Legislation: AB 221 (Anderson) prohibits California’s two largest pension funds, the Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (CalSTRS), from holding investments in any company affiliated with Iran’s defense or nuclear sectors, or that does at least $20 million in business with Iran’s petroleum or natural gas industries. (1) CalPERS is the nation’s largest public retirement fund and CalSTRS is the largest teachers’ retirement fund in the country; the two funds combined have portfolios worth nearly $500 billion. The bill passed both chambers unanimously. AB 221 will expire when two conditions have been met: (1) Iran is removed from the United States Department of State’s list of countries that have been determined to repeatedly provide support for acts of international terrorism and (2) the President of the United States determines that Iran has ceased its efforts to design, develop, manufacture, or acquire a nuclear explosive device or related materials and technology.
AB 221 was strengthened in 2011 with passage of AB 1151 (Feuer), which requires CalPERS and CalSTRS to submit yearly reports to the state legislature detailing their efforts to divest from companies dealing with the Iranian energy and defense sectors. (2) Furthermore, the law mandates that any determination by CalSTRS/PERS that a potential divestment fails to satisfy the fiduciary duty of the board be made public in a board hearing, and that proposed findings be made public 72 hours before they are considered by the board.
In 2010, working off United Against Nuclear Iran boilerplate legislation (3), the state passed AB 1650 (Feuer, Blumenfield), which prohibits any government agency in California from entering into a contract of $1 million or more with any entity having invested at least $20 million in Iran’s energy sector. (4)
Two years later, the state passed AB 2160 (Blumenfield), requiring that investments by domestic insurers in companies that are included on the list of sanctioned entities established in by AB 1650 be treated as nonadmitted assets on the financial statements of those insurers. (5) The law further requires that the insurer provide the Department of Insurance, on an annual basis, with a list of the investments the insurer has in companies included on the list.
In 2013, the legislature directed California’s Department of the Treasury to examine all licensed financial institutions for compliance with the federal National Defense Authorization Act for Fiscal Year 2012 by passing AB 978 (Blumenfield). (6) The law limits banks’ ability to maintain correspondent and payable-through accounts with United States financial institutions that have had dealings with the Central Bank of Iran.
Key actors: Sen. Joel Anderson (R-San Diego) sponsored AB 221, which was also supported by over 30 civic lobbying groups, including Jewish and Iranian-American groups. (7) Anderson also worked to pass legislation that would have compelled the University of California to divest from all Iran-related holdings; that effort failed. (8) Representatives from the California Teacher’s Association, CalPERS and CalSTRS lobbied against the passage of AB 221. (9) Current Los Angeles City Attorney Mike Feuer co-authored AB 1150 and authored AB 1650 when he sat as a Democratic legislator from Yucca Valley. Current LA City Councilman Bob Blumenfield co-authored AB 1650 and authored AB 2160 and AB 978 when he sat as a Democratic legislator from San Fernando Valley.
Effect: Since the passage of AB 221, the state has divested from at most $3.5 billion of assets linked to the Iranian energy/defense industry, and likely far less. Although California public trusts have investments in sanctioned entities had a value far below the $24 billion claimed by bill sponsors (10), both CalPeRS and CalSTRS resisted divesting. (11) As of Dec 2014, CalPERS has divested from four companies: China BlueChemical Ltd., CNOOC Ltd., Daelim Industrial Co., Ltd., and Oil India Limited. (12) Neither CalPERS nor CalSTRS are required to divest if it so doing would violate fiduciary responsibility provisions. As of October 2015, 1300 California insurers have divested from Iran-linked holdings. Total holdings in Iran-linked enterprises declined by 97% to $200 million. (13) Despite the existence of expiration clauses on AB 221, AB 1151 and AB 1650, state legislators have pledged to keep those laws in place even if the expiration conditions are met. (14)
Regulations: In 2009, California Department of Insurance implemented the Iran Divestment Program, encouraging domestic insurers to divest from companies with ties to Iran’s defense, energy and nuclear programs. (15) The program was strengthened by the passage of AB 2160 in 2012.
Date enacted: 2009
Effect: Since the start of the Iran Divestment Program, almost all of California’s 1300 licensed insurers have opted to divest from their Iran-related holdings, reducing by 97% the value of Iran-related assets held by insurers, to $200 million. Eight insurers have refused to divest. (16) As of October, 2014, 29 companies are sanctioned by California’s Department of Insurance. (17)
Key Players: Former Department of Insurance Commissioner Steve Poizner implemented the Iran Divestment Program, and current Commissioner Dave Jones has continued it. The Department’s list of sanctioned companies is prepared with assistance from Roger Robinson, who served in the Reagan administration as Senior Director of International Economic Affairs at the National Security Council. (18) Among the eight companies refusing to divest is State Farm Insurance, the nation’s largest insurer according to InsWeb. (19)