SF 499 (LSB 2600XS (2) 89)

SENATE FILE 499

BY  GUTH

A BILL FOR

An Act relating to the investment of certain public funds in companies that are owned or controlled by Chinese military or government services.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 12.8, subsection 1, Code 2021, is amended to read as follows:
   1.  The treasurer of state shall invest or deposit, subject to chapters 12F, 12H, and 12J, and 12K and as provided by law, any of the public funds not currently needed for operating expenses and shall do so upon receipt of monthly notice from the director of the department of administrative services of the amount not so needed. In the event of loss on redemption or sale of securities invested as prescribed by law, and if the transaction is reported to the executive council, neither the treasurer nor director of the department of administrative services is personally liable but the loss shall be charged against the funds which would have received the profits or interest of the investment and there is appropriated from the funds the amount so required.
    Sec. 2.  NEW SECTION.  12K.1  Definitions.
   As used in this chapter, unless the context otherwise requires:
   1.  “Company” means a 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.
   2.  “Direct holdings” in a company means all securities of a company held directly by the public fund or in an account or fund in which the public fund owns all shares or interests.
   3.  “Indirect holdings” in a company means all securities of a company held in an account or 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 chapter. Indirect holdings include but are not limited to mutual funds, fund of funds, private equity funds, hedge funds, and real estate funds.
   4.  “Prohibited company” means a company that is owned or controlled by Chinese military or government services and that meets any of the following criteria:
   a.  The company has been designated by the United States government as a company that citizens of the United States are restricted or prohibited from entering into transactions with, including a designation in any of the following lists:
   (1)  The bureau of industry and security’s entity list.
   (2)  The bureau of industry and security’s military end user list.
   (3)  The department of defense’s communist Chinese military companies list.
   (4)  The office of foreign assets control’s foreign sanctions evaders list.
   (5)  The office of foreign assets control’s list of foreign financial institutions subject to correspondent account or payable-through account sanctions.
   (6)  The office of foreign assets control’s non-SDN Iran sanctions list.
   (7)  The office of foreign assets control’s non-SDN Palestinian legislative council list.
   (8)  The office of foreign assets control’s sectoral sanctions identifications list.
   (9)  The office of foreign assets control’s specially designated nationals and blocked persons list.
   b.  The company has been sanctioned in any way by the United States government.
   5.  “Public fund” means the treasurer of state, the state board of regents, the public safety peace officers’ retirement system created in chapter 97A, the Iowa public employees’ retirement system created in chapter 97B, the statewide fire and police retirement system created in chapter 411, or the judicial retirement system created in chapter 602.
   6.  “Scrutinized company” means any company that is owned or controlled by Chinese military or government services.
    Sec. 3.  NEW SECTION.  12K.2  Identification of companies —— notice.
   1.  a.  Within sixty days following the effective date of this Act, a public fund shall identify or have identified all scrutinized companies in which the public fund has direct or indirect holdings and shall create and make available to the public a scrutinized companies list for that public fund. The public fund shall review and update, if necessary, the scrutinized companies list on a quarterly basis thereafter.
   b.  In identifying or having identified scrutinized companies, the public fund may review and rely, in the best judgment of the public fund, on publicly available information and other information that may be provided by nonprofit organizations, research firms, international organizations, and government entities. The public fund may also contact asset managers and institutional investors for the public fund to identify scrutinized companies based upon industry-recognized lists of such companies that the public fund may have indirect holdings in.
   c.  The Iowa public employees’ retirement system, acting on behalf of the system and other public funds subject to this section, may develop and issue a request for proposals for third-party services to complete the identification of scrutinized companies and the compilation of a scrutinized companies list. The request for proposals may request bids for optional services related to this purpose, including but not limited to provision of notice of such scrutinized companies as required in subsection 2. The Iowa public employees’ retirement system shall consult with all other public funds regarding the development of the request for proposals, however selection of a successful proposal and the final scope of services to be provided shall be determined only by those public funds that have agreed to utilize the third-party services. If more than one public fund decides to utilize the third-party services, the participating public funds shall equally share the costs of such services.
   2.  For each company on the scrutinized companies list in which a public fund has direct or indirect holdings, the public fund shall send or have sent a written notice informing the company of the requirements of this chapter. The public fund or its representative shall continue to provide such written notice on an annual basis if the company remains a scrutinized company.
    Sec. 4.  NEW SECTION.  12K.3  Divestment.
   1.  A public fund shall not acquire publicly traded securities of a prohibited company.
   2.  a.  A public fund shall sell, redeem, divest, or withdraw all publicly traded securities of a prohibited company no later than sixty days following the date the company becomes a prohibited company or the effective date of this Act, whichever is earlier.
   b.  This subsection shall not be construed to require the premature or otherwise imprudent sale, redemption, divestment, or withdrawal of an investment, but such sale, redemption, divestment, or withdrawal shall be completed as provided by this subsection.
    Sec. 5.  NEW SECTION.  12K.4  Reports.
   1.  Each public fund shall, within thirty days after the scrutinized companies list is created or updated as required by section 12K.2, make the list available to the public.
   2.  On October 1, 2021, and each October 1 thereafter, each public fund shall make available to the public, and file with the general assembly, an annual report covering the prior fiscal year that includes all of the following:
   a.  The scrutinized companies list as of the end of the fiscal year.
   b.  A summary of all written notices sent as required by section 12K.2 during the fiscal year.
   c.  All investments sold, redeemed, divested, or withdrawn as provided in section 12K.3 during the fiscal year.
    Sec. 6.  NEW SECTION.  12K.5  Legal obligations.
   With respect to actions taken in compliance with this chapter, including all good-faith determinations regarding companies as required by this chapter, the public fund shall be 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.
