HSB 41 (LSB 1352YC (5) 90)

HOUSE FILE _____ 

BY  (PROPOSED COMMITTEE ON EDUCATION BILL BY CHAIRPERSON WHEELER)

A BILL FOR

An Act prohibiting the state board of regents from investing public moneys in companies that are owned or controlled by Chinese military or government services and including effective date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 262.14, unnumbered paragraph 1, Code 2023, is amended to read as follows:
   The board may invest funds belonging to the institutions, subject to section 262.14A, chapters 12F, 12H, and 12J, and the following regulations:
    Sec. 2.  NEW SECTION.  262.14A  Restrictions on China-related investments.
   1.  As used in this section:
   a.  “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.
   b.  “Direct holdings” in a company means all securities of a company held directly by the state board of regents or in an account or fund in which the state board of regents owns all shares or interests.
   c.  “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 state board of regents, in which the state board of regents owns shares or interests together with other investors not subject to the provisions of this section. Indirect holdings include mutual funds, fund of funds, private equity funds, hedge funds, and real estate funds.
   d.  “Prohibited company” means a company that is owned or controlled by Chinese military or government services or their instrumentalities, including the people’s liberation army of China or the communist party of China. “Prohibited company” includes a company in which the Chinese military or government services or their instrumentalities, including the people’s liberation army of China or the communist party of China, own a majority interest, either directly or indirectly.
   e.  “Scrutinized company” means any company that is owned or controlled by Chinese military or government services or their instrumentalities.
   2.  a.  On or before July 1, 2023, the state board of regents shall identify or have identified all scrutinized companies in which the state board of regents has direct or indirect holdings and shall create and make available to the public a scrutinized companies list. The state board of regents shall review and update, if necessary, the scrutinized companies list on a quarterly basis thereafter.
   b.  In identifying or having identified scrutinized companies, the state board of regents may review and rely, in the best judgment of the state board of regents, on publicly available information and other information that may be provided by nonprofit organizations, research firms, international organizations, and government entities. The state board of regents may also contact asset managers and institutional investors for the state board of regents to identify scrutinized companies based upon industry-recognized lists of such companies that the state board of regents may have indirect holdings in.
   3.  For each company on the scrutinized companies list in which the state board of regents has direct or indirect holdings, the state board of regents shall send or have sent a written notice informing the company of the requirements of this section. The state board of regents or its representative shall continue to provide such written notice on an annual basis if the company remains a scrutinized company.
   4.  The state board of regents shall not acquire publicly traded securities of a prohibited company.
   5.  a.  The state board of regents shall sell, redeem, divest, or withdraw all publicly traded securities of a prohibited company no later than one hundred eighty days following the date the company becomes a prohibited company.
   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.
   6.  The state board of regents shall, within thirty days after the scrutinized companies list is created or updated as required by subsection 2, make the list available to the public.
   7.  On October 1, 2024, and each October 1 thereafter, the state board of regents 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 subsection 3 during the fiscal year.
   c.  All investments sold, redeemed, divested, or withdrawn as provided in subsection 5 during the fiscal year.
   8.  With respect to actions taken in compliance with this section, including all good-faith determinations regarding companies as required by this section, the state board of regents 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 state board of regents’ securities portfolios.
   9.  The requirements of subsections 2 through 7 shall not apply if 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 section interferes with the conduct of United States foreign policy.
    Sec. 3.  EFFECTIVE DATE.  This Act, being deemed of immediate importance, takes effect upon enactment.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill prohibits the state board of regents from investing public moneys 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 state board of regents or in an account or fund in which the state board of regents 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 state board of regents, in which the state board of regents owns shares or interests together with other investors not subject to the provisions of this new Code section 262.14A. The bill defines “prohibited company” as a company that is owned or controlled by Chinese military or government services or their instrumentalities, including the people’s liberation army of China or the communist party of China. The bill defines “scrutinized company” as any company that is owned or controlled by Chinese military or government services or their instrumentalities.
   The bill requires the state board of regents to identify all scrutinized companies in which the state board of regents has direct or indirect holdings on or before July 1, 2023. Additionally, the bill requires the state board of regents 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 the state board of regents to review and rely on publicly available information and information from other sources when identifying scrutinized companies. The bill requires the state board of regents 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 section.
   The bill prohibits the state board of regents from acquiring publicly traded securities of a prohibited company. The bill requires the state board of regents to sell, redeem, divest, or withdraw all publicly traded securities of a prohibited company no later than 180 days following the date the company becomes a prohibited company.
   The bill requires the state board of regents, within 30 days after the scrutinized companies list is created or updated, to make the list available to the public. Additionally, the bill requires the state board of regents to make available to the public and file with the general assembly an annual report beginning October 1, 2024, and each October 1 thereafter.
   The bill provides that, with respect to actions taken in compliance with new Code section 262.14A, the state board of regents 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 state board of regents’ 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 new Code section 262.14A interferes with the conduct of United States foreign policy.
   The bill modifies Code section 262.14 to impose these same restrictions on the state board of regents’ investments of moneys belonging to the state university of Iowa, including the university of Iowa hospitals and clinics, the Iowa state university of science and technology, including the agricultural experiment station, the university of northern Iowa, the Iowa braille and sight saving school, the Iowa school for the deaf, the Oakdale campus, and the university of Iowa hospitals and clinics’ center for disabilities and development.
   The bill takes effect upon enactment.