SB2193

SECTION 1. Chapter 36, part II, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§36- Terror-free investment. (a) For the purposes of this section:

"Business ties" means owning or controlling property or assets located in, having employees or facilities located in, providing goods or services to, obtaining goods or services from, 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, North Korea, Sudan, Syria, or any company domiciled in Iran, North Korea, Sudan, Syria, or their affiliates.

"Company" means any entity capable of affecting commerce, including but not limited to a government, government agency, natural person, legal person, sole proprietorship, partnership, firm, corporation, subsidiary, affiliate, franchisor, franchisee, joint venture, trade association, financial institution, utility, public franchise, provider of financial services, trust, enterprise, or association.

"Global security risk prohibitive company" means any foreign company that has active or current business ties in or with Iran, North Korea, Sudan, or Syria as determined by an independent, third-party research firm that specializes in global security risk.

"Independent, third-party research firm" means a private United States company that has submitted an affidavit to the State averring that the company:

(1) Specializes in identifying and assessing companies that are exposed to global security risk;

(2) Offers credible research on corporate ties to Iran, North Korea, Sudan, or Syria, or that has been maintained and provided to the market for a minimum of one calendar year; and

(3) Does not have the potential for conflicts of interest stemming from investment banking and corporate finance activities.

"Iran" means the Islamic Republic of Iran.

"North Korea" means the Democratic People's Republic of Korea.

"Sudan" means the Republic of the Sudan.

"Syria" means the Syrian Arab Republic.

"Public investor" or "public investors" means the State.

(b) All international equity holdings within the State shall exclude global security risk prohibitive companies as defined in subsection (a); provided that companies that are certified as a non-governmental organization by the United Nations, or that are determined by an independent, third-party research firm, to engage solely in the provision of goods and services that relieve human suffering, or promote health, religious, spiritual, educational, humanitarian, or journalistic activities in Iran, North Korea, Sudan, or Syria are exempt from divestment and exclusion.

This section shall expire relative to each specific country individually at such time that the President of the United States affirmatively and unambiguously states, by means including, but not limited to, enacted legislation, executive order, or written certification from the President to Congress, that the United States Department of State no longer recognizes Iran, North Korea, Sudan, or Syria as state sponsors of terrorism.

(c) The director of finance shall adopt rules pursuant to chapter 91 for the establishment of actively or passively managed international equity investment strategies that identify and exclude all global security risk prohibitive companies; provided that the rules shall stipulate that as a requisite for selection to manage an international equity portfolio on behalf of the State the respondent shall attest that no global security risk prohibitive companies will be included in the portfolio held on behalf of the State and provide a plan for ensuring compliance.

(d) No later than January 1, , the director of finance shall select and contract with managers for its international equity holdings that are best suited to manage international equity portfolios while excluding global security risk prohibitive companies. Each manager selected will certify to the director of finance on a quarterly basis that the portfolio excludes global security risk prohibitive companies. If at any time the director of finance finds that a contracted manager has not complied with the divestiture requirement or holds global security risk prohibitive companies on behalf of the state investment, the director of finance shall notify the manager that it has ninety days to become compliant. If the manager fails to comply within the ninety-day period, the director of finance shall terminate the contract with the manager, and the manager shall be suspended from conducting business with any public investor for a period of six months from the termination.

(e) A public investor shall not be liable for breach of the public investor's fiduciary duty to the fund for which that public investor has the authority to invest assets by reason of any decision to restrict, reduce, or eliminate investments in corporations doing business in Iran, North Korea, Sudan, or Syria, pursuant to this section."

SECTION 2. Chapter 88, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§88- Terror-free investment. (a) For the purposes of this section:

"Independent, third-party research firm" means a private United States company that has submitted an affidavit to the State averring that the company:

(1) Specializes in identifying and assessing companies that are exposed to global security risk;

(2) Offers credible research on corporate ties to Iran, North Korea, Sudan, or Syria, that has been maintained and provided to the market for a minimum of one calendar year; and

(3) Does not have the potential for conflicts of interest stemming from investment banking and corporate finance activities.

"Iran" means the Islamic Republic of Iran.

"North Korea" means the Democratic People's Republic of Korea.

"Sudan" means the Republic of the Sudan.

"Syria" means the Syrian Arab Republic.

"Public investor" or "public investors" means the employees' retirement system.

(b) All international equity holdings within the employees' retirement system shall exclude global security risk prohibitive companies as defined in subsection (a); provided that companies that are certified as a non-governmental organization by the United Nations, or that are determined by an independent, third-party research firm, to engage solely in the provision of goods and services that relieve human suffering, or promote health, religious, spiritual, educational, humanitarian, or journalistic activities in Iran, North Korea, Sudan or Syria are exempt from divestment and exclusion.

This subsection shall expire relative to each specific country individually at such time that the President of the United States affirmatively and unambiguously states, by means including, but not limited to, enacted legislation, executive order, or written certification from the President to Congress, that the United States Department of State no longer recognizes Iran, North Korea, Sudan, or Syria as state sponsors of terrorism.

(c) The board shall adopt rules pursuant to chapter 91 for the establishment of actively or passively managed international equity investment strategies that identify and exclude all global security risk prohibitive companies; provided that the rules shall stipulate that as a requisite for selection to manage an international equity portfolio on behalf of the employees' retirement system the respondent shall attest that no global security risk prohibitive companies will be included in the portfolio held on behalf of the employees' retirement system and provide a plan for ensuring compliance.

(d) No later than January 1, , the board shall select and contract with managers for its international equity holdings that are best suited to manage international equity portfolios while excluding global security risk prohibitive companies. Each manager selected will certify to the board on a quarterly basis that the portfolio excludes global security risk prohibitive companies. If at any time the board finds that a contracted manager has not complied with the divestiture requirement or holds global security risk prohibitive companies on behalf of the state investment, the board shall notify the manager that it has ninety days to become compliant. If the manager fails to comply within that ninety-day period, the board shall terminate the contract with the manager, and the manager shall be suspended from conducting business with any public investor for a period of six months from the termination.

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2008.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2193
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII