International Trade |
The National Foreign Trade Council (NFTC) Aug. 7 filed a lawsuit challenging an Illinois law imposing sanctions against companies with ties to Sudan, saying that six other states have enacted similar legislation and seven more states were considering related punitive measures, including Texas and California.
Joining the NFTC as plaintiffs in the llinois case (NFTC v. Topinka) were eight boards of public employee pension funds, along with nine individuals.
William A. Reinsch, president of the NFTC, said that the lawsuit–filed in the Federal District Court for the Northern District of Illinois–was meant to send a signal to other states that the U.S. Constitution limits the conduct of foreign policy to the federal government and not the states.
“We believe the Constitution intends that the president should have the flexibility to craft foreign policy that combines incentives and disincentives intended to change the behavior of foreign governments, like Sudan, and that sanctions imposed by individual states or local governments inevitably end up tying the president’s hands,” Reinsch said. “The Illinois law inflicts pain for no gain, with the pain falling particularly on the pension funds of police officers and firefighters who have put their lives on the line to protect the citizens of Illinois.”
Reinsch told reporters that the lawsuit against Illinois’ “Act to End Terrorism and Atrocities in Sudan,” which took effect on Jan. 27, rests on a unanimous ruling by the U.S. Supreme Court in 2000 that a Massachusetts law applying sanctions against Burma was unconstitutional because it could undermine the president’s ability to conduct effective diplomacy (Crosby v. National Foreign Trade Council, U.S., No. 99-474, 6/19/00).
The NFTC, which represents some 300 U.S. companies with interests in international trade and investment including The Boeing Co., Caterpillar Inc., Chevron Corp., Exxon Mobil Corp., Microsoft Corp., Ford Motor Co., and General Motors Corp., said that eight Illinois pension funds had joined the NFTC as plaintiffs in the case because the Sudan sanctions law will force them to divest of some mutual funds and other equities and accept lower yields in alternative investment vehicles, primarily in the bond market.
Winston & Strawn LLP has been retained by the NFTC to litigate the case.
Injunctive Relief Sought
The NFTC and the other plaintiffs also plan to file a motion for injunctive relief to prevent the continued implementation of the Illinois law during the course of the lawsuit, officials said.
Under the Illinois law, banks and other financial institutions will be required to certify that their borrowers have no direct or indirect business ties to Sudan, and it will prohibit the state from using such institutions as depositories for state funds unless they can so certify.
The NFTC said that a U.S. company, for example, could be considered a “forbidden entity” if an affiliate in Europe operates a hotel in Khartoum or a joint venture in China sells a household product to a distributor in Sudan.
Under the law, public employee pension funds in Illinois will also be prohibited from holding shares of companies designated as forbidden entities and are being required to liquidate their holdings of equities and international mutual funds that contain shares of such entities.
“The ultimate losers will be the individual and corporate taxpayers who serve as the state’s definitive guarantors of all pension obligations,” the NFTC said.
Seven States Consider Similar Laws
Six other states–Arizona, Connecticut, Maine, New Jersey, Louisiana, and Oregon–have enacted legislation imposing sanctions against Sudan or terrorism-supporting countries, according to the NFTC, and seven additional states are considering similar measures: California, Georgia, Iowa, Massachusetts, Missouri, Rhode Island, and Texas.
Legislation now before the California Senate, for instance, would prohibit the California Public Employees’ Retirement System and the California State Treasurers’ Retirement System from investing in companies with active business operations in Sudan and would require them to sell or transfer their existing holdings by Jan. 1, 2008.
The legislation (AB 2941) was approved by the state Senate Committee on Public Employment and Retirement in June of this year, and the Senate Judiciary Committee has scheduled a hearing on the bill for later this month.
A bill pending consideration in the Texas state House (HB 815) would prohibit state funds from being invested in equities or obligations of private corporations or other private business entities doing business in Sudan.
Several related measures, however, have died in committee in a number of states, including Indiana, Kansas, Maryland, and New York.
Then-President Clinton banned U.S. trade and investment with Sudan by Executive Order in 1997, and Congress codified those sanctions in 2003 as part of the so-called Sudan Peace Act.