HB-4903, As Passed House, July 24, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 4903

A bill to amend 1965 PA 314, entitled

"Public employee retirement system investment act,"

(MCL 38.1132 to 38.1140m) by adding section 13d.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 13d. (1) As used in this section:

(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 Iran, 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.

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) "Direct holdings" in a company means all securities of

that company held directly by the fiduciary or in an account or

fund in which the fiduciary owns all shares or interests.

(e) "Fiduciary" means the Michigan legislative retirement

system board of trustees for the Tier 1 plan for the Michigan

legislative retirement system created by the Michigan legislative

retirement system act, 1957 PA 261, MCL 38.1001 to 38.1080, and the

treasurer of this state for the retirement systems created under

all of the following acts:

(i) The state police retirement act of 1986, 1986 PA 182, MCL

38.1601 to 38.1648.

(ii) The judge's retirement act of 1992, 1992 PA 234, MCL

38.2101 to 38.2670.

(iii) The state employees retirement act, 1943 PA 240, MCL 38.1

to 38.69.

(iv) The public school employees retirement act of 1979, 1980

PA 300, MCL 38.1301 to 38.1408.

(f) "Government of Iran" means the government of Iran, its

instrumentalities, and companies owned or controlled by the

government of Iran.

(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 or

other commingled fund, managed by 1 or more persons not employed by

the fiduciary, in which the fiduciary owns shares or interests

together with other investors not subject to the provisions of this

act.

(i) "Iran" means the Islamic republic of Iran.

(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.

(k) "Mineral extraction activities" includes exploring,

extracting, processing, transporting, or wholesale selling or

trading of elemental minerals or associated metal alloys or oxides,

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" includes, but is 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) "Petroleum resources" means petroleum, petroleum

byproducts, or natural gas.

(n) "Power production activities" means any business operation

that involves a project commissioned by the government of Iran

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.

(o) "Scrutinized company" means any company that has business

operations that involve contracts with or provision of supplies or

services to the government of Iran; companies in which the

government of Iran has any direct or indirect equity share,

consortiums, or projects commissioned by the government of Iran; or

companies involved in consortiums and projects commissioned by the

government of Iran and 1 or more of the following:

(i) More than 10% of the company's total revenues or assets are

linked to Iran, and involve oil-related activities or mineral-

extraction activities, and the company has failed to take

substantial action.

(ii) The company has, with actual knowledge, on or after August

5, 1996, made an investment of $20,000,000.00 or more, or any

combination of investments of at least $10,000,000.00 each, which

in the aggregate equals or exceeds $20,000,000.00 in any 12-month

period, and which directly or significantly contributes to the

enhancement of Iran's ability to develop petroleum resources.

(p) "Substantial action" means adopting, publicizing, and

implementing a formal plan to cease scrutinized business operations

within 1 year and to refrain from any new business operations.

(2) Within 90 days after the effective date of the amendatory

act that added this section, the fiduciary shall make its best

efforts to identify all scrutinized companies in which the

fiduciary has direct or indirect holdings or could possibly have

such holdings in the future. The efforts may include 1 or more of

the following:

(a) Reviewing and relying, as appropriate in the fiduciary's

judgment, on publicly available information regarding companies

with business operations in Iran, including information provided by

nonprofit organizations, research firms, international

organizations, and government entities.

(b) Contacting asset managers contracted by the fiduciary that

invest in companies with business operations in Iran.

divested from or engaged with companies that have business

operations in Iran.

(d) Reviewing the laws of the United States regarding the

levels of business activity that would cause application of

sanctions against companies conducting business or investing in

countries that are designated state sponsors of terror.

(3) At the end of the 90-day period or by the first meeting of

the fiduciary following the 90-day period described in subsection

(2), the fiduciary shall assemble all scrutinized companies

identified into a scrutinized companies list.

(4) The fiduciary shall update the scrutinized companies list

on a quarterly basis based on evolving information from, among

other sources, those sources listed in subsection (2). The

fiduciary shall make the scrutinized companies list freely

available to the fiduciaries of other public retirement systems

located in this state if making the list available does not violate

any agreements with third parties or reveal proprietary information

of a third party.

(5) The fiduciary shall adhere to the following procedure for

companies on the scrutinized companies list:

(a) The fiduciary shall immediately determine the companies on

the scrutinized companies list in which the fiduciary oversees

pursuant to its responsibilities as described in subsection (1)(e).

