[Senate Report 110-213]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 458
110th Congress                                                   Report
                                 SENATE
 1st Session                                                    110-213

======================================================================



 
            SUDAN ACCOUNTABILITY AND DIVESTMENT ACT OF 2007

                                _______
                                

                October 31, 2007.--Ordered to be printed

                                _______
                                

 Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2271]

    The Committee on Banking, Housing, and Urban Affairs, 
having had under consideration an original bill (S. 2271) to 
authorize State and local governments to divest assets in 
companies that conduct business operations in Sudan, to 
prohibit United States Government contracts with such 
companies, and for other purposes, having considered the same, 
reports favorably thereon and recommends that the bill do pass.

                            I. INTRODUCTION

    On October 17, 2007, the Senate Committee on Banking, 
Housing and Urban Affairs considered a Committee Print, 
entitled the ``Sudan Accountability and Divestment Act of 
2007,'' a bill to authorize State and local governments to 
divest assets in companies with certain business operations in 
Sudan, to prohibit United States Government contracts with such 
countries, and for other purposes. The Committee voted 
unanimously to report the bill to the Senate.

                              II. PURPOSE

    The Sudan Accountability and Divestment Act (hereafter `the 
Act') provides a legal framework by which States, local 
governments and certain other investors can divest Sudan-
related assets from their portfolios. Specifically, it allows 
States and local governments and private asset fund managers, 
if they so choose, to adopt measures to facilitate divestment 
from companies involved in four key business sectors in Sudan. 
Such measures may be adopted to reduce the financial or 
reputational risk associated with investments in a country 
subject to international sanctions. The Act also directs the 
federal government to require that all U.S. government 
contractors certify that they are not involved in business in 
four key sectors of Sudan's economy.

                III. BACKGROUND AND NEED FOR LEGISLATION

The ongoing crisis of genocide in Darfur

    The conflict in Darfur has led to a humanitarian disaster, 
with an estimated 2 million people displaced; more than 234,000 
people forced into neighboring Chad; and an estimated 450,000 
people killed.\1\ In July 2004, the U.S. House of 
Representatives and the Senate unanimously passed resolutions 
(H. Con. Res 467 and S. Con. Res. 133, respectively) declaring 
the crisis in Darfur to be genocide, based on the five criteria 
for genocide enumerated in Article 2 of the Convention on the 
Prevention and Punishment of the Crime of Genocide. On 
September 9, 2004, then-Secretary of State Colin Powell 
acknowledged that the violence occurring in Darfur constituted 
genocide.
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    \1\CRS Report.
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    On May 29, 2007, the U.S. imposed new economic sanctions on 
two Sudanese government officials, and 31 Sudanese companies. 
According to Administration officials, these Sudanese officials 
acted as liaisons between the Sudanese government and the 
government-supported Janjaweed militia, which have attacked and 
brutalized innocent civilians in the region. Of the 31 
companies sanctioned, 30 are either owned or controlled by the 
Government of Sudan, and the other violated the arms embargo in 
Darfur. These companies are banned from doing business within 
the U.S. financial system and with U.S. companies, and U.S. 
citizens are restricted from doing business with them.
    On July 31, 2007, acting under Chapter VII of the Charter 
of the United Nations, the United Nations Security Council 
adopted Resolution 1769. The resolution calls for the 
deployment of a hybrid United Nations-African Union force in 
Darfur. The resolution also calls for immediate support for the 
existing African Union Mission in Sudan (AMIS) and a commitment 
to end the suffering in Darfur, while expressing concern about 
ongoing attacks on civilians in Darfur and the security of 
humanitarian aid workers in the region.
    While efforts have been made to identify and deploy up to 
26,000 peacekeeping troops to Darfur by early 2008, it remains 
unclear when or whether such a force will reach full strength, 
whether such a force-level will be adequate to stabilize the 
region and halt mass killings, or even whether the government 
and other factions in Sudan will cooperate to allow for the 
force's successful operation.

State and local divestment efforts

    Notwithstanding the wide range of diplomatic and economic 
sanctions that have been pursued by the Federal Government, 
many states and localities have enacted measures restricting 
their agencies' economic transactions with firms that do 
business with, or in, Sudan. Twenty States have already 
initiated some form of divestment; and campaigns are under way 
in an additional twenty States to adopt similar measures. Also 
joining this movement are many colleges and universities, large 
cities, non-profit organizations, and numerous pension and 
mutual funds.

