SB-0846, As Passed Senate, January 17, 2008

SUBSTITUTE FOR

SENATE BILL NO. 846

A bill to prohibit the investment of certain state money or

other assets in companies with certain types of business operations

in countries designated as state sponsors of terror; to require

divestment of any current investments in those companies; and to

provide for the powers and duties of certain state and local

governmental officers and entities.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the

"divestment from terror act".

Sec. 2. As used in this act:

(a) "Active business operations" means all business operations

that are not inactive business operations. Active business

operations do not include the activities of any business, legal, or

governmental entity or institution that provides humanitarian aid

to the people of any state sponsors of terror.

(b) "Business operations" means engaging in commerce in any

form with a state sponsor of terror, 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 those 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 any of the following:

(i) The Michigan legislative retirement system board of

trustees for the Tier 1 retirement plan available under the

Michigan legislative retirement system act, 1957 PA 261, MCL

38.1001 to 38.1080.

(ii) The state treasurer for all of the following:

(A) The state police retirement system created under the state

police retirement act of 1986, 1986 PA 182, MCL 38.1601 to 38.1648.

(B) The Tier 1 retirement plan available under the judges

retirement act of 1992, 1992 PA 234, MCL 38.2101 to 38.2670.

employees retirement act, 1943 PA 240, MCL 38.1 to 38.69.

(D) The public school employees retirement system created

under the public school employees retirement act of 1979, 1980 PA

300, MCL 38.1301 to 38.1408.

(iii) The state treasurer in connection with his or her duties

under any of the following:

(A) 1946 (1st Ex Sess) PA 9, MCL 35.602 to 35.610.

(B) 1855 PA 105, MCL 21.141 to 21.147.

12.257.

(D) Children's trust fund under 1982 PA 249, MCL 21.171 to

21.172.

(E) The McCauley-Traxler-Law-Bowman-McNeely lottery act, 1972

PA 239, MCL 432.1 to 432.47.

(F) Section 503b of the natural resources and environmental

protection act, 1994 PA 451, MCL 324.503b.

(iv) The board of trustees of a community college subject to

the community college act of 1966, 1966 PA 331, MCL 389.1 to

389.195.

(v) The board of directors of the Michigan education trust

described in section 10 of the Michigan education trust act, 1986

PA 316, MCL 390.1430.

(vi) The board of the Michigan strategic fund under the

Michigan strategic fund act, 1984 PA 270, MCL 125.2001 to 125.2094.

(f) "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

that purpose.

(g) "Indirect holdings" in a company means all securities of

that company held in an account or fund, including 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.

(h) "Scrutinized company" means, except for a social

development company or a company that only meets the criteria of

this subdivision because an independently owned franchisee of that

company is a scrutinized company, any company that has business

operations that involve contracts with or provision of supplies or

services to a state sponsor of terror; companies in which a state

sponsor of terror has any direct or indirect equity share,

consortiums, or projects commissioned by a state sponsor of terror;

or companies involved in consortiums and projects commissioned by a

state sponsor of terror and 1 or more of the following:

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

directly invested in or earned from or significantly contributed to

a state sponsor of terror and the company has failed to take

substantial action.

(ii) The company has, with actual knowledge, 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 a state sponsor of terror, and the

company has failed to take substantial action.

(i) "Social development company" means a company licensed by

the United States department of treasury pursuant to the federal

trade sanction reform and export enhancement act of 2000, P.L. 106-

387, or a company lawfully operating under the laws of another

country, whose primary purpose in a state sponsor of terror is to

provide humanitarian goods or services including, food, other

agricultural products, supplies or infrastructure, clothing,

shelter, medicines or medical equipment, educational opportunities,

journalism-related activities, information or information

materials, spiritual-related activities, general consumer goods, or

services of a purely clerical or reporting nature, to aid the

inhabitants of a state sponsor of terror.

(j) "State sponsor of terror" means, subject to section 10 as

to applicability, any country determined by the United States

secretary of state to have repeatedly provided support for acts of

international terrorism.

(k) "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.

Sec. 3. Within 90 days after the effective date of this act,

the fiduciary shall make its best efforts to identify all

scrutinized companies in which the fiduciary has direct or indirect

holdings or has a current option to 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 a state sponsor of terror, 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 a state sponsor of

terror.

divested from or engaged with companies that have business

operations in a state sponsor of terror.

(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.

Sec. 4. (1) At the end of the 90-day period or by the first

meeting of the fiduciary following the 90-day period described in

section 3, the fiduciary shall assemble all scrutinized companies

identified into a scrutinized companies list.

(2) The fiduciary shall update the scrutinized companies list

described in subsection (1) on a quarterly basis based on evolving

information from, among other sources, those sources listed in

section 3. However, if a fiduciary receives credible information

that shows that a scrutinized company was wrongfully identified as

a scrutinized company, the fiduciary shall immediately modify the

scrutinized company list to remove the name of the scrutinized

company.

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

companies on the scrutinized companies list described in subsection

(1):

(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 section 2(e).

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

engagement with a company, that company ceases scrutinized business

operations, the company shall be removed from the scrutinized

companies list and this act shall cease to apply to it unless it

resumes scrutinized business operations. If, within 9 months

following the fiduciary's first engagement, the company converts

its scrutinized active business operations to inactive business

operations, the company shall not be subject to this act.

engagement with a company, if the company has not developed and

announced a plan to convert its active business operations to

inactive 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.

(d) Except as provided in subdivision (e), at no time shall

the fiduciary acquire securities of companies on the scrutinized

companies list that have active business operations.

(e) Subdivisions (c) and (d) 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 this act, the fiduciary shall perform due

diligence to prevent investment in any private equity fund in

violation of this act. 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

this act 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 act,

the fiduciary is not required to, but is strongly encouraged to,

replace all applicable investments with investments in the similar

fund in an expedited time frame consistent with prudent investment

standards.

Sec. 5. The department of treasury shall collect and publish

the following information on the department's internet website no

later than 1 year after the effective date of this act and shall

periodically update the information at reasonable intervals:

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

compliance with this section.

(b) All prohibited investments made under this section.

Sec. 6. (1) With respect to actions taken in compliance with

this act, including all good faith determinations regarding

companies as required by this act, 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.

(2) 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 act.

Sec. 7. If any provision, section, subsection, sentence,

clause, phrase, or word of this act 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.

Sec. 8. If a scrutinized company does business with the

government of Sudan and the fiduciary is subject to the divestment

provisions of section 13c of the public employee retirement system

investment act, 1965 PA 314, MCL 38.1133c, for that period of time

the fiduciary shall follow the divestment criteria contained in

section 13c of the public employee retirement system investment

act, 1965 PA 314, MCL 38.1133c, and not the divestment provisions

of this act.

Sec. 9. If a scrutinized company does business with the

government of Iran and the fiduciary is subject to the divestment

provisions of section 13d of the public employee retirement system

investment act, 1965 PA 314, MCL 38.1133d, for that period of time

the fiduciary shall follow the divestment criteria contained in

section 13d of the public employee retirement system investment

act, 1965 PA 314, MCL 38.1133d, and not the divestment provisions

of this act.

Sec. 10. If a state sponsor of terror is any of the following

countries, then the provisions of this act begin to apply on the

following dates:

(a) Syria, January 1, 2010.

(b) North Korea, January 1, 2011.

(d) Any other country, 12 months following the determination

by the United States secretary of state.

Sec. 11. Not later than October 1, 2010, October 1, 2011, and

October 1, 2012, and not later than 9 months immediately following

the determination of another country as a state sponsor of terror,

the department of treasury shall make recommendations to each house

of the legislature and to the standing committees of the senate and

house of representatives having jurisdiction over issues pertaining

to divestment of state funds on what statutory changes are needed

to improve the effectiveness of this act.

Enacting section 1. This act does not take effect unless all

of the following bills of the 94th Legislature are enacted into

law:

(a) House Bill No. 4854.