26, 2006, the U.S. House of Representatives stated that “an estimated

300,000 to 400,000 people have been killed by the Government of Sudan and its Janjaweed allies

since the [Darfur] crisis began in 2003, more than 2,000,000 people have been displaced from

their homes, and more than 250,000 people from Darfur remain in refugee camps in Chad.”

(h) The Darfur crisis represents the first time the United States Government has labeled

ongoing atrocities a genocide.

(i) The Federal Government has imposed sanctions against the Government of Sudan

since 1997. These sanctions are monitored through the U.S. Treasury Department’s Office of

Foreign Assets Control (OFAC).

(j) According to a former chair of the U.S. Securities and Exchange Commission, “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.”

(k) Since 1993, the U.S. Secretary of State has determined that Sudan is a country the

government of which has repeatedly provided support for acts of international terrorism, thereby

restricting United States assistance, defense exports and sales, and financial and other transactions

with the Government of Sudan.

(l) A 2006 U.S. House of Representatives report states that “a company's association with

sponsors of terrorism and human rights abuses, no matter how large or small, can have a

materially adverse result on a public company's operations, financial condition, earnings, and

stock prices, all of which can negatively affect the value of an investment.”

(m) In response to the financial risk posed by investments in companies doing business

with a terrorist-sponsoring state, the Securities and Exchange Commission established its Office

of Global Security Risk to provide for enhanced disclosure of material information regarding

such companies.

(n) The current Sudan divestment movement encompasses nearly one hundred (100)

universities, cities, states, and private pension plans.

(o) Companies facing such widespread divestment present further material risk to

remaining investors.

(p) It is a fundamental responsibility of the state of Rhode Island to decide where, how,

and by whom financial resources in its control should be invested, taking into account numerous

pertinent factors.

(q) It is the prerogative and desire of the state of Rhode Island, in respect to investment

resources in its control and to the extent reasonable, with due consideration for, among other

things, return on investment, on behalf of itself and its investment beneficiaries, not to participate

in an ownership or capital-providing capacity with entities that provide significant practical

support for genocide, including certain non-United States companies presently doing business in

Sudan.

(r) It is the judgment of the Rhode Island general assembly that this act 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.

(s) It is the judgment of this Rhode Island general assembly that mandatory divestment of

public funds from certain companies is a measure that should be employed sparingly and

judiciously. A Congressional and Presidential declaration of genocide satisfies this high

threshold.

SECTION 2. Definitions. –

As used in this act, the following definitions shall apply:

(a) “Active business operations” means all business operations that are not inactive

business operations.

(b) “Business operations” means engaging in commerce in any form in Sudan, 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.

(c) “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, including all wholly-owned subsidiaries,

majority-owned subsidiaries, parent companies, or affiliates of such entities or business

associations, that exists for profit-making purposes.

(d) “Complicit” means taking actions during any preceding twenty (20) month period

which have directly supported or promoted the genocidal campaign in Darfur, including, but not

limited to, preventing Darfur’s victimized population from communicating with each other,

encouraging Sudanese citizens to speak out against an internationally approved security force for

Darfur, actively working to deny, cover up, or alter the record on human rights abuses in Darfur,

or other similar actions.

(e) “Direct holdings” in a company means all securities of that company held directly by

the public fund or in an account or fund in which the public fund owns all shares or interests.

(f) “Government of Sudan” means the government in Khartoum, Sudan, which is led by

the National Congress Party (formerly known as the National Islamic Front) or any successor

government formed on or after October 13, 2006 (including the coalition National Unity

Government agreed upon in the Comprehensive Peace Agreement for Sudan) and does not

include the regional government of southern Sudan.

(g) “Inactive business operations” 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.

(h) “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 the

public fund, in which the public fund owns shares or interests together with other investors not

subject to the provisions of this act.

(i) “Marginalized populations Of Sudan” include, but are not limited to, the portion of the

population in the Darfur region that has been genocidally victimized; the portion of the

population of southern Sudan victimized by Sudan’s North-South civil war; the Beja, Rashidiya,

and other similarly underserved groups of eastern Sudan; the Nubian and other similarly

underserved groups in Sudan’s Abyei, Southern Blue Nile, and Nuba Mountain regions; and the

Amri, Hamadab, Manasir, and other similarly underserved groups of northern Sudan.

(j) “Military equipment” means weapons, arms, military supplies, and equipment that

readily may be used for military purposes, including, but not limited to, radar systems or military-

grade transport vehicles; or supplies or services sold or provided directly or indirectly to any

force actively participating in armed conflict in Sudan.

(k) “Mineral extraction activities” include exploring, extracting, processing, transporting,

or wholesale selling or trading of elemental minerals or associated metal alloys or oxides (ore),

including gold, copper, chromium, chromite, diamonds, iron, iron ore, silver, tungsten, uranium,

and zinc, as well as facilitating such activities, including by providing supplies or services in

support of such activities.

(l) “Oil-related activities” include, but are not limited to, owning rights to oil blocks;

exporting, extracting, producing, refining, processing, exploring for, transporting, selling, or

trading of oil; constructing, maintaining, or operating a pipeline, refinery, or other oil-field

infrastructure; and facilitating such activities, including by providing supplies or services in

support of such activities, provided that the mere retail sale of gasoline and related consumer

products shall not be considered oil-related activities.

(m) “Power production activities” means any business operation that involves a project

commissioned by the National Electricity Corporation (NEC) of Sudan or other similar

government of Sudan entity whose purpose is to facilitate power generation and delivery,

including, but not limited to, establishing power-generating plants or hydroelectric dams, selling

or installing components for the project, providing service contracts related to the installation or

maintenance of the project, as well as facilitating such activities, including by providing supplies

or services in support of such activities.

(n) “Public fund” means Rhode Island state pension funds or the state investment

commission in charge of the Rhode Island state pension funds.

(o) “Scrutinized company" means any company that meets the criteria in subparagraph

(1), (2), or (3) below:

(1) The company has business operations that involve contracts with and/or provision of

supplies or services to: (A) the government of Sudan; (B) companies in which the government of

Sudan has any direct or indirect equity share; (C) government of Sudan-commissioned

consortiums or projects; or (D) companies involved in government of Sudan-commissioned

consortiums or projects; and

(i) More than ten percent (10%) of the company’s revenues or assets linked to Sudan

involve oil-related activities or mineral extraction activities; less than seventy-five percent (75%)

of the company’s revenues or assets linked to Sudan involve contracts with and/or provision of

oil-related or mineral extracting products or services to the regional government of southern

Sudan or a project or consortium created exclusively by that regional government; and the

company has failed to take substantial action; or

(ii) More than ten percent (10%) of the company’s revenues or assets linked to Sudan

involve power production activities; less than seventy-five percent (75%) of the company’s power

production activities include projects whose intent is to provide power or electricity to the

marginalized populations of Sudan; and the company has failed to take substantial action.

(2) The company is complicit in the Darfur genocide.

(3) The company supplies military equipment within Sudan, unless it clearly shows that

the military equipment cannot be used to facilitate offensive military actions in Sudan or the

company implements rigorous and verifiable safeguards to prevent use of that equipment by

forces actively participating in armed conflict, for example, through post-sale tracking of such

equipment by the company, certification from a reputable and objective third-party that such

equipment is not being used by a party participating in armed conflict in Sudan, or sale of such

equipment solely to the regional government of southern Sudan or any internationally recognized

peacekeeping force or humanitarian organization.

Notwithstanding anything herein to the contrary, a social development company which is

not complicit in the Darfur genocide shall not be considered a scrutinized company.

(p) “Social development company” means a company whose primary purpose in Sudan is

to provide humanitarian goods or services, including medicine or medical equipment, agricultural

supplies or infrastructure, educational opportunities, journalism-related activities, information or

information materials, spiritual-related activities, services of a purely clerical or reporting nature,

food, clothing, or general consumer goods that are unrelated to oil-related activities, mineral

extraction activities, or power production activities.

(q) “Substantial action” means adopting, publicizing, and implementing a formal plan to

cease scrutinized business operations within one year and to refrain from any such new business

operations; undertaking significant humanitarian efforts on behalf of one or more marginalized

populations of Sudan; or through engagement with the government of Sudan, materially

improving conditions for the genocidally victimized population in Darfur.

