STATE OF OKLAHOMA

1st Session of the 53rd Legislature (2011)

HOUSE BILL 2034	By:	Sullivan

AS INTRODUCED

An Act relating to public retirement systems; enacting the Protecting Oklahoma’s Investments Act; defining terms; imposing duties on certain public retirement systems; requiring identification of certain scrutinized companies; requiring compilation of lists; requiring public retirement systems to provide notification to certain companies; prescribing content of notice; imposing time limitations; authorizing continued holdings based upon company response; prescribing procedures based upon certain noncompliance; requiring public retirement systems to divest certain holdings within prescribed period of time; prohibiting acquisition of certain assets within prescribed period; providing exemption for alternative investments or indirect holdings; requiring report to the Attorney General of the United States; requiring report to Governor, President Pro Tempore of the State Senate and Speaker of the Oklahoma House of Representatives; specifying required content of report; requiring updates to report; prescribing procedures based upon certain business activity conducted in Iran; prescribing procedures based upon certain business activity conducted in Sudan; authorizing performance of actions by public retirement systems; providing for indemnification for certain losses; requiring actions taken in good faith for purposes of indemnification; providing for indemnification for certain expenses; providing for continued indemnification rights to designated persons; prescribing notice procedures; providing for effect of amendments or repeals related to indemnity rights; requiring reimbursement to public retirement systems; prescribing procedures for reimbursement payments; providing for codification; providing an effective date; and declaring an emergency.

BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3201 of Title 62, unless there is created a duplication in numbering, reads as follows:
This act shall be known and may be cited as the "Protecting Oklahoma's Investments Act".
SECTION 2.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3202 of Title 62, unless there is created a duplication in numbering, reads as follows:
As used in this act:
1.  "Alternative investments" means an investment in a private equity fund, private debt fund, venture fund, real estate fund, hedge fund or absolute return fund;
2.  "Board" means the board of trustees for the following pension systems:
a.	the Oklahoma Firefighters Pension and Retirement System,
b.	the Oklahoma Police Pension and Retirement System,
c.	the Uniform Retirement System for Justices and Judges,
d.	the Oklahoma Law Enforcement Retirement System,
e.	the Teachers’ Retirement System of Oklahoma, and
f.	the Oklahoma Public Employees Retirement System;
3.  "Business activities" means owning or controlling property or assets located in, having employees or facilities located in, providing goods or services to, having distribution agreements with, issuing credit or loans to, purchasing bonds or commercial paper issued by, investing in or having equity ties to or with Iran, Sudan or any company domiciled in Iran or Sudan;
4.  "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 a profit;
5.  "Direct holdings" means all securities of a company that are held directly by the public fund;
6.  "Foreign company" means any entity which is not organized under the laws of the United States;
7.  "Government of Iran" means the government of Iran and its instrumentalities and companies owned or controlled by the government of Iran;
8.  "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 the National Unity Government agreed upon in the Comprehensive Peace Agreement for Sudan.  The term does not include the regional government of southern Sudan;
9.  "Inactive business activities" 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;
10.  "Indemnitee" means each current or former board member, duly appointed designee of a board member, officer, employee, including, without limitation, the attorneys that serve a public fund, agent, research firm or investment manager of a public fund who was or is a party to, or is threatened to be made a party to, or is otherwise involved in any proceeding by reason of the fact that the person is or was a board member, designee of a board member, officer, employee, agent, research firm or investment manager of a public fund;
11.  "Indirect holdings" means all securities held in an account or fund such as a mutual fund managed by one or more persons not employed by a public fund, in which the public fund owns shares or interests together with other investors;
12.  "Iran" means the Islamic Republic of Iran;
13.  "List of State Sponsors of Terrorism" means the list of countries designated by the United States Secretary of State as having repeatedly provided support for acts of international terrorism as reported annually in Country Reports on Terrorism under Section 140 of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989 (Public Law 100-24, 26 U.S.C. § 2656(f));
14.  "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;
15.  "Military equipment" means weapons, arms, military supplies and equipment that may be used readily for military purposes, including, but not limited to, radar systems or military-grade transport vehicles.  This term shall also include supplies or services sold or provided directly or indirectly to any force actively participating in armed conflict in Sudan;
16.  "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;
17.  "Oil-related activities" means all of the following:
a.	development of petroleum or natural gas resources of Iran or Sudan.  This paragraph does not include the mere sale of gasoline and related consumer products,
b.	owning rights to oil or natural gas blocks,
c.	exporting, extracting, producing, refining, processing, exploring for, transporting, selling or trading oil or natural gas,
d.	constructing, maintaining or operating any pipeline, refinery, liquefaction facility or other oil or natural gas infrastructure, or
e.	facilitating activities referred to in subparagraph a, b, c or d, including by supplying services in support of the activities;
18.  "Power production activities" means business activities that involve 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;
19.  "Proceeding" means any threatened, pending or completed action, suit or proceeding, including, without limitation, an action, suit or proceeding by or in the right of a public fund, relating to compliance with any investment limitations imposed by statute, whether civil, criminal, administrative, investigative or through arbitration;
20.  "Public fund" means any of the following:
a.	the Oklahoma Firefighters Pension and Retirement System;
b.	the Oklahoma Police Pension and Retirement System;
c.	the Uniform Retirement System for Justices and Judges;
d.	the Oklahoma Law Enforcement Retirement System;
e.	the Teachers’ Retirement System of Oklahoma; and
f.	the Oklahoma Public Employees Retirement System;
21.  "Scrutinized business activities" means business activities that have resulted in a company becoming a scrutinized company;
22.  "Scrutinized company" means any of the following:
a.	any foreign company that has:
(1)	invested at least Twenty Million Dollars ($20,000,000.00) in oil-related activities in Iran in any twelve-month period since August 5, 1996,
(2)	supplied military equipment to the government of Iran within the twelve-month period prior to the effective date of this section, or
(3)	knowingly and intentionally violated the United States export controls with respect to Iran during the twelve-month period prior to the effective date of this section,
b.	any foreign company that meets the criteria set forth either in division (1) or (2) of this subparagraph:
(1)	the company has business activities 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 equity share, government-of-Sudan-commissioned consortiums or projects, or companies involved in government-of-Sudan-commissioned consortiums or projects, and
(a)	more than ten percent (10%) of the company's revenue 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 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 specific to Sudan, or
(b)	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 specific to Sudan,
(2)	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 postsale 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.
The term does not include a foreign company that is a social development company;
23.  "Social development company" means a company whose primary purpose in Iran or 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;
24.  "Substantial action specific to Iran" means adopting, publicizing and implementing a formal plan to cease scrutinized business activities within one (1) year and to refrain from any such new business activities in Iran;
