BILL ANALYSIS

 

 

Senate Research Center

H.B. 34

89R4868 CS-D

By: Metcalf et al. (Hughes)

 

State Affairs

 

5/7/2025

 

Engrossed

 

 

 

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

 

H.B. 34 amends the Texas Government Code to restrict public investing entities from acquiring securities issued by or investing in entities tied to "countries of concern" (China, Iran, North Korea, Russia, or others designated by the governor after consulting the public safety director and the state Homeland Security Council). It also prohibits deposits in banks headquartered in these countries.

 

A "scrutinized company" is defined as one that:

 

The Comptroller of Public Accounts of the State of Texas (comptroller) maintains a list of scrutinized companies, which are subject to investment prohibitions and divestment requirements. Exceptions apply if the U.S. government explicitly excludes a company from federal sanctions related to a country of concern.

 

Investing entities must notify listed companies of their status, warning them of potential divestment. Companies have 90 days to restructure their organization, ownership, or location to avoid being classified as scrutinized. If they comply, the comptroller removes them from the list, and investment restrictions no longer apply unless they revert to scrutinized status. If they remain scrutinized, investing entities must divest all publicly traded securities of the company (except indirect holdings in actively managed or private equity funds) per a statutory schedule.

 

By January 1, 2026, the comptroller must update the list to include all companies identified as scrutinized under the bill's criteria.

 

H.B. 34 amends current law relating to prohibiting the investment of state money in certain countries and in certain private business entities in those countries.

 

RULEMAKING AUTHORITY

 

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

 

SECTION BY SECTION ANALYSIS

 

SECTION 1. Amends Section 2270.0001, Government Code, by adding Subdivision (2-a) to define "country of concern" and amending Subdivision (9) to redefine "scrutinized company."

 

SECTION 2. Amends Section 2270.0002, Government Code, as follows:

 

Sec. 2270.0002. EXCEPTION. Provides that, notwithstanding any other law, a company that the United States government affirmatively declares to be excluded from its federal sanctions regime relating to Sudan, its federal sanctions regime relating to Iran or another country of concern, or any federal sanctions regime relating to a designated foreign terrorist organization is not subject to divestment or investment prohibition under Chapter 2270 (Prohibition on Investing Public Money in Certain Investments).

 

SECTION 3. Amends Chapter 2270, Government Code, by adding Subchapter C-1, as follows:

 

SUBCHAPTER C-1. GENERAL PROVISIONS RELATING TO INVESTMENTS IN COUNTRIES OF CONCERN

 

 

Sec. 2270.0121. DESIGNATION AS COUNTRY OF CONCERN. (a) Authorizes the governor, after consultation with the public safety director of the Department of Public Safety, to designate a country as a country of concern for purposes of this subchapter.

 

(b) Requires the governor to consult the Homeland Security Council, established under Subchapter B (Homeland Security Council), Chapter 421 (Homeland Security), to assess the status of a country of concern for purposes of making a designation under this section.

 

Sec. 2270.0122. PROHIBITION ON INVESTMENT IN COUNTRY OF CONCERN. Prohibits an investing entity from acquiring a security issued by a country of concern or an entity owned or controlled by or subject to the jurisdiction of a country of concern.

 

Sec. 2270.0123. PROHIBITION AGAINST INVESTMENT OR DEPOSIT IN CERTAIN BANKS. Prohibits an investing entity from investing or making a deposit in a bank with a principal place of business located in a country of concern.

 

Sec. 2270.0124. SCRUTINIZED COMPANIES IN COUNTRIES OF CONCERN. Provides that a company is a scrutinized company if the company is organized under the laws of, has its principal place of business in the territory of, or is controlled by a country of concern, the company is owned by a country of concern or individuals who are citizens of a country of concern, or the majority of stock or other ownership interest of the company is held or controlled by a country of concern or individuals who are citizens of a country of concern.

 

SECTION 4. Amends Sections 2270.0201(a) and (b), Government Code, as follows:

 

(a) Requires that the list of all scrutinized companies be categorized according to certain categories, including companies that are scrutinized companies under Section 2270.0001(9)(D) (relating to defining "scrutinized company"). Makes nonsubstantive changes.

 

(b) Makes a conforming change to this subsection.

 

SECTION 5. Amends Subchapter E, Chapter 2270, Government Code, by adding Section 2270.02035, as follows:

 

Sec. 2270.02035. ACTIONS RELATED TO LISTED COMPANY OWNED OR CONTROLLED BY OR LOCATED IN COUNTRY OF CONCERN. (a) Requires an investing entity, for each listed company identified under Section 2270.0202 (Identification of Investment in Listed Companies) that is a scrutinized company under Section 2270.0124, to send a written notice informing the company of its listed company status and warning the company that it may become subject to divestment by investing entities.

 

(b) Requires the notice to offer the company the opportunity to, not later than the 90th day after the date the company receives notice under this section, change its organizational or ownership structure or location so as to not be a scrutinized company as described by Section 2270.0124 in order to avoid qualifying for divestment by investing entities.

 

(c) Requires the Comptroller of Public Accounts of the State of Texas (comptroller), if during the time provided by Subsection (b), the company makes any applicable changes required by that subsection, to remove the company from the list of scrutinized companies and provides that this chapter will no longer apply to the company unless the company later again becomes a scrutinized company as described by Section 2270.0124.

 

(d) Requires the investing entity, if, after the time provided by Subsection (b) expires, the listed company continues to operate as a scrutinized company as described by Section 2270.0124, to sell, redeem, divest, or withdraw all publicly traded securities of the company, except securities described by Section 2270.0207 (Investments Exempted From Divestment), according to the schedule provided by Section 2270.0206 (Divestment of Assets).

 

SECTION 6. Requires the comptroller, not later than January 1, 2026, to include on the list maintained under Section 2270.0201(a), Government Code, as amended by this Act, the companies described by Subsection (a)(3) (relating to requiring that the list of all scrutinized companies be categorized according to companies that are scrutinized companies under Section 2270.0124) of that section.

 

SECTION 7. Effective date: September 1, 2025.