Section 3. Identification of Companies. –

(a) Within ninety (90) days following passage 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 or could possibly have such holdings in the future. Such efforts shall include, as

appropriate:

(1) Reviewing and relying, as appropriate in the public fund’s judgment, on publicly

available information regarding companies with business operations in Sudan, including

information provided by non-profit organizations, research firms, international organizations, and

government entities; and/or

(2) Contacting asset managers contracted by the public fund that invest in companies

with business operations in Sudan; and/or

(3) Contacting other institutional investors that have divested from and/or engaged with

companies that have business operations in Sudan.

(b) By the first meeting of the public fund following the ninety (90) day period described

in subsection (a), the public fund shall assemble all scrutinized companies identified into a

“scrutinized companies list.”

(c) The public fund shall update the scrutinized companies list on a quarterly basis based

on evolving information from, among other sources, those listed in subsection (a).

Section 4. Required Actions. –

The public fund shall adhere to the following procedures for companies on the

scrutinized companies list:

(a) Engagement:

(1) The public fund shall immediately determine the companies on the scrutinized

companies list in which the public fund owns direct or indirect holdings.

(2) For each company identified in paragraph (1) with only inactive business operations,

the public fund shall send a written notice informing the company of this act and encouraging it

to continue to refrain from initiating active business operations in Sudan until it is able to avoid

scrutinized business operations. The public fund shall continue such correspondence on a semi-

annual basis.

(3) For each company newly identified in paragraph (1) with active business operations,

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 shall offer the

company the opportunity to clarify its Sudan-related activities and shall encourage the company,

within ninety (90) days, to either cease its scrutinized business operations or convert such

operations to inactive business operations in order to avoid qualifying for divestment by the

public fund.

(4) If, within ninety (90) days following the public fund’s first engagement with a

company pursuant to paragraph (3), that company ceases scrutinized business operations, the

company shall be removed from the scrutinized companies list and the provisions of this section

shall cease to apply to it unless it resumes scrutinized business operations. If, within ninety (90)

days following the public fund’s first engagement, the company converts its scrutinized active

business operations to inactive business operations, the company shall be subject to all provisions

relating thereto.

(b) Divestment:

(1) If, after ninety (90) days following the public fund’s first engagement with a company

pursuant to subsection (a)(3), the company continues to have scrutinized active business

operations, and only while such company continues to have scrutinized active business

operations, the public fund shall sell, redeem, divest, or withdraw all publicly-traded securities of

the company, except as provided below, according to the following schedule:

(i) At least fifty percent (50%) of such assets shall be removed from the public fund’s

assets under management by nine (9) months after the company’s most recent appearance on the

scrutinized companies list.

(ii) One hundred percent (100%) of such assets shall be removed from the public fund’s

assets under management within fifteen (15) months after the company’s most recent appearance

on the scrutinized companies list.

(2) If a company that ceased scrutinized active business operations following engagement

pursuant to subsection (a)(3) resumes such operations, paragraph (1) shall immediately apply, and

the public fund shall send a written notice to the company. the company shall also be immediately

reintroduced onto the scrutinized companies list.

(c) Prohibition:

At no time shall the public fund acquire securities of companies on the scrutinized

companies list that have active business operations, except as provided below.

(d) Exemption:

No company which the United States government affirmatively declares to be excluded

from its present or any future federal sanctions regime relating to Sudan shall be subject to

divestment or investment prohibition pursuant to subsections (b) and (c).

(e) Excluded Securities:

Notwithstanding anything herein to the contrary, subsections (b) and (c) shall not apply to

indirect holdings in actively managed investment funds. The public fund shall, however, submit

letters to the managers of such investment funds containing companies with scrutinized active

business operations requesting that they consider removing such companies from the fund or

create a similar actively managed fund with indirect holdings devoid of such companies. If the

manager creates a similar fund, the public fund shall replace all applicable investments with

investments in the similar fund in an expedited timeframe consistent with prudent investing

standards. For the purposes of this section, “private equity” funds shall be deemed to be actively

managed investment funds.

Section 5. Reporting.—

(a) The public fund shall file a publicly-available report to the Rhode Island general

assembly and office of the attorney general that includes the scrutinized companies list within

thirty (30) days after the list is created.