Legal and constitutional challenges

    The state of Illinois passed a divestment law in June of 
2005. Highlights of the law are as follows:

    Provides that the State Treasurer may not deposit any funds 
or otherwise transact any business with any financial 
institution unless an expressly authorized officer of that 
financial institution certifies that the financial institution 
has not, during any time following the effective date, loaned 
to or invested in certain entities involved with the Republic 
of Sudan.
    Provides that a fiduciary with respect to a retirement 
system or pension fund established under that Code shall not, 
directly or through a fund manager, transact any business with 
any company unless an expressly authorized officer of that 
company certifies that the company has not engaged in certain 
activities concerning the Republic of Sudan.\2\
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    \2\Bill Status of SB0023 94th Illinois General Assembly.

    In February 2007, a federal district court held Illinois's 
Sudan sanctions law to be unconstitutional and permanently 
enjoined its enforcement (National Foreign Trade Council v. 
Giannoulias); the defendants have since appealed. In its 
decision, the court highlighted federal law regarding Sudan, 
beginning with a 1997 Executive Order signed by President 
Clinton freezing Sudanese property in the United States and 
prohibiting various transactions between the United States and 
Sudan, and continuing with three subsequent public laws: the 
Sudan Peace Act (2002), the Comprehensive Peace in Sudan Act 
(2004), and the Darfur Peace and Accountability Act (2006). 
None of these statutes contains a provision addressing state 
law preemption. The court held that the Illinois statute's 
``lack of flexibility, extended geographic reach, and impact on 
foreign entities interferes with the national government's 
conduct of foreign affairs,'' and was in large part preempted 
by federal law. In unanimously approving the legislation, the 
Committee sought to address the issues raised in the Illinois 
case and the issue more broadly, by clearly authorizing 
divestment decisions made consistent with the standards it 
articulates.
    The Committee recognizes that this legislation involves 
balancing two important interests. The first is the singular 
authority of the Federal Government to conduct Foreign Policy. 
The second is the ability of State and local governments to 
invest or divest their funds as they see fit. The Committee 
believes it has struck an appropriate balance by targeting 
state action in such a way that permits state divestment 
measures based on risks to profitability, economic well-being, 
and reputations, arising from association with investments in a 
country subject to international sanctions. The Act explicitly 
states the sense of Congress that the United States should 
support the decisions of State and local governments to divest 
from firms conducting business operations in certain sectors of 
Sudan's economy and the legislation is not pre-empted by any 
Federal law or regulation.

                      IV. DESCRIPTION OF THE BILL

    The Act is meant to codify the appropriate rights of 
investors as well as State and local governments to hold or 
relinquish assets in accordance with their responsibilities to 
guard against both economic and reputational risks, as long as 
in so doing, fund managers continue to otherwise adhere to 
their fiduciary responsibilities and State and local 
governments adhere to the limited federal authorization 
provided in this bill. With such a limited federal 
authorization, the Act addresses policy concerns raised by the 
Executive Branch over previous legislative proposals regarding 
Sudan divestment, and it addresses the Constitutional concerns 
outlined above.

Four targeted sectors

    Divestment authorized under this bill is targeted against 
four specific economic sectors, widely recognized as key 
sources of revenue for the Government of Sudan. These sectors 
are: oil, power production, mineral extraction, and military 
equipment. The first three sectors, by the Government of 
Sudan's own admission, serve as that country's main 
destinations of foreign direct investment (FDI), reaching $2.4 
billion in 2005, according to the International Monetary Fund. 
As a result of such investment, revenues to the Government of 
Sudan have increased steadily over the past several years. The 
benefits of such increased investment do not appear to have 
benefited the general populace, which the World Bank reports 
maintains an income of $650 per capita. Meanwhile, a former 
finance minister of Sudan was recently reported to have said 
that more than 70 percent of the Khartoum government's share of 
oil profits is spent on military equipment, particularly for 
the local production of ammunition and weapons, in case defense 
imports to Sudan ever diminish or are effectively cut off by 
international sanction.
    The Committee's reported bill has five main provisions:
    (1) State divestment. Permitting states and localities that 
choose to do so to adopt measures to divest from companies 
involved in four key business sectors in Sudan;
    (2) Private divestment. Allowing mutual fund and private 
pension fund managers to sell securities of companies involved 
in four business sectors in Sudan, while maintaining that 
managers must otherwise abide by their normal fiduciary 
responsibilities and comply with relevant laws and regulations 
in performing this task;
    (3) Federal procurement. Requiring federal government 
contractors to certify that they are not conducting business 
operations in any of the four key sectors in Sudan identified 
in the measure. The President may waive the federal procurement 
certification if he determines and certifies to Congress that 
it is in the national interest to do so;
    (4) Sanctions report. Requiring a report on the efficacy of 
current Sudan-related sanctions; and
    (5) Termination. Setting forth conditions for this bill to 
sunset, including that Sudan is abiding by UN Security Council 
Resolution 1769, and has ceased attacks on civilians, 
demilitarized the Janjaweed militia, allowed unfettered 
humanitarian relief delivery, and granted refugees right of 
return.

