Quick Action Promised on Bill Supporting State Sanction Rights

WASHINGTON DC – House Domestic and International Monetary Policy Subcommittee Chairman Luis V. Gutierrez (D-IL) March 20 promised to quickly act on a bill that would attempt to give U.S. states more flexibility to enact measures that encourage divestment in companies that conduct business in foreign countries with questionable human rights records, such as Sudan. However, sources this week said it is unclear whether the legislation under consideration in the House would overcome constitutional hurdles to giving states these rights.

At a March 20 subcommittee hearing, Gutierrez pledged to push for quick committee approval of the Darfur Accountability and Divestment Act. The bill, H.R. 180, was introduced by Rep. Barbara Lee (D-CA) and drew support at the hearing from Reps. Donald Payne (D-NJ) and Frank Wolf (R-VA), as well as Sen. Sam Brownback (R-KS).
Lee’s bill would require the Securities and Exchange Commission (SEC) to compile a list of companies that conduct business in Sudan directly or through subsidiaries, and publicize that list on its website. It would also require the Government Accountability Office (GAO) to prepare a list detailing the extent of Federal Retirement Thrift Board (FRTB) investments in these companies. Lee said during the hearing that if this bill passes, Congress might later require the FRTB to divest of companies on the GAO list.

The bill would also deny U.S. government contracts to any companies on the SEC list, but would exempt companies located in southern Sudan, which is home to rebel groups opposing the ruling Khartoum government, and companies engaged in humanitarian assistance, among others.

Lee’s bill includes a statement of policy that says Congress will “recognize and support” state efforts to pass laws that require state funds and state pension funds to be divested from companies doing business in Sudan due to human rights abuses there.

Four states have approved such requirements, but a Feb. 23 federal court ruling declared Illinois’ measure unconstitutional because it interfered with congressional authority over foreign commerce (Inside US Trade, March 2). The ruling also declared that the divestment of state funds interferes with the federal government’s right to conduct foreign affairs.

The bill’s 84 cosponsors include House Ways and Means Committee Chairman Charles Rangel (D-NY) and House Financial Services Committee Chairman Barney Frank (D-MA). House Speaker Nancy Pelosi (D-CA) supported a previous version of the bill in 2006.

A related Senate bill by Sen. Dick Durbin (D-IL) has eight cosponsors, including Sens. Arlen Specter (R-PA) and Barack Obama (D-IL). Durbin’s bill, S. 831, focuses only on the issue of state-level sanctions. It also includes more specific language that says a state divestment measure “does not violate the United States Constitution” because such a measure does not preempt the federal government under the Supremacy or Commerce clause and “does not intrude on, or interfere with, the conduct of foreign affairs of the United States.”

A representative for Lee said Lee’s bill was written before the Illinois court decision, and therefore does not include more specific language as in Durbin’s bill. The representative also said that the divestment section of Lee’s bill is a statement of policy, while Durbin’s bill is a sense of Congress, which sources say has less strength. During the hearing, Lee said she is willing to work on the bill to make it even stronger.

A representative for Durbin said that he and Lee are working closely on the issue, and that it may be possible to combine the bills in the future.

The National Foreign Trade Council (NFTC), which filed the lawsuit against Illinois, is “taking a close look” at Lee’s bill, according to one informed source. Though this source did not rule out further challenges to the law if the bill passed, he did say that any constitutional claim that state efforts are preempted by Congress would be “a more difficult argument to make” with Congress’ explicit support.

However, another source questioned whether Lee’s language would be enough to protect it from challenges in court, and thought that there were “stronger ways to write it up.” This source said that language in Durbin’s bill could also be challenged if it was found to interfere with the Constitution’s foreign policy preemption clause, even though the language is designed to resolve this issue in favor of the states. “Just saying something is constitutional doesn’t make it constitutional,” this source said.

Regarding the creation of an SEC list of countries doing business in Sudan, one source said the list would be unfair to companies that conduct business in Sudan but fall under one of the bill’s later exemptions categories, such as being located in the southern region of the country where there is opposition to the ruling government. He said that simply being mentioned on the list could bring bad publicity to companies that are not supporting the Khartoum government.

The NFTC previously opposed efforts to require the SEC to gather information from foreign companies about their business dealings in countries that are subject to U.S. sanctions (Inside U.S. Trade, Aug. 24, 2001).

After her bill was written, Lee reported that two major companies with operations in Sudan, Siemens and ABB, pledged to cease operations there. Siemens stated that it will accept no new orders for business in Sudan, and will complete all orders and service agreements by the end of June 2007, “with the possible exception of essential medical services.” No U.S. companies currently operate in Sudan because of sanctions imposed in 1997.

Lee said it is not clear if companies like Siemens will be included in the SEC list.

In a related development at the hearing, Payne said he plans to introduce language that would block oil tankers that dock at a Sudan port from entering U.S. ports. Payne said this measure would “primarily hurt China,” as that country is one of the largest investors in Sudan’s oil industry.

By Erica Lee Nelson

Published in Inside US Trade, March 23, 2007