Employees' Retirement System; Uganda Divestment
Prohibits the employees' retirement system from acquiring securities of companies that have active business operations with Uganda.
HOUSE OF REPRESENTATIVES
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO THE EMPLOYEES' RETIREMENT SYSTEM.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Legislative findings. The legislature finds that:
(1) For more than twenty years, the Government of Uganda has been engaged in an armed conflict with the Lord's Resistance Army, an armed rebel group backed by the government of Uganda; and
(2) United Nations relief officials have repeatedly expressed concern about the neglected humanitarian crisis in northern Uganda, which has resulted in ten thousand people murdered, at least twice that number of children abducted, and over 1.6 million people displaced; and
(3) The Secretary of State Condoleezza Rice has labeled the Lord's Resistance Army "vicious and cult-like" and designates it as a terrorist organization under the Immigration and Nationality Act;
(4) On October 20, 2006, the Congressional Research Service reported that "a number of attempts in the past at a negotiated settlement with the Lord's Resistance Army failed, in large part due to Lord's Resistance Army intransigence and the government of Uganda’s inconsistent positions";
(5) On March 6, 2007, the Department of State released its 2006 Country Reports on Human Rights Practices, which declared that the Ugandan "government's human rights record remained poor" and cited a long list of serious problems, including the following: unlawful killings by security forces; disappearances; security forces use of torture and abuse of suspects; vigilante justice; harsh prison conditions; official impunity; arbitrary arrest; abuse of internally displaced persons; restrictions on opposition parties; government corruption; restrictions on the right to a fair trial and on freedoms of speech, the press, and association; limited freedom of religion; violence and abuse of children, particularly sexual abuse; trafficking in persons; violence and discrimination against people with disabilities; forced labor, including by children;
(6) The 110th United States Congress introduced legislation in 2007 calling on the government of Uganda and the Lord's Resistance Army to recommit to a political solution to the conflict in northern Uganda and to recommence vital peace talks;
(7) On September 5, 2007, the Assistant Secretary of State for African Affairs stated that the United States supports "an internal [peace] process and African-led mediation" as the best way to end the conflict in northern Uganda;
(8) On October 30, 2007, President George W. Bush discussed the long-running conflict in northern Uganda with Ugandan President Yoweri Museveni, stressing that the situation needs to move toward peace;
(9) A 2006 United States House of Representatives report states that "a company's association with sponsors of terrorism and human rights abuses, no matter how large or small, can have a materially adverse result on a public company's operations, financial condition, earnings, and stock prices, all of which can negatively affect the value of an investment";
(10) It is a fundamental responsibility of the State to decide where, how, and by whom financial resources in its control should be invested, taking into account numerous pertinent factors;
(11) It is the prerogative and desire of the State, in respect to investment resources in its control and to the extent reasonable, with due consideration for, among other things, return on investment, on behalf of itself and its investment beneficiaries, not to participate in an ownership or capital-providing capacity with entities that provide significant practical support for genocide and other violence, including certain non-United States companies presently doing business in Uganda;
(12) It is the judgment of the legislature that this Act should remain in effect only insofar as it continues to be consistent with, and does not unduly interfere with, the foreign policy of the United States as determined by the federal government; and
(13) It is the judgment of this legislature that mandatory divestment of public funds from certain companies is a measure that should be employed sparingly and judiciously. A Congressional and presidential declaration of genocide satisfies this high threshold.
SECTION 2. Definitions. As used in this Act, the following definitions shall apply:
"Active business operations" means all business operations that are not inactive business operations.
"Business operations" means engaging in commerce in any form in Uganda, 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.
"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, including all wholly-owned subsidiaries, majority-owned subsidiaries, parent companies, or affiliates of such entities or business associations, that exists for profit-making purposes.
"Complicit" means taking actions during any preceding twenty-month period which have directly supported or promoted the genocidal campaign in Uganda, including but not limited to preventing Uganda's victimized population from communicating with each other, actively working to deny, cover up, or alter the record on human rights abuses in Uganda, or other similar actions.
"Direct holdings" in a company means all securities of that company held directly by the public fund or in an account or fund in which the public fund owns all shares or interests.
"Government of Uganda" means the government, which is led by President Yoweri Museveni and its armed forces, the Uganda People's Defense Forces.
"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.
"Indirect holdings" in a company means all securities of that company held in an account or fund, such as a mutual 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 this Act.
"Marginalized populations of Uganda" include but are not limited to the population in northern Uganda that has been genocidally victimized, trafficked, and displaced.