                 V. SECTION-BY-SECTION ANALYSIS OF BILL

    Section 1.--This section establishes the short title of the 
bill as the ``Sudan Accountability and Divestment Act of 
2007''.
    Section 2.--This section defines terms used in the bill 
including: business operations, executive agency, Government of 
Sudan, marginalized populations of Sudan, military equipment, 
mineral extraction, oil-related activities, person, power-
production activities, and State.
            Clarifications regarding terms
    For purposes of implementing measures adopted in accordance 
with Sections 3, 4, and 6 of this bill, the Committee makes the 
following observations regarding specific industry activities. 
In targeting persons involved in oil-related or mineral 
extraction-related activities in Sudan, States may target 
companies that sell supplies and provide services specifically 
for oil operations in Sudan. An example of such a case might be 
a company that sells pumps exclusively for installation along a 
pipeline in Sudan. However, coverage would not include a 
subcontractor that sells supplies to an array of companies for 
use in various operations, which are neither specifically 
integral, nor specifically designated for oil operations in 
Sudan. The Committee further notes that some consortia of oil 
and mineral extraction investors retain rights in Sudan but 
remain ``inactive'' in exploration or drilling there. Because 
investors in such consortia are generally not generating 
revenue for the Khartoum government, and may be effectively 
displacing others who might otherwise seek to actively engage 
in oil-related operations, the Committee does not intend for 
such investors to be targeted for divestment, as long as they 
remain ``inactive.''
    Regarding the definition of ``military equipment,'' the 
Committee notes that some `dual-use' items may be exported to 
Sudan to serve civilian functions, such as military-grade 
trucks to ship regular goods and services, and radar equipment 
to support weather forecasting and other communications. It is 
not the intent of the Committee to authorize divestment from 
companies involved in such business if it can be credibly 
proven that these items will not be used for any military 
purpose.
    The Committee's definition of a person is highly 
inclusive--not only including corporations and State-owned 
entities, but their successors, subunits or subsidiaries. 
Implicit in this definition is the requirement that parent 
companies to subsidiaries, or subsidiaries that share the same 
parent company, may be targeted for divestment as long as there 
is credible evidence linking their affiliates to business 
operations in key sectors of Sudan.
    Section 3.--Authorizes States and localities to divest from 
companies involved in key Sudan business sectors and sets 
standards for them to do so.
    While not mandating divestment, this section authorizes 
State and local governments, if they so choose, to divest 
public assets from certain companies doing business in Sudan. 
In its formulation of this section, the Committee recognized 
that divestment actions are being taken by investors for 
prudential and economic reasons, including to address concerns 
over reputational and financial risks associated with 
investment in Sudan and to sever indirect business ties to a 
government that is subject to international sanctions.
            Risk
    Given the Constitutional concerns about States' enacting 
legislation which touches on international relations, 
subsection (a) expresses the sense of Congress concerning State 
or local divestment conducted for purposes of mitigating a 
`financial or reputational risk.'
            Standards
    In order to ensure reasonable consistency and uniformity, 
the Committee sets forth specific standards by which States and 
localities may divest, and requires that a State or local 
government provide notice to the Department of Justice when it 
enacts a Sudan-related divestment law under the authority 
provided in this section. The standards for divestment to be 
observed include targeting companies that conduct business 
operations in Sudan's power production, mineral extraction, 
oil, and military equipment sectors. Furthermore, to avoid 
hampering positive development in Sudan, this section 
explicitly excludes companies whose business in Sudan only 
involves: investments in the regional government of Southern 
Sudan; legal transactions under a license from the Office of 
Foreign Assets Control (OFAC) or other U.S. authorization; 
delivery of goods and services for marginalized populations or 
internationally recognized humanitarian organizations, and 
other similar investments. In addition, companies that have 
voluntarily suspended operations are to be excluded from 
targeted divestment. The Committee recognizes that it may take 
up to a year, or possibly longer, for a company to fully 
suspend its operations once it has initiated such a process. 
Therefore, those agencies implementing measures adopted 
pursuant to this section should review all credible information 
provided to demonstrate voluntary suspension. In order to 
facilitate this process, the Committee has required that 
companies be informed in writing by the State or local 
government before divestment. Companies then have at least 90 
days to comment on that decision.
    In its testimony before the Committee, the Department of 
the Treasury seemed to sanction lists developed by non-
