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california legislation > AB 2160

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AB 2160 (Blumenfield and Feuer)
As Amended May 9, 2012
Majority vote


|Ayes:|Solorio, Bradford, | | |
| |Charles Calderon, Carter, | | |
| |Feuer, Hayashi, Skinner, | | |
| |Torres| | |
| | | | |
|Nays:|Hagman, Beth Gaines, | | |
| |Miller| | |
| | | | |
SUMMARY : Prohibits the use of investments in companies doing
business in the energy and military sectors of Iran to satisfy
an insurer's capital requirements. Specifically, this bill :

1)Finds and declares that:

a) The Securities and Exchange Commission has determined
that business activities in foreign states sponsoring
terrorism, such as Iran, that are subject to sanctions by
the United States may materially harm the share value of
foreign companies. Shares in these foreign companies may
be held in the portfolio of insurance companies issuing
policies to California consumers;

b) Publicly traded companies in the United States are
substantially restricted in doing business in or with
foreign states sponsoring terrorism, such as Iran;

c) Identifying companies with business activities in
foreign states such as Iran that sponsor terrorism and
ensuring that those investments are financially sound is an
important public policy priority; and,

d) It is the Government of Iran, and not the people of
Iran, that is responsible for Iran's support of terrorism
and which commits egregious violations of human rights

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under which its own citizens are required to live.

2)Defines "business operations" as maintaining, selling, or
leasing equipment, facilities, personnel, or any other
apparatus of business or commerce in Iran, including the
ownership or possession of real or personal property located
in Iran.

3)Defines "company" as a sole proprietorship, organization,
association, corporation, partnership, venture, or other
entity, its subsidiary or affiliate, including a company owned
or controlled, either directly or indirectly, by the
government of Iran, that is established or organized under the
laws of or has its principal place of business in the Islamic
Republic of Iran.

4)Defines "Government of Iran" as the government of Iran or its
instrumentalities or political subdivisions including an
individual, company, or public agency located in Iran that
provides material or financial support to the Islamic Republic
of Iran.

5)Defines "invest" or "investment" as the purchase, ownership,
or control of stock of a company, association, or corporation,
the capital stock of a mutual water company or corporation,
bonds issued by the government or a political subdivision of
Iran, corporate bonds or other debt instruments issued by a
company, or the commitment of funds or other assets to a
company, including a loan or extension of credit to that

6)Defines "Iran" as the Islamic Republic of Iran or a territory
under the administration or control of Iran.

7)Provides that any indirect investment of a domestic insurer in
any company included in the list of companies doing business
in Iran (DGS list) published by the Department of General
Services (DGS) shall be treated as a nonadmitted asset on
financial statements filed with the Insurance Commissioner

8)Requires domestic insurers doing business in California to
annually determine if they have investments in companies on
the DGS list.

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9)Provides that domestic insurers utilizing the DGS list to
determine whether it has investments in Iran will be
automatically deemed compliant with this bill by the
Department of Insurance.

10) Provides that
use of the DGS list by a domestic insurer shall be deemed
automatic compliance by the Department of Insurance

11) Requires
domestic insurers to annually provide the department a list of
investments the insurer has in companies on the DGS list and a
detailed summary of the business operations these companies
have in Iran.

12) Provides that
if an insurer sells or transfers all of its investments in
companies on the DGS list the insurer is not subject to the
requirements in this bill.

13)Specifies that the bill shall cease to be operative if both
of the following occur:

a) Iran is removed from the State Department's list of
countries that provide support for acts of international
terrorism; and,

b) The President determines and certifies to Congress that
Iran has ceased its efforts to design, develop,
manufacture, or acquire a nuclear explosive device or
related materials and technology.


1)Prohibits a person that provides goods or services of $20
million or more in the energy sector of Iran, as identified in
the list created by DGS, or a financial institution that
extends $20 million or more in credit to such a person, from
bidding on or entering into a contract for goods or services
of $1 million or more with a public entity.

2)Defines "person" as a natural person, corporation, company,

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limited liability company, business association, partnership,
society trust, or any other nongovernmental entity,
organization or group, any governmental entity or
instrumentality of a government, including a multilateral
development institute, or any successor, parent entity, or
subsidiary of any of these entities.

3)Requires DGS to develop, or contract to develop, a list of
persons it determines engage in investment activities in Iran
and update the list at least every 180 days. DGS is required
to develop this list using credible information available to
the public.

4)Provides that under specified circumstances a public entity
may permit a person engaged in investment activities in Iran
to be eligible to enter into a contract for goods and services
of $1 million or more. These circumstances include that the
investments were made before July 1, 2010, or the investments
have not been expanded after July 1, 2010, or the awarding
body determines that it is in the best interest of the state
or local public entity to contract with the person.

5)Prohibits domestic insurers from acquiring any investment
respecting a foreign jurisdiction, or any investment
denominated in the currency of that foreign jurisdiction, if
that jurisdiction is designated as a state sponsor of
terrorism by the US Secretary of State pursuant to federal

FISCAL EFFECT : Unknown, but potentially significant litigation


Purpose . According to the author, although California law
prohibits California-based insurance companies from acquiring
direct investments in Iran and other countries that are
designated as state sponsors of terrorism by the United Sates
Secretary of State, it allows insurance companies to invest in
companies that help spur Iran's nuclear weapon capabilities. In
June 2009, the California's Insurance Commissioner uncovered
billions of dollars of such indirect investments. This bill will
explicitly allow the Commissioner to target these investments by
withholding credit for these investments on the financial

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statements submitted by domestic insurers.