25.  "Substantial action specific to Sudan" means adopting, publicizing and implementing a formal plan to cease scrutinized business activities within one (1) year and to refrain from any such new business activities; 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 activities 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; and
26.  "Sudan" means the Democratic Republic of Sudan.
SECTION 3.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3203 of Title 62, unless there is created a duplication in numbering, reads as follows:
A.  Within ninety (90) days after the effective date of this section, a public fund shall make its best effort to identify all scrutinized companies in which the public fund has direct holdings.  A public fund shall review, as appropriate in the public fund's judgment, publicly available information regarding foreign companies that have scrutinized business activities, including information provided by nonprofit organizations, research firms, international organizations and government entities.
B.  By the first meeting of a public fund following the time period under subsection A of this section, the public fund shall assemble all scrutinized companies that fit the criteria specified in division (1) of subparagraph a of the definition of "scrutinized company" contained in paragraph 22 of Section 2 of this act into a Scrutinized Companies with Activities in Iran List and shall assemble all scrutinized companies that fit criteria specified in division (2) of subparagraph b of the definition of "scrutinized company" contained in paragraph 22 of Section 2 of this act into a Scrutinized Companies with Activities in Sudan List.
SECTION 4.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3204 of Title 62, unless there is created a duplication in numbering, reads as follows:
A.  A public fund shall adhere to the procedures under this section for determining companies on its Scrutinized Companies with Activities in Iran List and Scrutinized Companies with Activities in Sudan List that qualify for divestment.
B.  For each company on a public fund's Scrutinized Companies with Activities in Iran List or Scrutinized Companies with Activities in Sudan List in which the public fund has direct holdings, the public fund shall send a written notice informing the company of its scrutinized company status and specify the business activities which have resulted in this determination and that it may become subject to divestment by the public fund.  The notice must inform the company of the opportunity to clarify its scrutinized business activities and encourage the company, within one hundred eighty (180) days of the date of receipt of the notice, to cease its scrutinized business activities in Iran, Sudan or both, or convert the activities to inactive business activities in order to avoid qualifying for divestment by the public fund.  The notice shall be sent no later than one hundred twenty (120) days after the effective date of this section.  If, within one hundred eighty (180) days of the date of receipt of a notice under this subsection, a company announces by public disclosure substantial action specific to Iran or substantial action specific to Sudan, the public fund may maintain its holdings, but the company shall remain on the Scrutinized Companies with Activities in Iran List or Scrutinized Companies with Activities in Sudan List pending completion of the companies' cessation of scrutinized business activities.  Following completion of a company's cessation of scrutinized business activities, the public fund shall remove the company from its Scrutinized Companies with Activities in Iran List or Scrutinized Companies with Activities in Sudan List.
C.  If, after one hundred eighty (180) days following the effective date of receipt of the notice under subsection B of this section, a company has not announced by public disclosure substantial action specific to Iran, substantial action specific to Sudan or both as specified in the notice, or the public fund determines or becomes aware that the company continues to have scrutinized business activities, the public fund, within twenty-six (26) months after the one-hundred-eighty-day period, shall sell, redeem, divest or withdraw from its direct holdings all securities of the company.  If a public fund determines or becomes aware that a company that ceased scrutinized business activities following engagement under subsection B of this section has resumed the activities, the public fund shall send a written notice to the company under subsection B of this section, and the company shall be immediately placed onto the public fund's Scrutinized Companies with Activities in Iran List or Scrutinized Companies with Activities in Sudan List.  A public fund shall monitor a scrutinized company that has announced by public disclosure substantial action specific to Iran, substantial action specific to Sudan or both.  If after one (1) year the public fund determines or becomes aware that the company has not implemented the plan, within twenty-six (26) months after the expiration of the one-year period, the public fund shall sell, redeem, divest or withdraw from its direct holdings all securities of the company.
D.  A public fund may not acquire securities of a company on its Scrutinized Companies with Activities in Iran List or Scrutinized Companies with Activities in Sudan List.
E.  Nothing in this act shall apply to the public fund's holdings in alternative investments or indirect holdings.
SECTION 5.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3205 of Title 62, unless there is created a duplication in numbering, reads as follows:
A.  Within thirty (30) days of the passage of this act, administrators of the public fund shall file a written report to the United States Attorney General detailing the requirements contained in this act.
B.  A public fund shall, within one (1) year of assembly of its Scrutinized Companies with Activities in Iran List and Scrutinized Companies with Activities in Sudan List, provide a report to the Governor, the President Pro Tempore of the Senate, and the Speaker of the Oklahoma House of Representatives.  The report shall include the items required under subsection C of this section.  The report shall be made available to the public.
C.  The report under subsection B of this section shall include the most recent Scrutinized Companies with Activities in Iran List and Scrutinized Companies with Activities in Sudan List and all of the following:
1.  A summary of correspondence with scrutinized companies engaged by the public fund under Section 4 of this act;
2.  All investments sold, redeemed, divested or withdrawn in compliance with subsection C of Section 4 of this act, the costs and expenses of such transfers, and a determination of net gain or loss on account of such transactions incurred in compliance with the provisions of this act;
