HB2705 - 482R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 35, chapter 2, Arizona Revised Statutes, is amended by adding article 7, to read:

ARTICLE 7. SUDAN INVESTMENTS AND BUSINESS OPERATIONS

START_STATUTE35-391. Definitions

In this article, unless the context otherwise requires:

1. "Active business operations" means all business operations that are not inactive business operations.

2. "Business operations" means engaging in commerce in any form in Sudan, including 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.

3. "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 or parent companies or affiliates of such entities or business associations, that exists for profit-making purposes.

4. "Complicit" means taking actions during any preceding twenty-month period that have supported or promoted the genocidal campaign in Darfur, including 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.

5. "Direct holdings" means all publicly traded equity securities held directly by the public fund in which the public fund owns all shares or interests.

6. "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 on in the comprehensive peace agreement for Sudan, but does not include the regional government of southern Sudan.

7. "Inactive business operations" means the continued holding or renewal of rights to property previously operated for the purpose of generating revenues but not presently deployed for that purpose.

8. "Indirect holdings" means all publicly traded equity securities held in an account or fund, including 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 who are not subject to this article.

9. "Marginalized populations of Sudan" includes 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.

10. "Military equipment" means weapons, arms, military supplies and equipment that readily may be used for military purposes, including 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.

11. "Mineral extraction activities" includes exploring, extracting, processing, transporting or wholesale selling or trading of elemental minerals or associated metal alloys or ores, including gold, copper, chromium, chromite, diamonds, iron, iron ore, silver, tungsten, uranium and zinc, and facilitating those activities, including by providing supplies or services in support of those activities.

12. "Oil-related activities" includes 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 oilfield infrastructure and facilitating those activities, including by providing supplies or services in support of those activities, except that the retail sale of gasoline and related consumer products is not an oil-related activity.

13. "Power production activities" means any business operation that involves a project commissioned by the national electricity corporation of Sudan or other similar government of Sudan entity and whose purpose is to facilitate power generation and delivery, including 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 or facilitating those activities, including by providing supplies or services in support of those activities.

14. "Public fund" means the Arizona state retirement system established by title 38, chapter 5, article 2, the elected officials' retirement plan established by title 38, chapter 5, article 3, the public safety personnel retirement system established by title 38, chapter 5, article 4, the corrections officer retirement plan established by title 38, chapter 5, article 6 and the state treasurer investments authorized by section 35‑314.02.

15. "Scrutinized" means any business operations that involve contracts with or provision of supplies or services to the government of Sudan, companies in which the government of Sudan has any direct or indirect equity share, government of Sudan-commissioned consortiums or projects or companies involved in government of Sudan-commissioned consortiums or projects and any of the following applies:

(a) A material portion of the company's revenues or assets are attributed to Sudan and involve oil-related activities or mineral extraction activities, less than seventy-five per cent of the company's revenues or assets attributed to Sudan involve contracts with 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. The public fund has sole discretion to determine what is a material portion of revenues or assets.

(b) A material portion of the company's revenues or assets are attributed to Sudan and involve power production activities, less than seventy-five per cent 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. The public fund has sole discretion to determine what is a material portion of revenues or assets.

(d) The company supplies military equipment in 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 such as through post-sale tracking of that equipment by the company, certification from a reputable and objective third party that the equipment is not being used by a party participating in armed conflict in Sudan or sale of that equipment solely to the regional government of southern Sudan or any internationally recognized peacekeeping force or humanitarian organization. A social development company that is not complicit in the Darfur genocide shall not be considered to be a scrutinized company.

16. "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.

17. "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, and undertaking significant humanitarian efforts in conjunction with an international organization, the government of Sudan, the regional government of southern Sudan or a nonprofit entity and evaluated and certified by an independent third party to be substantial in relationship to the company's Sudan business operations and of benefit to 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. END_STATUTE

START_STATUTE35-392. Identification of companies

A. Within one hundred eighty days after the effective date of this article, the public fund shall make reasonable efforts to identify all scrutinized companies in which the public fund has direct holdings. Such efforts shall include the following:

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 nonprofit organizations, research firms, international organizations and government entities.

2. Contacting asset managers contracted by the public fund that invest in companies with business operations in Sudan.

3. Contacting other institutional investors that have divested from or engaged with companies that have business operations in Sudan.

B. Before the first meeting of the Public Fund following the one hundred eighty-day period, the public fund shall assemble all identified scrutinized companies into a scrutinized companies list.

C. The public fund shall update the scrutinized companies list on an annual basis based on information from those entities listed in subsection A. END_STATUTE

START_STATUTE35-393. Required actions

A. The public fund shall adhere to the following procedures for companies on the scrutinized companies list on an annual basis:

1. The public fund shall make reasonable efforts to determine the companies on the scrutinized companies list in which the public fund owns direct holdings.

