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A BILL TO BE ENTITLED
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AN ACT
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relating to prohibiting certain state governmental entities from |
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investing in certain Chinese-affiliated entities. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subtitle A, Title 8, Government Code, is amended |
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by adding Chapter 809A to read as follows: |
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CHAPTER 809A. PROHIBITION ON INVESTMENT IN CERTAIN |
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CHINESE-AFFILIATED ENTITIES |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 809A.001. DEFINITIONS. In this chapter: |
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(1) "Chinese-affiliated entity" means a publicly |
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traded entity that: |
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(A) is both: |
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(i) incorporated or headquartered in the |
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People's Republic of China, including in the Hong Kong special |
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administrative region, other than a U.S. subsidiary, as that term |
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is defined by 15 C.F.R. Section 772.1; and |
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(ii) publicly confirmed to be controlled by |
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the People's Republic of China, the Chinese Communist Party, or a |
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provincial division, municipality, governmental agency, sovereign |
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wealth fund, or political instrumentality of the People's Republic |
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of China; or |
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(B) is identified by one or more of the |
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appropriate government agencies to be required by the National |
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Intelligence Law of the People's Republic of China (2017), as |
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amended in 2018, or any successor law, to support, assist, and |
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cooperate with the state intelligence work of the People's Republic |
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of China and keep the secrets of the national intelligence work of |
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the People's Republic of China. |
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(2) "Direct holdings" means, with respect to a |
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restricted entity, all securities of that restricted entity held |
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directly by a state governmental entity in an account or fund in |
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which a state governmental entity owns all shares or interests. |
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(3) "Entity" means a for-profit sole proprietorship, |
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organization, association, corporation, partnership, joint |
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venture, limited partnership, limited liability partnership, or |
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limited liability company, including a wholly owned subsidiary, |
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majority-owned subsidiary, parent company, or affiliate of those |
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entities or business associations, that exists to make a profit. |
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(4) "Indirect holdings" means, with respect to a |
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restricted entity, all securities of that restricted entity held in |
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an account or fund, such as a mutual fund, managed by one or more |
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persons not employed by a state governmental entity, in which the |
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state governmental entity owns shares or interests together with |
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other investors not subject to the provisions of this chapter. The |
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term does not include money invested under a plan described by |
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Section 401(k) or 457 of the Internal Revenue Code of 1986 (26 |
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U.S.C. Section 401(k) or 457). |
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(5) "Listed restricted entity" means a restricted |
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entity listed by the comptroller under Section 809A.051. |
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(6) "Restricted entity" means a Chinese-affiliated |
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entity or other entity associated with the People's Republic of |
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China that is identified or included on an entities list maintained |
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by the federal government for the purpose of imposing prohibitions |
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or restrictions on or against entities to address national security |
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concerns, protect human rights, or combat unfair trade practices. |
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The term includes an entity that: |
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(A) is listed on the entity list under supplement |
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No. 4 to 15 C.F.R. Part 744 as associated with the People's Republic |
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of China because there is reasonable cause to believe the entity is |
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involved, has been involved, or poses a significant risk of being or |
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becoming involved in activities contrary to the national security |
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or foreign policy interests of the United States of America; and |
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(B) is listed in the Federal Register by the |
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United States Secretary of Defense as a Chinese military company |
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operating directly or indirectly in the United States or in any |
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territory or possession of the United States on the most recent list |
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compiled under Section 1260H of the William M. (Mac) Thornberry |
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National Defense Authorization Act for Fiscal Year 2021 (Pub. L. |
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No. 116-283, reprinted in note, 10 U.S.C. Section 113), or any |
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successor list of Chinese military companies the secretary is |
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required by law to compile and publish. |
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(7) "State governmental entity" means: |
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(A) the Employees Retirement System of Texas, |
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including a retirement system administered by that system; |
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(B) the Teacher Retirement System of Texas; |
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(C) the Texas Municipal Retirement System; |
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(D) the Texas County and District Retirement |
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System; |
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(E) the Texas Emergency Services Retirement |
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System; or |
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(F) the permanent school fund. |
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Sec. 809A.002. OTHER LEGAL OBLIGATIONS. With respect to |
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actions taken in compliance with this chapter, including all good |
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faith determinations regarding restricted entities as required by |
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this chapter, a state governmental entity and the comptroller are |
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exempt from any conflicting statutory or common law obligations, |
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including any obligations with respect to making investments, |
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divesting from any investment, preparing or maintaining any list of |
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restricted entities, or choosing asset managers, investment funds, |
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or investments for the state governmental entity's securities |
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portfolios. |
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Sec. 809A.003. INDEMNIFICATION OF STATE GOVERNMENTAL |
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ENTITIES, EMPLOYEES, AND OTHERS. In a cause of action based on an |
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action, inaction, decision, divestment, investment, restricted |
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entity communication, report, or other determination made or taken |