3.  All prohibited investments under subsection D of Section 4 of this act; and
4.  A list of all publicly traded securities held by the public fund.
D.  A public fund shall do all of the following:
1.  Annually update, based on evolving information under paragraph 3 of subsection C of this section, and make publicly available its Scrutinized Companies with Activities in Iran List and Scrutinized Companies with Activities in Sudan List; and
2.  Provide a copy of the lists under paragraph 1 of this subsection, including updates, to all other public funds.
SECTION 6.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3206 of Title 62, unless there is created a duplication in numbering, reads as follows:
A.  A public fund shall have no obligations under this act with respect to a company engaged in business activities in Iran upon the occurrence of any of the following:
1.  Iran does not appear on the List of State Sponsors of Terrorism; and
2.  The President or Congress 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.
B.  A public fund shall have no obligations under this act with respect to a company engaged in business activities in Sudan upon the occurrence of any of the following:
1.  The President or Congress of the United States declares Darfur genocide has been halted for at least twelve (12) months;
2.  Sudan does not appear on the list of State Sponsors of Terrorism;
3.  The President or Congress 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 under the Sudan Accountability and Divestment Act of 2007 (P.L. 110-174, 121 Stat. 2516); and
4.  The President or Congress 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.
SECTION 7.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3207 of Title 62, unless there is created a duplication in numbering, reads as follows:
A public fund may perform any action necessary to comply with this act, notwithstanding the provisions of any other law, including, but not limited to, any fiduciary or prudent investing responsibilities as prescribed by law and any obligations of a public fund with respect to choice of asset managers, investment funds or investments for the public fund's securities portfolios.
SECTION 8.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3208 of Title 62, unless there is created a duplication in numbering, reads as follows:
A.  Each indemnitee shall be indemnified and held harmless by the State of Oklahoma for all good-faith actions taken by the indemnitee and for all good-faith failures to take action, regardless of the date of any such action or failure to take action, in connection with attempts to comply with any investment limitations imposed by statute against all expense, liability and loss, including, without limitation, attorney fees, judgments, fines, taxes, penalties and amounts paid or to be paid in settlements reasonably incurred or suffered by the indemnitee in connection with any proceeding.
B.  The right to indemnification provided in this section shall include the right to have the expenses reasonably incurred by the indemnitee in defending any proceeding paid by the State of Oklahoma in advance of the final disposition of the proceeding upon the receipt by the State of Oklahoma of a written undertaking by the indemnitee to refund the amounts so advanced if it is ultimately determined that the indemnitee is not entitled to indemnification under this section.
C.  Indemnification pursuant to this section shall continue as to an indemnitee who has ceased to be a board member, designee of a board member, officer or employee of a public fund and shall inure to the benefit of such person's legal representatives, heirs, executors and administrators.
D.  To the extent that the State of Oklahoma does not make any indemnification payments, including any advancement of legal fees and expenses, within thirty (30) days of demand therefor, a public fund shall make such payment and the State of Oklahoma shall reimburse the public fund.
E.  The repeal, expiration or amendment of any provision of this section shall not limit the rights of any indemnitee to indemnification, including advancement of expenses, with respect to any action or failure to act occurring prior to the effective date of such repeal or amendment.
SECTION 9.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 3209 of Title 62, unless there is created a duplication in numbering, reads as follows:
The State of Oklahoma shall reimburse each public fund for their net losses, costs and expenses incurred as a result of compliance with the provisions of this act.  The reimbursements shall occur in the following manner:
1.  The public fund shall submit to the Director of the Office of State Finance an itemization of the amount necessary to be appropriated by the Legislature to reimburse the public fund for their net losses, costs and expenses incurred as a result of compliance with the provisions of this act in the previous fiscal year.  To the extent the public fund experiences net gains as a result of compliance with the provisions of this act in a fiscal year, the net gains shall be used to offset any reported costs or expenses incurred by the public fund;
2.  In consultation with each public fund, the Director of the Office of State Finance shall annually establish a uniform method for the determination of gains and losses.  The method shall be used by each public fund in making a claim for reimbursement under this section.  The budget submission shall be on a form and in a manner determined by the Director of the Office of State Finance, including net losses, along with an itemized accounting of all costs and expenses claimed by the public fund.  Budget submission shall occur no later than November 1 following the fiscal year in which the net losses, costs and expenses were incurred; and
3.  Upon appropriation by the Legislature to provide for the obligations of the State of Oklahoma, the amount shall be paid by the State Treasurer into the public fund within ninety (90) days of receipt of the requisition presented by the public fund.
SECTION 10.  This act shall become effective July 1, 2011.
SECTION 11.  It being immediately necessary for the preservation of the public peace, health and safety, an emergency is hereby

declared to exist, by reason whereof this act shall take effect and be in full force from and after its passage and approval.

53-1-5584	MAH	01/14/11
THOMAS E. CUMMINS  CONSULTING ACTUARY, INC.
2512 E. 71st  Street,  Suite D ∙  Tulsa, Oklahoma 74136                             (918) 492-9658  ∙ (918) 492-9659

January 14, 2011

Representative Daniel Sullivan 
Room 435

Re: RBH No. 5584

RBH No. 5584 requires all the State’s retirement systems divest their investments of companies that do business with certain countries that sponsor terrorism.

RBH No. 5584 is a nonfiscal retirement bill as defined by the Oklahoma Pension Legislation Actuarial Analysis Act.

Thomas E. Cummins

Thomas E. Cummins, MAAA