governmental organizations (NGOs) produced for purposes of 
divestment from Sudan, suggesting that the federal government 
would not be able to add much value given current efforts 
already under way by NGOs. The Committee therefore discerns 
that in accordance with sections 3 and 4 of this Act, States, 
local governments, and fund managers may rely on resources 
provided by internationally recognized NGOs, and other 
appropriate sources, to target companies for divestment.
    Finally, the Committee notes that because Section 4(b) of 
the Employee Retirement Income Security Act (ERISA) 
specifically excludes governmental plans, including State and 
local government pension plans, this provision should not be 
construed as conflicting with the directives of ERISA.
    Section 4.--This section allows private asset managers, if 
they so choose, to divest from the securities of companies 
conducting business operations in the power production, mineral 
extraction, oil, and military equipment sectors of Sudan, and 
provides a ``safe harbor'' for those divestment decisions made 
in accordance with the legislation. A major concern inhibiting 
divestment has been the possibility of a breach of fiduciary 
responsibility by asset managers who decide to divest. The 
Committee thus finds that fund managers may have financial or 
reputational concerns as reasons to divest from companies that 
accept the business risk of operating in countries subject to 
international economic sanctions. Fund managers will still be 
required to observe all other normal fiduciary 
responsibilities. The Securities and Exchange Commission is 
required to promulgate rules that require fund managers to 
disclose their divestment decisions made pursuant to Section 4 
of this legislation in regular periodic reports filed with the 
Commission.
    Section 5.--This section expresses the sense of Congress 
affirming pension managers' rights to divest from companies 
conducting business operations in key sectors of the Sudan 
economy in accordance with an interpretative bulletin issued by 
the Department of Labor in 1994, and printed in the Code of 
Federal Regulations in section 2509.94-1 of title 29. Under the 
regulations, making such ``economically targeted investment'' 
(ETI) decisions are allowed under sections 403 and 404 of the 
Employee Retirement Income Security Act of 1974 (ERISA), as 
long as the fiduciary making such a decision has diversified 
his portfolio adequately and made these decisions in the 
interest of the plan's participants and beneficiaries.
    Section 6.--This section requires that companies seeking 
contracts with the United States Government first certify that 
they are not conducting business operations in key sectors of 
Sudan. Government agencies are provided a range of remedies if 
prospective contractors submit a false certification, including 
terminating the contract, suspending a contractor's eligibility 
for future contractors, and debarring a company from government 
contracts for up to three years. The President may waive these 
requirements on a case by case basis, if he determines and 
certifies in writing to Congress that it is in the national 
interest to do so.
            Perjury
    In addition, the Committee notes that in the course of 
legal proceedings, if a prospective contractor submits false 
statements pursuant to this section, the company may be subject 
to penalties of perjury in accordance with 18 U.S.C. 3571, 
which amount to the greater of $250,000 for an individual, 
$500,000 for an organization, or twice the amount of the 
proposed contract.
    Section 7.--This section expresses a sense of Congress that 
the governments of other countries should adopt measures 
similar to those contained in the bill.
    Section 8.--This section expresses the sense of Congress 
that the President should continue to work with the 
international community both to facilitate the urgent 
deployment of a peacekeeping force to Sudan and to call for a 
vote on a United Nations Security Council resolution imposing 
multilateral sanctions on Sudan in response to the ongoing 
genocide in Darfur.
    Section 9.--This section explicitly addresses 
Constitutional and legal concerns by expressing the sense of 
Congress that the bill does not conflict with current U.S. 
international obligations, or the Supremacy Clause of the 
Constitution.
    Section 10.--This section requires that the Secretaries of 
State and the Treasury report on the efficacy of current 
sanctions on Sudan.
    Section 11.--This section repeals a previously enacted 
reporting requirement upon the Secretary of the Treasury.
    Section 12.--This section describes the circumstances under 
which the provisions of this bill will terminate, including 
Sudan's compliance with UN Security Council Resolution 1769, 
ceasing of attacks on civilians, demilitarizing of the 
Janjaweed militia, allowing unfettered humanitarian relief 
delivery, and its granting of the right of return to refugees. 
This provision is an important incentive for the Sudan 
government to meet its international obligations, stop the 
genocide in Darfur, and provide for conditions for the people 
of Sudan to recover from decades of violence. It is also 
important in that by sunsetting divestment authorizations for 
State and local governments and other investors, it helps 
ensure that their decisions will not conflict with future 
policies and objectives set by the federal government.