2. For each company identified pursuant to paragraph 1 with only inactive business operations, the public fund shall send a written notice informing the company of this article 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 an annual basis.

3. For each company newly identified pursuant to 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 one hundred eighty 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 one hundred eighty 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 this section shall cease to apply to it unless it resumes scrutinized business operations. If, within one hundred eighty days after the public fund's first engagement, the company converts its scrutinized active business operations to inactive business operations, the company is subject to paragraph 2.

5. If, after one hundred eighty days following the public fund's first engagement with a company pursuant to paragraph 3, the company continues to have scrutinized active business operations, and only while that company continues to have scrutinized active business operations, the public fund shall sell, redeem, divest or withdraw all publicly traded securities of the company according to the following schedule:

(a) At least fifty per cent of assets shall be removed from the public fund's assets under management within twelve months after the company's most recent appearance on the scrutinized companies list.

(b) One hundred per cent of assets shall be removed from the Public Fund's assets under management within twenty-four months after the Company's most recent appearance on the Scrutinized Companies List.

(c) If a company that ceased scrutinized active business operations following engagement pursuant to paragraph 3 resumes such operations, subdivision (a) 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.

6. The public fund shall not acquire securities of companies on the scrutinized companies list that have active business operations, except as provided in paragraphs 7 and 8.

7. A company that the United States government affirmatively declares to be excluded from its present or any future federal sanctions regime relating to Sudan shall not be subject to divestment or investment prohibition pursuant to paragraphs 5 and 6.

8. Notwithstanding any other law, paragraphs 5 and 6 do not apply to indirect holdings in actively or passively managed investment funds or direct holdings in passively managed investment funds. The public fund shall annually 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 or passively managed fund devoid of such companies. If the manager creates a similar fund, the use of which would not require increased fees on the part of the public fund, the public fund shall replace all applicable investments with investments in the similar fund in an expedited time frame consistent with prudent investing standards.

B. For the purposes of this section, private equity funds shall be deemed to be actively managed investment funds. END_STATUTE

START_STATUTE35-394. Reporting

A. The public fund shall submit a publicly available report to the senate financial institutions, insurance and retirement committee and the house of representatives public institutions and retirement committee, or their successor committees, and the central procurement officer of this state that includes the scrutinized companies list within thirty days after the list is first created.

B. On or before January 31 of each year, the public fund shall submit a publicly available report to the senate financial institutions, insurance and retirement committee and the house of representatives public institutions and retirement committee, or their successor committees, that includes all of the following:

1. A summary of correspondence with companies engaged by the public fund pursuant to section 35-393, subsection A, paragraphs 2 and 3.

2. All investments sold, redeemed, divested or withdrawn in compliance with section 35-393, paragraph 5.

3. All prohibited investments under section 35-393, subsection A, paragraph 6.

4. Any progress made under section 35-393, subsection A, paragraph 8.

5. All investment costs associated with compliance with section 35‑393. END_STATUTE

START_STATUTE35-395. Other legal obligations; immunity

A. With respect to actions taken in compliance with this article, including all good faith determinations regarding companies as required by this article, a public fund, its board of directors and individual board members, agents, attorneys, trustees, officers, employees, custodians, fiduciaries, research firms and investment managers under contract with the public fund are 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.

B. With respect to all actions taken in good faith compliance with this article, a public fund, its board of directors and individual board members, agents, attorneys, trustees, officers, employees, custodians, fiduciaries, research firms and investment managers under contract with the public fund are immune from any liability.

C. A public fund, its board of directors and individual board members, agents, attorneys, trustees, officers, employees, custodians, fiduciaries, research firms and investment managers under contract with the public fund are indemnified from the state general fund and held harmless by this state from all claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including costs and attorney fees, and against all liability, losses and damages of any nature that the public fund, board of directors and individual board members, agents, attorneys, trustees, officers, employees, custodians, fiduciaries, research firms and investment managers under contract with the public fund may at any time sustain by reason of any decision to restrict, reduce or eliminate investments made in good faith compliance with this article. END_STATUTE

START_STATUTE35-396. Reinvestment in certain companies with scrutinized active business operations