"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; or supplies or services sold or provided directly or indirectly to any force actively participating in armed conflict in Uganda.
"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.
"Oil-related activities" include but are 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.
"Power production activities" means any business operation that involves a project commissioned by the Uganda Electricity Generation Company or other similar government of Uganda 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.
"Public fund" means the employees' retirement system of the State of Hawaii or the board of trustees in charge of the employees' retirement system.
"Scrutinized company" means any company that meets any of the following criteria:
(1) The company has business operations that involve contracts with or provision of supplies or services to the government of Uganda; companies in which the government of Uganda has any direct or indirect equity share; government of Uganda-commissioned consortiums or projects; or companies involved in government of Uganda-commissioned consortiums or projects:
(A) A material portion of the company's revenues or assets linked to Uganda involve oil-related activities or mineral extraction activities; the company does not contract directly with the regional government of southern Uganda or a project or consortium created exclusively by that regional government; and the company has failed to take substantial action; or
(B) A material portion of the company's revenues or assets linked to Uganda involve power production activities; most of such activities do not include projects whose intent is to provide power or electricity to the marginalized populations of Uganda; and the company has failed to take substantial action;
(2) The company is complicit in the Uganda genocide; or
(3) The company supplies military equipment within Uganda, unless it clearly shows that the military equipment cannot be used to facilitate offensive military actions in Uganda or the company implements rigorous and verifiable safeguards to prevent use of that equipment by forces actively participating in armed conflict, for example, through post-sale tracking of the equipment by the company, certification from a reputable and objective third party that the equipment is not being used by a party participating in armed conflict in Uganda, or sale of the equipment solely to the regional government of southern Uganda or any internationally-recognized peacekeeping force or humanitarian organization.
Notwithstanding anything in this Act to the contrary, a social development company which is not complicit in the Ugandan genocide shall not be considered a scrutinized company.
"Social development company" means a company whose primary purpose in Uganda 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 that are unrelated to oil-related activities, mineral extraction activities, or power production activities.
"Substantial action" means adopting, publicizing, and implementing a formal plan to cease scrutinized business operations within one year and to refrain from any new business operations; undertaking significant humanitarian efforts on behalf of one or more marginalized populations of Uganda; or through engagement with the government of Uganda, materially improving conditions for the genocidally victimized population in Uganda.
SECTION 3. Identification of companies. (a) Within one hundred eighty days following passage of this Act, the public fund shall make its best efforts to identify all scrutinized companies in which the public fund has direct holdings. Those efforts shall include, as appropriate:
(1) Reviewing publicly available information regarding companies with business operations in Uganda. In conducting the review, the public fund may rely on information provided by nonprofit organizations, research firms, international organizations, and government entities;
(2) Contacting asset managers contracted by the public fund that invest in companies with business operations in Uganda; and
(3) Contacting other institutional investors that have divested from or engaged with companies that have business operations in Uganda.
(b) By the first meeting of the public fund following the one hundred eighty-day period described in subsection (a), the public fund shall assemble, into a "scrutinized companies list", all scrutinized companies identified in which the public fund has direct holdings.
(c) The public fund shall update the scrutinized companies list on a quarterly basis based on evolving information from, among other sources, those listed in subsection (a).
SECTION 4. Required actions. (a) The public fund shall adhere to the following procedures for companies on the scrutinized companies list:
(1) The public fund shall determine the companies on the scrutinized companies list in which the public fund owns direct holdings;
(2) For each company newly identified with active business operations in which the public fund owns direct holdings, the public fund shall send a written notice informing the company of its scrutinized company status and that it may become subject to divestment by the public fund. The notice shall offer the company the opportunity to clarify its Uganda-related activities and shall encourage the company, within ninety days, to either cease its scrutinized business operations or convert such operations to inactive business operations to avoid qualifying for divestment by the public fund;
(3) If, within ninety days following the public fund's first engagement with a company, 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 ninety days following the public fund's first engagement, the company converts its scrutinized active business operations to inactive business operations, the company shall be subject to all provisions relating thereto; and
(4) If, after ninety days following the public fund's first engagement with a company following the effective date of this Act, that company continues to have scrutinized active business operations, the company shall be subject to subsection (b), unless the board of trustees of the public fund determines that the company has made sufficient progress towards ceasing its scrutinized business operations or converting such operations to inactive business operations. The public fund shall continue to monitor and review the progress of the company on a quarterly basis until that company has ceased its scrutinized business operations or converted such operations to inactive business operations. A company that fails to cease its scrutinized business operations, to convert such operations to inactive business operations, or to continue to make sufficient progress towards cessation or conversion by the next time interval shall be subject to subsection (b).
(b) If a company on the scrutinized companies list fails to cease scrutinized active business operations in the time described in subsection (a)(4), the public fund shall sell, redeem, divest, or withdraw all publicly-traded securities of the company, except as provided below, within eighteen months after the company becomes subject to this subsection. The public fund may relax the divestment schedule if the public fund determines divestment from particular companies or funds will likely, in the good faith judgment of the board of trustees of the public fund, result in public fund losses exceeding the 99.50 per cent mark described in section 7. If such a circumstance arises, the public fund shall submit a report to the legislature setting forth the reasons and justification, accompanied by supporting documentation that includes objective numerical estimates, for its decision to relax the divestment schedule. The report shall be updated annually thereafter as applicable.
(c) At no time shall the public fund acquire securities of companies on the scrutinized companies list that have active business operations, except as provided below.
(d) No company which the United States affirmatively declares to be excluded from its present or any future federal sanctions regime relating to Uganda shall be subject to divestment or investment prohibition pursuant to subsections (b) and (c).
(e) Notwithstanding anything in this Act to the contrary, subsections (b) and (c) shall not apply to indirect holdings in actively managed investment funds.
SECTION 5. Reporting. (a) The public fund shall file a publicly-available report to the legislature that includes the scrutinized companies list within ninety days after the list is created.
(b) Annually thereafter, the public fund shall file a publicly-available report to the legislature that includes:
(1) A summary of correspondence with companies engaged by the public fund under section 4;
(2) All investments sold, redeemed, divested, or withdrawn in compliance with section 4;
(3) All prohibited investments under section 4; and
(4) Any progress made under section 4.
SECTION 6. Other legal obligations. With respect to actions taken in compliance with this Act, including all good faith determinations regarding companies as required by this Act, the public fund 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 public fund's securities portfolios. Nothing in this Act shall require the public fund to take action as described in this Act unless the board of trustees of the public fund determines, in good faith, that the action is consistent with the responsibilities of the board as described in section 88-22.5(a)(1), Hawaii Revised Statutes.
SECTION 7. Reinvestment in certain companies with scrutinized active business operations. Notwithstanding anything in this Act to the contrary, the public fund shall be permitted to cease divesting from certain scrutinized companies pursuant to section 4 and reinvest in certain scrutinized companies from which it divested pursuant to section 4 if, in the good faith judgment of the board of trustees of the public fund, the value for all assets under management by the public fund becomes equal to or less than 99.50 per cent (50 basis points) of the hypothetical value of all assets under management by the public fund assuming no divestment for any company had occurred under section 4. Cessation of divestment, reinvestment, or any subsequent ongoing investment authorized by this section shall be strictly limited to the minimum steps necessary to avoid the contingency set forth in the preceding sentence. For any cessation of divestment, reinvestment, or subsequent ongoing investment authorized by this section, the public fund shall provide a written report to the legislature, accompanied by supporting documentation that includes objective numerical estimates, for its decisions to cease divestment, reinvest, or remain invested in companies with scrutinized active business operations. The report shall be updated annually thereafter as applicable. This section has no application to reinvestment in companies on the ground that they have ceased to have scrutinized active business operations.
SECTION 8. Provisions for expiration of this Act. This Act shall be repealed upon the occurrence of any of the following:
(1) The Congress or President of the United States declares that the Uganda genocide has been halted for at least twelve months;
(2) The United States revokes all sanctions imposed against the government of Uganda;
(3) The Congress or President of the United States declares that the government of Uganda has honored its commitments to cease attacks on civilians, grant free and unfettered access for deliveries of humanitarian assistance, and allow for the safe and voluntary return of refugees and internally displaced persons; or
(4) The 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.
SECTION 9. If any one or more provisions, sections, subsections, sentences, clauses, phrases, or words of this Act or the application to any person or circumstance is found to be invalid, illegal, unenforceable, or unconstitutional, the same is declared to be severable and the balance of this Act shall remain effective and functional notwithstanding the invalidity, illegality, unenforceability, or unconstitutionality.
The legislature declares that it would have passed this Act, and each provision, section, subsection, sentence, clause, phrase or word thereof, irrespective of the fact that any one or more provisions, sections, subsections, sentences, clauses, phrases, or words be declared invalid, illegal, unenforceable or unconstitutional, including but not limited to each of the engagement, divestment, and prohibition provisions of this Act.
SECTION 10. This Act shall take effect on July 1, 2008.