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in connection with this chapter, the state shall, without regard to |
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whether the person performed services for compensation, indemnify |
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and hold harmless for actual damages, court costs, and attorney's |
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fees adjudged against, and defend: |
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(1) an employee, a member of the governing body, or any |
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other officer of a state governmental entity; |
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(2) a contractor of a state governmental entity; |
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(3) a former employee, a former member of the |
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governing body, or any other former officer of a state governmental |
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entity who was an employee, member of the governing body, or other |
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officer when the act or omission on which the damages are based |
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occurred; |
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(4) a former contractor of a state governmental entity |
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who was a contractor when the act or omission on which the damages |
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are based occurred; and |
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(5) a state governmental entity. |
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Sec. 809A.004. NO PRIVATE CAUSE OF ACTION. (a) A person, |
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including a member, retiree, or beneficiary of a retirement system |
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to which this chapter applies, an association, a research firm, a |
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restricted entity, or any other person may not sue or pursue a |
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private cause of action against the state, a state governmental |
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entity, a current or former employee, a member of the governing |
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body, or any other officer of a state governmental entity, or a |
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contractor of a state governmental entity, for any claim or cause of |
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action, including breach of fiduciary duty, or for violation of any |
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constitutional, statutory, or regulatory requirement in connection |
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with any action, inaction, decision, divestment, investment, |
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restricted entity communication, report, or other determination |
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made or taken in connection with this chapter. |
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(b) A person who files suit against the state, a state |
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governmental entity, an employee, a member of the governing body, |
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or any other officer of a state governmental entity, or a contractor |
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of a state governmental entity, is liable for paying the costs and |
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attorney's fees of a person sued in violation of this section. |
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Sec. 809A.005. INAPPLICABILITY OF REQUIREMENTS |
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INCONSISTENT WITH FIDUCIARY RESPONSIBILITIES AND RELATED DUTIES. A |
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state governmental entity is not subject to a requirement of this |
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chapter if the state governmental entity determines that the |
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requirement would be inconsistent with its fiduciary |
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responsibility with respect to the investment of its assets or |
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other duties imposed by law relating to the investment of its |
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assets, including the duty of care established under Section 67, |
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Article XVI, Texas Constitution. |
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Sec. 809A.006. RELIANCE ON FEDERAL DETERMINATION AND |
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RESTRICTED ENTITY RESPONSE. The comptroller may rely on the |
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following, in the following order of priority, without conducting |
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any further investigation, research, or inquiry: |
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(1) a determination by a federal agency or officer |
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made under a federal law, regulation, or executive order regarding |
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whether an entity is a restricted entity; and |
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(2) a restricted entity's response to a communication |
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made under this chapter. |
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SUBCHAPTER B. DUTIES REGARDING INVESTMENTS |
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Sec. 809A.051. LISTED RESTRICTED ENTITIES. (a) The |
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comptroller shall prepare and maintain, and provide to each state |
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governmental entity, a list of all restricted entities. In |
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maintaining the list, the comptroller may: |
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(1) review and rely, as appropriate in the |
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comptroller's judgment, on publicly available information |
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regarding restricted entities, including information provided or |
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made available by federal, state, or local governments, nonprofit |
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organizations, research firms, and international organizations; |
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and |
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(2) request written verification from a restricted |
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entity that it does not meet any of the criteria in Section |
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809A.001(6) and rely, as appropriate in the comptroller's judgment |
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and without conducting further investigation, research, or |
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inquiry, on the entity's written response to the request. |
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(b) A restricted entity that fails to provide to the |
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comptroller a written verification under Subsection (a)(2) before |
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the 61st day after receiving the request from the comptroller is |
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presumed to be a restricted entity. |
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(c) The comptroller shall update the list annually or more |
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often as the comptroller considers necessary, but not more often |
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than quarterly, based on information from, among other sources, |
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those listed in Subsection (a). |
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(d) Not later than the 30th day after the date the list of |
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restricted entities is first provided or updated, the comptroller |
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shall file the list with the presiding officer of each house of the |
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legislature and the attorney general and post the list on a publicly |
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available Internet website. |
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Sec. 809A.052. IDENTIFICATION OF INVESTMENT IN LISTED |
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RESTRICTED ENTITIES. Not later than the 30th day after the date a |
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state governmental entity receives the list provided under Section |
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809A.051, the state governmental entity shall notify the |
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comptroller of the restricted entities in which the state |
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governmental entity owns direct holdings or indirect holdings. |
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Sec. 809A.053. NOTICE OF DIVESTMENT TO LISTED RESTRICTED |
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ENTITY. For each listed restricted entity identified under Section |
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809A.052, the state governmental entity shall send a written |
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notice: |
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(1) informing the restricted entity of its status as a |
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restricted entity; and |
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(2) warning the restricted entity that it may become |