The serious and urgent nature of the threat from Iran demands
that states, together with the federal government, do everything
possible diplomatically, politically, and economically to
prevent Iran from acquiring a nuclear weapons capability. It is
the responsibility of the commissioner to decide whether or not
domestic insurance companies have financially sound investments
and have enough capital to cover their claims. It is then the
prerogative of California not to engage in business with foreign
companies or help facilitate the efforts of the Government of
Iran that place those companies at risk from the impact of
economic sanctions for committing egregious violations of human
rights, proliferating nuclear weapons capabilities, and
supporting terrorism.

Sanctions . The Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (CISADA), built on prior federal
legislation imposing sanctions on Iran by adding new economic
penalties aimed at persuading Iran to change its conduct.
CISADA sanctions target a range of business activity including
businesses involved in the sale of refined petroleum products to
Iran, support for Iran's domestic refining efforts,
international banking institutions involved with Iran's
military, with Iran's nuclear program, and its support for
terrorism. CISADA imposed restrictions on foreign financial
institutions doing business with key Iranian banks or the
Iranian military.

Divestment . CISADA authorizes states and local governments to
prohibit investment of state or local government assets in, or
to divest the assets of the state or local government from, any
person that the state or local government determines engages in
investment activities in Iran of $20 million or more in the
energy sector of Iran or is a financial institution that extends
$20 million or more in credit for investment in the energy
sector of Iran.

In response, the California Legislature enacted AB 1650 (Feuer),
Chapter 573, Statutes of 2010, to prohibit a person that
provides goods or services of $20 million or more in the energy
sector of Iran, as identified in the list created by the DGS, or
a financial institution that extends $20 million or more in
credit to such a person, from bidding on or entering into a

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contract for goods or services of $1 million or more with a
public entity. The DGS reports that this state list is expected
to be completed in August of this year.

Federal preemption . Federal law generally reserves the conduct
of foreign policy for the President and Congress. A series of
decisions from the Supreme Court have clearly established that
actions by state and local governments that infringe on the
conduct of foreign policy by the federal government are
pre-empted by federal law. In fact, Courts have ruled that
state action is pre-empted even when the federal government has
taken no action on a particular foreign policy issue. One
notable case (American Insurance Association, et al., v. John
Garamendi, Insurance Commissioner, 539 U.S. 396; 123 S. Ct.
2374) in this line of decisions overturned California's
Holocaust Victim Insurance Relief Act (HVIRA). HVIRA was
enacted in California and required insurance companies doing
business in California to disclose policies sold in Europe from
1920 to 1945. The Court ruled that HVIRA was pre-empted by
federal law in 2003.

In February of this year, the Ninth Circuit Court of Appeals
overturned a California statute that extended the statute of
limitations for, and allowed California courts to hear, cases
regarding insurance claims brought by victims of the Armenian
Genocide (Movsesian v. Victoria Versicherung AG, 670 F.3d 1067).
The Court ruled, in a unanimous en-banc decision, that the
statute was pre-empted by federal law. In its opinion, the
court described the fate of state actions related to foreign
policy concerns as follows, "Courts have consistently struck
down state laws which purport to regulate an area of traditional
state competence, but in fact, affect foreign affairs." The
case law is not limited to these two California efforts that
seek to remedy problems involving foreign countries. A number
of states have sought to enact well-reasoned efforts to respond
to the past or present activities of foreign governments. These
efforts have been consistently struck down. There is
substantial similarity between this bill and other state
legislation that has been overturned by the courts. If this
bill becomes law and subject to a legal challenge, it is
reasonable to expect it would be overturned as well.

Settlement . The department recently settled litigation
regarding actions taken by the previous commissioner that, among

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other things, would have (like this bill) treated indirect
investments in Iran's energy and military sectors as
non-admitted assets. The settlement agreement resulted in the
department abandoning that policy. The settlement allows the
department to continue publishing a list of companies that do
business with Iran's energy and military sectors, and
identifying those insurance companies with investments in those
companies, on the department's Web site. The settlement
agreement also prohibits the department from using any
administrative action to pressure or punish insurance companies
with investments in listed companies, and favoring any insurance
company that divests from listed companies.

Given the history of litigation leading to this settlement, it
is reasonable to expect this bill, should it become law, would
be subject to a legal challenge as well. The department is
required by the State Constitution to defend state law against a
federal preemption challenge to the Court of Appeals. The cost
of such a defense is expected to be several hundred thousand
dollars assuming the department is represented by the Attorney
General (AG). However, since the AG represented the department
in the litigation concluding in the recent settlement, the AG
may decide against representing the department in another
lawsuit on the same subject. Should the department have to
retain private counsel for litigation relating to this bill, the
costs would be substantially higher.

Amendments . The bill was amended in the Assembly Insurance
Committee to provide domestic insurers with greater certainty
regarding which investments are affected by the bill. The
amendments eliminated the mandate for the commissioner to
determine whether a particular company is either directly or
indirectly investing in Iran. The bill now requires the
commissioner to use an existing list of companies doing business
with Iran developed by DGS. The DGS list is developed and
updated by an established process with accepted definitions and
opportunities for public input.

Analysis Prepared by : Paul Riches / INS. / (916) 319-2086

FN: 0003611

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