Michael John Garcia
Legislative Attorney
Todd Garvey
Legislative Attorney
States and localities have occasionally enacted measures restricting their agencies from conducting economic transactions with entities that do business with or in foreign countries whose conduct these jurisdictions find objectionable. While some maintain that sub-federal entities may enact such laws under sovereign proprietary powers and other constitutional prerogatives, others argue that these measures impermissibly invade federal commerce and foreign affairs authorities and may, in some cases, be preempted by federal statute. In 2000, the U.S. Supreme Court unanimously held in Crosby v. National Foreign Trade Council that a Massachusetts law restricting state transactions with firms doing business in Burma was preempted by federal statute. In its 2003 decision in American Insurance Association v. Garamendi, the Court reaffirmed the relevance of the dormant federal foreign affairs power to preemption analysis when it struck down a California law requiring certain businesses to disclose information regarding Holocaust-era insurance policies sold in Europe, but the scope of the 5-4 decision is unclear.
In recent years, a number of states have proposed or enacted some type of divestment legislation against Sudan in response to the troubled situation in Darfur. States have also considered or adopted divestment legislation involving Iran, Cuba, or terrorist states in general. In February 2007, a federal district court held Illinois’s Sudan sanctions law unconstitutional and permanently enjoined its enforcement (National Foreign Trade Council v. Giannoulias). Illinois subsequently repealed its statute, and the state’s appeal in the case was dismissed as moot later that year. In 2012, a U.S. federal district court issued a preliminary injunction barring the enforcement of a Florida statute which, among other things, restricted the state or local governments from entering into contracts with certain entities that do business in Cuba.
In recent years, Congress has enacted legislation authorizing states to prohibit investments in, or divest assets from, Sudan and Iran. The Sudan Accountability and Divestment Act of 2007 (P.L. 110-174) authorizes states and local governments to adopt divestment or investment prohibition measures involving (1) persons the state or local government determines are conducting business operations in the Sudanese energy and military equipment sectors or (2) persons having a direct investment in or carrying on a trade or business with Sudanese entities or the Government of Sudan, provided certain notification requirements are met. The Comprehensive Iran Sanctions, Accountability, and Divestment Act (P.L. 111-195) which was enacted in 2010, includes provisions authorizing state and local governments to divest from those businesses making investments of $20 million or more in Iran’s energy sector after adequate investigation and notification have occurred. Both laws provide that a measure falling within the scope of the authorization is not preempted by any federal law or regulation.
Date of Report: Febrary 20, 2013
Number of Pages: 23
Order Number: RL33948
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