Notwithstanding any other law, the public fund may cease divesting from certain scrutinized companies pursuant to section 35-393, subsection A, paragraph 5 or reinvest in certain scrutinized companies from which it divested pursuant to section 35-393, subsection A, paragraph 5 if a preponderance of the evidence shows that the value of the assets of the affected account of the public fund becomes equal to or less than ninety-nine and three-quarters per cent of the hypothetical value of the assets of the affected account of the public fund assuming no divestment for any company had occurred under section 35-393, subsection A, paragraph 5. For any cessation of divestment, reinvestment or subsequent ongoing investment authorized by this section, the public fund shall provide a written report to the senate financial institutions, insurance and retirement committee and the house of representatives public institutions and retirement committee, or their successor committees, in advance of initial reinvestment, updated annually thereafter as applicable, setting forth the reasons and justification, supported by a preponderance of the evidence, for its decisions to cease divestment, reinvest 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. END_STATUTE

START_STATUTE35-397. Prohibition on government contracts

A. This state and political subdivisions of this state shall ensure that each contract entered into by this state or a political subdivision of this state for the procurement of goods or services includes a clause that requires the contractor to certify to the contracting officer that the contractor does not have scrutinized business operations in Sudan.

B. If this state or a political subdivision of this state determines that the contractor has submitted a false certification under subsection A of this section, the state or political subdivision may impose remedies as provided by law. On the determination of a false certification under subsection A of this section, this state or a political subdivision of this state may terminate a covered contract.

C. This state or a political subdivision of this state shall notify the central procurement officer of this state of any contractor that has submitted a false certification under subsection A of this section.

D. Based on information reported in section 35-394, subsection A, the central procurement officer of this state shall compile and make available, on an annual basis, a list of parties excluded from Arizona procurement.

E. Based on information reported in section 35-394, subsection A, the central procurement officer of this state may suspend a contractor from eligibility for state or political subdivision contracts on the notification from the state or political subdivision of a false certification under subsection A of this section. The suspension period shall not exceed three years.

F. This section does not limit the use of other remedies available to this state or a political subdivision of this state or any other official of this state on the basis of a false certification under subsection A of this section.

G. The governor may waive the requirement of subsection A of this section on a case-by-case basis if the governor determines and certifies in writing to the central procurement officer of this state that it is in the state's best interest to do so.

H. Within one year after the effective date of this section, the central procurement officer of this state shall provide a written report to the senate financial institutions, insurance and retirement committee and the house of representatives public institutions and retirement committee, or their successor committees, and the governor on the actions taken under this section. END_STATUTE

Sec. 2. Delayed repeal; condition; notice

A. Title 35, chapter 2, article 7, Arizona Revised Statutes, as added by this act, is repealed on the earliest date that any of the following occurs:

1. The United States Congress or the President of the United States declares that the Darfur genocide has been halted.

2. The United States revokes all sanctions imposed against the government of Sudan.

3. The United States Congress or the President of the United States declares that the government of Sudan has honored its commitments to abide by the United Nations security council resolution 1769 (2007), 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.

4. The United States Congress or the President of the United States, through legislation or executive order, declares that divestment of the type provided for in this act interferes with conduct of United States foreign policy.

5. July 1, 2013.

B. The director of the Arizona state retirement system shall notify in writing the director of the Arizona Legislative Council of this date.

Sec. 3. Legislative findings and declarations

The legislature finds and declares that:

1. On July 23, 2004, the United States Congress declared that "atrocities unfolding in Darfur, Sudan are genocide".

2. On September 9, 2004, Secretary of State Colin L. Powell told the United States senate foreign relations committee that "genocide has occurred and may still be occurring in Darfur" and "the government of Sudan and Janjaweed bear responsibility".

3. On September 21, 2004, addressing the United Nations General Assembly, President George W. Bush affirmed the Secretary of State's findings 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".

4. On September 26, 2006, the United States 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".

5. The Darfur crisis represents the first time the United States government has labeled ongoing atrocities a genocide, imposing sanctions against the government of Sudan since 1997.

6. Since 1993, the United States Secretary of State has determined that the government of Sudan 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.

7. According to the former chairperson of the United States Securities and Exchange Commission, "the fact that a foreign company is doing material business with a country, government, or entity on [the United States Treasury Department's Office of Foreign Assets Control'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 a company".

8. A 2006 United States 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".

9. On December 31, 2007, President George W. Bush signed the Sudan accountability and divestment act of 2007, effectively authorizing state and local governments to divest from companies that support the Sudanese government at the expense of marginalized populations in Sudan.

10. The current Sudan divestment movement encompasses nearly one hundred universities, cities, states and private pension plans, with companies facing widespread divestment presenting further material risk to remaining investors.

11. It is the desire of the Legislature, with 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 support businesses, governments or countries that support the practice of genocide.

12. The divestment of public funds from certain companies is a measure that should be employed sparingly and judiciously, and a congressional and presidential declaration of genocide satisfies this high threshold.