                              VI. HEARINGS

    On October 3, 2007, the Committee on Banking, Housing, and 
Urban Affairs held a public hearing entitled ``Combating 
Genocide in Darfur: The Role of Divestment and Other Policy 
Tools.'' Witnesses, Panel One: Honorable Richard Durbin, United 
States Senator; Honorable Sam Brownback, United States Senator; 
Witnesses Panel Two: Honorable Jendayi Frazer, Assistant 
Secretary for African Affairs; Ms. Elizabeth Dibble, Principal 
Deputy Assistant Secretary for International Finance and 
Development, Department of State; Mr. Adam Szubin, Director, 
Office of Foreign Assets Control, Department of the Treasury; 
Witnesses, Panel Three: Honorable Frank Caprio, General 
Treasurer, State of Rhode Island; Mr. Bennett Freeman, Senior 
Vice President for Social Research and Policy, Calvert 
Investment; Mr. John Prendergast, Co-Chair, ENOUGH Project; Mr. 
William Reinsch, President, National Foreign Trade Council; Mr. 
Adam Sterling, Director, Sudan Divestment Task Force.

                      VII. COMMITTEE CONSIDERATION

    The Committee on Banking, Housing, and Urban Affairs met in 
open session on October 17, 2007, and unanimously ordered the 
bill reported, as amended.

            VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    Section 11(b) of the Standing Rules of the Senate, and 
Section 403 of the Congressional Budget Impoundment and Control 
Act, require that each committee report on a bill contain a 
statement estimating the cost of the proposed legislation. The 
Congressional Budget Office has provided the following cost 
estimate and estimate of costs of private-sector mandates.

Sudan Accountability and Divestment Act of 2007

    This legislation would allow state and local governments to 
divest their holdings in certain companies doing business in 
Sudan. If any state or local government chose to divest, it 
would be required to notify both the Attorney General and the 
companies affected by the divestiture. It also would allow 
state and local governments to divest financial holdings or any 
government assets used to make loans and extensions of credit 
to companies doing business in Sudan. The bill also would 
prohibit federal agencies from entering into contracts for 
goods or services without a certification from the contractor 
that it does not conduct business operations in Sudan.
    Based on information from the Securities and Exchange 
Commission, CBO estimates that implementing the new regulations 
necessary to carry out the bill's provisions would cost less 
than $500,000 per year. Based on information from the General 
Services Administration, we estimate that changes to the 
federal contracting process would cost about $1 million per 
year, including computer and administrative costs. Thus, 
enacting this legislation would cost about $5 million over the 
2008-2012 period, subject to the availability of appropriated 
funds. Enacting the bill would not affect direct spending or 
revenues.
    The bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA). 
State or local governments that chose to divest their assets 
would have to notify the Attorney General and the companies 
affected by the divesture, but the costs of such notifications 
would result from their voluntary decision to divest and would 
not result from an intergovernmental mandate as defined in 
UMRA.
    The CBO staff contacts for this estimate are Susan Willie 
(for federal costs) and Elizabeth Cove (for the state and local 
impact). This estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

                    IX. REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(b), rule XXVI, of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of the bill.
    The Act permits states, localities, and private asset 
managers to divest from companies involved in four key business 
sectors in Sudan. While these provisions remain discretionary, 
they may nevertheless entail the production of more 
documentation by involved corporate entities than would 
otherwise have been required. Fund managers who make such 
divestment decisions will be required to report such actions to 
the Securities and Exchange Commission. States and local 
governments will be required to file similar reports to the 
Department of Justice on their divestment decisions. 
Furthermore, companies are to be informed of divestment 
decisions pursuant to provisions in the Act, and will be given 
the opportunity to comment on those decisions, as well.
    In addition, the Act requires federal government 
contractors to certify to appropriate agency heads that they 
are not conducting business operations in four key business 
sectors in Sudan. While the President may waive the federal 
procurement certification, he would nevertheless be required to 
certify to Congress that doing so is in the national interest.
    The Congressional Budget Office Cost Estimate prepared for 
this bill notes, ``The bill contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act (UMRA). State or local governments that chose to 
divest their assets would have to notify the Attorney General 
and the companies affected by the divesture, but the costs of 
such notifications would result from their voluntary decision 
to divest and would not result from an intergovernmental 
mandate as defined in UMRA.''

                                  
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