(b) For each company identified in subdivision (a) with only

inactive business operations, the fiduciary shall send a written

notice informing the company of this section and encourage the

company to continue to refrain from initiating active business

operations in Iran until it is able to avoid scrutinized business

operations. The fiduciary shall continue the correspondence on a

semiannual basis.

active business operations, the fiduciary shall send a written

notice informing the company of its scrutinized company status and

that it may become subject to divestment by the fiduciary. The

notice shall offer the company the opportunity to clarify its Iran-

related activities and shall encourage the company, within 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 fiduciary.

(d) If, within 90 days following the fiduciary's first

engagement with a company pursuant to subdivision (c), 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 90 days following the fiduciary's first

engagement, the company converts its scrutinized active business

operations to inactive business operations, the company shall be

subject to this section.

(e) If, after 90 days following the fiduciary's first

engagement with a company pursuant to subdivision (c), the company

continues to have scrutinized active business operations, and only

while the company continues to have scrutinized active business

operations, the fiduciary shall sell, redeem, divest, or withdraw

all publicly traded securities of the company, according to the

following schedule:

(i) At least 50% of the assets shall be removed from the

fiduciary's assets under management within 9 months after the

company's most recent appearance on the scrutinized companies list.

(ii) 100% of the assets shall be removed from the fiduciary's

assets under management within 15 months after the company's most

recent appearance on the scrutinized companies list.

(f) Except as provided in subdivisions (g) and (h), at no time

shall the fiduciary acquire securities of companies on the

scrutinized companies list that have active business operations.

(g) No company which the United States government

affirmatively declares to be excluded from its present or any

future federal sanctions regime relating to Iran shall be subject

to divestment or investment prohibition pursuant to subdivisions

(e) and (f).

(h) Subdivisions (e) and (f) shall not apply to indirect

holdings in actively managed investment funds. For purposes of this

section, actively managed investment funds include private equity

funds and publicly traded funds. Before the fiduciary invests in a

new private equity fund that is not in the fiduciary's portfolio as

of the effective date of the amendatory act that added this

section, the fiduciary shall perform due diligence to prevent

investment in any private equity fund where the offering memorandum

or prospectus identifies the purpose of the private equity fund as

investing in scrutinized companies with active business operations

in Iran. The fiduciary is not required to identify holdings in

private equity funds or submit engagement letters to those funds.

If the manager of a publicly traded, actively managed fund that is

in the fiduciary's portfolio on the effective date of the

amendatory act that added this section creates a similar publicly

traded, actively managed fund with indirect holdings devoid of

identified scrutinized companies with scrutinized active business

operations as defined in this section, the fiduciary shall replace

all applicable investments with investments in the similar fund in

an expedited time frame consistent with prudent investment

standards.

(6) The fiduciary shall file a publicly available report to

the legislature that includes the scrutinized companies list within

30 days after the list is created. Annually thereafter, the

fiduciary shall file a publicly available report to the legislature

and send a copy of that report to the United States presidential

special envoy to Iran that includes all of the following:

(a) A summary of correspondence with companies engaged by the

fiduciary under this section.

(b) All investments sold, redeemed, divested, or withdrawn in

compliance with this section.

(d) Any progress made under subsection (5)(h).

(7) This section is no longer effective upon the occurrence of

1 or more of the following:

(a) The congress or president of the United States

affirmatively and unambiguously states, through legislation,

executive order, or written certification from the president to

congress, that the government of Iran has ceased to acquire weapons

of mass destruction and support international terrorism.

(b) The United States revokes all sanctions imposed against

the government of Iran.

affirmatively and unambiguously states, through legislation,

executive order, or written certification from the president to

congress, that mandatory divestment of the type provided for in

this section interferes with the conduct of United States foreign

policy.

(8) With respect to actions taken in compliance with this

section, including all good faith determinations regarding

companies as required by this section, the fiduciary shall be

exempt from any conflicting statutory or common law obligations,

including any obligations in respect to choice of asset managers,

investment funds, or investments for the fiduciary's securities

portfolios.

(9) The fiduciary, members of an investment advisory

committee, and any person with decision-making authority with

regard to investments of the fiduciary shall not be held liable for

any action undertaken for the purpose of complying with or

executing the mandates required under this section.

(10) If any provision, section, subsection, sentence, clause,

phrase, or word of this legislation or its application 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.