(b) Annually thereafter, the public fund shall file a publicly-available report to the Rhode

Island general assembly and the office of the attorney general and send a copy of that report to the

United States Presidential Special Envoy to Sudan (or an appropriate designee or successor) that

includes:

(1) A summary of correspondence with companies engaged by the public fund under

subdivisions 4(a)(2) and (a)(3);

(2) All investments sold, redeemed, divested, or withdrawn in compliance with

subsection 4(b);

(3) All prohibited investments under subsection 4(c); and

(4) Any progress made under subsection 4(e).

Section 6. Provisions for repeal of act. –

This act shall be repealed upon affirmative action of the general assembly. Provided, that

in determining whether to repeal this act, by way of suggestion and guidance only and without

binding or in any way inhibiting the discretion of future sessions of the general assembly, it is

submitted that the occurrence of any of the following should be construed and deemed to be a

basis for repealing this act:

(a) The Congress or President of the United States declares that the Darfur genocide has

been halted for at least twelve (12) months; or

(b) The United States revokes all sanctions imposed against the government of Sudan; or

(c) The Congress or President of the United States declares that the government of Sudan

has honored its commitments to cease attacks on civilians, demobilize and demilitarize the

Janjaweed and associated militias, grant free and unfettered access for deliveries of humanitarian

assistance, and allow for the safe and voluntary return of refugees and internally displaced

persons; or

(d) The Congress or President of the United States, through legislation or executive order,

declares that mandatory divestment of the type provided for in this act interferes with the conduct

of United States foreign policy; or

(e) Such other circumstances as the general assembly determines to warrant the

discontinuance of the provisions of this chapter.

Section 7. Other Legal Obligations. –

With respect to actions taken in compliance with this act, including all good faith

determinations regarding companies as required by this act, the public fund shall be exempt from

any conflicting statutory or common law obligations, including any such obligations in respect to

choice of asset managers, investment funds, or investments for the public fund’s securities

portfolios.

Section 8. Reinvestment in Certain Companies with Scrutinized Active Business

Operations. –

Notwithstanding anything herein to the contrary, the public fund shall be permitted to

cease divesting from certain scrutinized companies pursuant to subsection 4(b) and/or reinvest in

certain scrutinized companies from which it divested pursuant to subsection 4(b) if clear and

convincing evidence shows that the value for all assets under management by the public fund

becomes equal to or less than ninety-nine and one-half percent (99.50%) or fifty (50) basis points

of the hypothetical value of all assets under management by the public fund assuming no

divestment for any company had occurred under subsection 4(b). Cessation of divestment,

reinvestment, and/or any subsequent ongoing investment authorized by this section shall be

strictly limited to the minimum steps necessary to avoid the contingency set forth in the preceding

sentence. For any cessation of divestment, reinvestment, and/or subsequent ongoing investment

authorized by this section, the public fund shall provide a written report to the Rhode Island

general assembly and the office of the attorney general in advance of initial reinvestment, updated

semi-annually thereafter as applicable, setting forth the reasons and justification, supported by

clear and convincing evidence, for its decisions to cease divestment, reinvest, and/or remain

invested in companies with scrutinized active business operations. This section has no application

to reinvestment in companies on the ground that they have ceased to have scrutinized active

business operations.

Section 9. Enforcement. –

The attorney general is charged with enforcing the provisions of this act and, through any

lawful designee, may bring such actions in court as are necessary to do so.

Section 10. Severability. –

If any one or more provision, section, subsection, sentence, clause, phrase, or word of this

legislation or the application thereof to any person or circumstance is found to be invalid, illegal,

unenforceable or unconstitutional, the same is hereby declared to be severable and the balance of

this legislation shall remain effective and functional notwithstanding such invalidity, illegality,

unenforceability or unconstitutionality. The Rhode Island general assembly hereby declares that

it would have passed this legislation, and each provision, section, subsection, sentence, clause,

phrase or word thereof, irrespective of the fact that any one or more provision, section,

subsection, sentence, clause, phrase, or word be declared invalid, illegal, unenforceable or

unconstitutional, including, but not limited to, each of the engagement, divestment, and

prohibition provisions of this legislation.

     SECTION 11. This act shall take effect upon passage.

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LC00470

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