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subject to divestment by the state governmental entity. |
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Sec. 809A.054. DIVESTMENT OF ASSETS. (a) A state |
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governmental entity required to sell, redeem, divest, or withdraw |
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all publicly traded securities of a listed restricted entity shall |
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comply with the following schedule: |
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(1) at least 50 percent of those assets must be removed |
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from the state governmental entity's assets under management not |
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later than the 180th day after the date the restricted entity |
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receives notice under Section 809A.053 unless the state |
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governmental entity determines, based on a good faith exercise of |
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its fiduciary discretion and subject to Subdivision (2), that a |
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later date is more prudent; and |
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(2) 100 percent of those assets must be removed from |
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the state governmental entity's assets under management not later |
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than the 360th day after the date the restricted entity receives |
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notice under Section 809A.053. |
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(b) Except as provided by Subsection (a), a state |
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governmental entity may delay the schedule for divestment under |
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that subsection only to the extent that the state governmental |
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entity determines, in the state governmental entity's good faith |
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judgment, and consistent with the state governmental entity's |
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fiduciary duty, that divestment from listed restricted entities |
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will likely result in a loss in value or a benchmark deviation |
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described by Section 809A.056(a). If a state governmental entity |
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delays the schedule for divestment, the state governmental entity |
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shall submit a report to the presiding officer of each house of the |
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legislature and the attorney general stating the reason and |
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justification for the state governmental entity's delay in |
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divestment from listed restricted entities. The report must |
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include documentation supporting its determination that the |
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divestment would result in a loss in value or a benchmark deviation |
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described by Section 809A.056(a), including objective numerical |
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estimates. The state governmental entity shall update the report |
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every six months. |
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Sec. 809A.055. INVESTMENTS EXEMPTED FROM DIVESTMENT. A |
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state governmental entity is not required to divest from any |
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indirect holdings in actively or passively managed investment funds |
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or private equity funds. The state governmental entity shall |
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submit letters to the managers of each investment fund containing |
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listed restricted entities requesting that they remove those |
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restricted entities from the fund or create a similar actively or |
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passively managed fund with indirect holdings devoid of listed |
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restricted entities. If a manager creates a similar fund with |
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substantially the same management fees and same level of investment |
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risk and anticipated return, the state governmental entity may |
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replace all applicable investments with investments in the similar |
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fund in a time frame consistent with prudent fiduciary standards |
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but not later than the 450th day after the date the fund is created. |
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Sec. 809A.056. AUTHORIZED INVESTMENT IN LISTED RESTRICTED |
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ENTITIES. (a) A state governmental entity may cease divesting from |
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one or more listed restricted entities only if clear and convincing |
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evidence shows that: |
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(1) the state governmental entity has suffered or will |
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suffer a loss in the hypothetical value of all assets under |
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management by the state governmental entity as a result of having to |
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divest from listed restricted entities under this chapter; or |
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(2) an individual portfolio that uses a |
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benchmark-aware strategy would be subject to an aggregate expected |
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deviation from its benchmark as a result of having to divest from |
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listed restricted entities under this chapter. |
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(b) A state governmental entity may cease divesting from a |
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listed restricted entity as provided by this section only to the |
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extent necessary to ensure that the state governmental entity does |
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not suffer a loss in value or deviate from its benchmark as |
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described by Subsection (a). |
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(c) Before a state governmental entity may cease divesting |
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from a listed restricted entity under this section, the state |
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governmental entity must provide a written report to the |
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comptroller, the presiding officer of each house of the |
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legislature, and the attorney general setting forth the reason and |
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justification, supported by clear and convincing evidence, for |
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deciding to cease divestment or to remain invested in a listed |
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restricted entity. |
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(d) The state governmental entity shall update the report |
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required by Subsection (c) semiannually, as applicable. |
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Sec. 809A.057. PROHIBITED INVESTMENTS. Except as provided |
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by Section 809A.056, a state governmental entity may not acquire |
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securities of a listed restricted entity. |
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SUBCHAPTER C. REPORT; ENFORCEMENT |
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Sec. 809A.101. REPORT. Not later than January 5 of each |
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year, each state governmental entity shall file a publicly |
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available report with the presiding officer of each house of the |
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legislature and the attorney general that: |
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(1) identifies all securities sold, redeemed, |
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divested, or withdrawn in compliance with Section 809A.054; |
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(2) identifies all prohibited investments under |
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Section 809A.057; and |
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(3) summarizes any changes made under Section |
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809A.055. |
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Sec. 809A.102. ENFORCEMENT. The attorney general may bring |
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any action necessary to enforce this chapter. |
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SECTION 2. This Act takes effect September 1, 2025. |
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