    Sec. 7.  NEW SECTION.  12K.6  Applicability.
   The requirements of sections 12K.2, 12K.3, and 12K.4 shall not apply upon the occurrence of any of the following:
   1.  The United States congress or president of the United States, through legislation or executive order, declares that mandatory divestment of the type provided for in this chapter interferes with the conduct of United States foreign policy.
   2.  A controlling circuit or district court of the United States issues an opinion that declares the mandatory divestment of the type provided for in this chapter or similar statutes of other states is preempted by the federal law of the United States.
    Sec. 8.  Section 97A.7, subsection 1, Code 2021, is amended to read as follows:
   1.  The board of trustees shall be the trustees of the retirement fund created by this chapter as provided in section 97A.8 and shall have full power to invest and reinvest funds subject to the terms, conditions, limitations, and restrictions imposed by subsection 2 and chapters 12F, 12H, and 12J, and 12K and subject to like terms, conditions, limitations, and restrictions said trustees shall have full power to hold, purchase, sell, assign, transfer, or dispose of any of the securities and investments of the retirement fund which have been invested, as well as of the proceeds of said investments and any moneys belonging to the retirement fund. The board of trustees may authorize the treasurer of state to exercise any of the duties of this section. When so authorized the treasurer of state shall report any transactions to the board of trustees at its next monthly meeting.
    Sec. 9.  Section 97B.4, subsection 5, Code 2021, is amended to read as follows:
   5.  Investments.  The system, through the chief investment officer, shall invest, subject to chapters 12F, 12H, and 12J, and 12K and in accordance with the investment policy and goal statement established by the board, the portion of the retirement fund which, in the judgment of the system, is not needed for current payment of benefits under this chapter subject to the requirements of section 97B.7A.
    Sec. 10.  Section 262.14, unnumbered paragraph 1, Code 2021, is amended to read as follows:
   The board may invest funds belonging to the institutions, subject to chapters 12F, 12H, and 12J, and 12K and the following regulations:
    Sec. 11.  Section 411.7, subsection 1, Code 2021, is amended to read as follows:
   1.  The board of trustees is the trustee of the fire and police retirement fund created in section 411.8 and shall annually establish an investment policy to govern the investment and reinvestment of the moneys in the fund, subject to the terms, conditions, limitations, and restrictions imposed by subsection 2 and chapters 12F, 12H, and 12J, and 12K. Subject to like terms, conditions, limitations, and restrictions the system has full power to hold, purchase, sell, assign, transfer, or dispose of any of the securities and investments in which the fund has been invested, as well as of the proceeds of the investments and any moneys belonging to the fund.
    Sec. 12.  Section 602.9111, subsection 1, Code 2021, is amended to read as follows:
   1.  So much of the judicial retirement fund as may not be necessary to be kept on hand for the making of disbursements under this article shall be invested by the treasurer of state in any investments authorized for the Iowa public employees’ retirement system in section 97B.7A and subject to the requirements of chapters 12F, 12H, and 12J, and 12K, and the earnings therefrom shall be credited to the fund. The treasurer of state may execute contracts and agreements with investment advisors, consultants, and investment management and benefit consultant firms in the administration of the judicial retirement fund.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to the investment of certain public funds in companies that are owned or controlled by Chinese military or government services.
   The bill defines “company” as any entity or business association, including all subsidiaries, parent companies, or affiliates of such entities or business associations, that exist for profit-making purposes. The bill defines “direct holdings” in a company as all securities of a company held directly by the public fund or in an account or fund in which the public fund owns all shares or interests. The bill defines “indirect holdings” in a company as all securities of a company held in an account or 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 new Code chapter 12K. The bill defines “prohibited company” as a company that is owned or controlled by Chinese military or government services and that meets criteria enumerated in the bill. The bill defines “public fund” as the treasurer of state, the state board of regents, the public safety peace officers’ retirement system, the Iowa public employees’ retirement system (IPERS), the statewide fire and police retirement system, or the judicial retirement system. The bill defines “scrutinized company” as any company that is owned or controlled by Chinese military or government services.
   The bill requires a public fund to identify all scrutinized companies in which the public fund has direct or indirect holdings within 60 days following the effective date of the bill. Additionally, the bill requires a public fund to create and make available to the public a scrutinized companies list and review and update the list on a quarterly basis. The bill authorizes a public fund to review and rely on publicly available information and information from other sources when identifying scrutinized companies. The bill also authorizes IPERS to develop and issue a request for proposals for third-party services to complete the identification of scrutinized companies and the compilation of the scrutinized companies list. The bill requires a public fund to send notice to all companies on the scrutinized companies list on an annual basis informing the company of the requirements of the new Code chapter.
   The bill prohibits a public fund from acquiring publicly traded securities of a prohibited company. The bill requires a public fund to sell, redeem, divest, or withdraw all publicly traded securities of a prohibited company no later than 60 days following the date the company becomes a prohibited company, or the effective date of the bill, whichever is earlier.
   The bill requires each public fund, within 30 days after the scrutinized companies list is created or updated, to make the list available to the public. Additionally, the bill requires a public fund to make available to the public and file with the general assembly an annual report beginning October 1, 2021, and each October 1 thereafter.
   The bill provides that, with respect to actions taken in compliance with the Code chapter, 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.
   The bill provides that the provisions related to the creation of a scrutinized companies list, divestment of publicly traded securities of a prohibited company, and reporting shall not apply if the United States congress or president of the United States declares that mandatory divestment of the type provided for in this chapter interferes with the conduct of United States foreign policy, or a controlling circuit or district court of the United States issues an opinion that declares the mandatory divestment of the type provided for in the Code chapter or similar statutes of other states is preempted by the federal law of the United States.
   The bill makes conforming changes to Code sections 12.8, 97A.7, 97B.4, 262.14, 411.7, and 602.9111.