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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

June 2010: 

Sudan Divestment: 

U.S. Investors Sold Assets but Could Benefit from Increased Disclosure 
Regarding Companies' Ties to Sudan: 

GAO-10-742: 

GAO Highlights: 

Highlights of GAO-10-742, a report to congressional requesters. 

Why GAO Did This Study: 

Recognizing the humanitarian crisis in Darfur, Sudan, Congress enacted 
the Sudan Accountability and Divestment Act (SADA) in 2007. This law 
supports U.S. states’ and investment companies’ decisions to divest 
from companies with certain business ties to Sudan. It also seeks to 
prohibit federal contracting with these companies. GAO was asked to 
(1) identify actions that U.S. state fund managers and investment 
companies took regarding Sudan-related assets; (2) describe the 
factors that these entities considered in determining whether and how 
to divest; and (3) determine whether the U.S. government has 
contracted with companies identified as having certain Sudan-related 
business operations and assess compliance with SADA’s federal contract 
prohibition provision. GAO surveyed states, analyzed data on 
investment companies and companies with Sudan-related business 
operations, assessed federal contracts, and reviewed documents and 
interviewed officials from the Securities and Exchange Commission 
(SEC), among other federal agencies. 

What GAO Found: 

Since 2006, U.S. state treasurers and public pension fund managers 
have divested or frozen about $3.5 billion in assets primarily related 
to Sudan in response to their states’ laws and policies; U.S. 
investment companies, which also sold Sudan-related assets, most 
commonly cited normal business reasons for changes in their holdings. 
State fund managers GAO surveyed indicated that their primary reason 
for divesting or freezing Sudan-related assets was to comply with 
their states’ laws or policies. Thirty-five U.S. states have enacted 
legislation or adopted policies affecting their investments related to 
Sudan, primarily in response to the Darfur crisis, as well as in 
response to Sudan’s designation by the U.S. government as a state 
sponsor of terrorism. GAO also found that the value of U.S. shares 
invested in six key foreign companies with Sudan-related business 
operations declined by almost 60 percent from March 2007 to December 
2009. The decline cannot be accounted for solely by a reduction in 
stock prices for these companies, indicating that U.S. investors, on 
net, decided to sell shares in these companies. Investors indicated 
that they bought and sold Sudan-related assets for normal business 
reasons, such as maximizing shareholder value. 

U.S. states and investment companies have often considered three 
factors when determining whether and how to divest. First, they have 
considered whether divesting from Sudan is consistent with fiduciary 
responsibility—generally the duty to act solely and prudently in the 
interest of a beneficiary or plan participant. Second, they have 
considered the difficulty in identifying authoritative and consistent 
information about companies with Sudan-related business operations. 
GAO analyzed three available lists of these companies and found that 
they differed significantly from one another. While information 
directly provided by companies through public documents such as 
disclosures required by the SEC is a particularly reliable source of 
information on these companies, federal securities laws do not require 
companies specifically to disclose business operations in state 
sponsors of terrorism. The SEC has the discretionary authority to 
adopt a specific disclosure requirement for this information, but has 
not exercised this authority. Third, investors have considered the 
effect that divestment might have on operating companies with Sudan-
related business activities, such as prompting companies interested in 
promoting social responsibility to leave Sudan, creating room for 
companies that do not share that interest to enter the Sudanese market. 

GAO’s analysis, including a review of a non-random selection of 
contracts, indicates that the U.S. government has complied with SADA’s 
contract prohibition provision. Specifically, the U.S. government has 
contracted with only one company identified on a widely-used list of 
companies with business ties to Sudan, and the contracts awarded to 
this company did not violate SADA. The U.S. government has contracted 
with subsidiaries and affiliates of companies with business ties to 
Sudan, as permitted under SADA. 

What GAO Recommends: 

GAO recommends that the SEC consider issuing a rule requiring 
companies that trade on U.S. exchanges to disclose their business 
operations tied to Sudan, as well as possibly other state sponsors of 
terrorism. The SEC’s Division of Corporation Finance agreed to present 
GAO’s recommendation to the commission. 

View [hyperlink, http://www.gao.gov/products/GAO-10-742] or key 
components. For more information, contact Thomas Melito at (202) 512-
9601 or melitot@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

U.S. State Fund Managers and Investment Companies Have Sold Sudan- 
related Assets for Varying Reasons: 

U.S. Investors Have Often Considered Three Factors When Determining 
Whether and How to Divest from Companies Tied to Sudan: 

Our Analysis Indicates That the U.S. Government Has Complied with the 
Federal Contract Prohibition Provision of SADA: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Sudan-related Equities Price Index Methodology: 

Appendix III: Questionnaire: 

Appendix IV: Comments from the Securities and Exchange Commission: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Total Sudan-related Assets Divested or Frozen by States, 2006 
to January 2010: 

Table 2: State Laws and Policies Regarding Sudan-related Assets 
Effective as of April 2010: 

Table 3: Summary Response Table: 

Figures: 

Figure 1: U.S. Holdings and Prices of Sudan-related Companies, March 
2007 to December 2009: 

Figure 2: Comparison of Three Lists Identifying Operating Companies 
with Ties to Sudan: 

Figure 3: Price Indices for the U.S. Sudan-related Equity Portfolio: 

Abbreviations: 

ERISA: Employee Retirement Income Security Act: 

FAR: Federal Acquisition Regulations: 

OFPP: Office of Federal Procurement Policy: 

ORCA: Online Representation and Certifications Application: 

PERS: Public Employee Retirement System: 

SADA: Sudan Accountability and Divestment Act: 

SEC: Securities and Exchange Commission: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

June 22, 2010: 

The Honorable Barney Frank:
Chairman:
Committee on Financial Services:
House of Representatives: 

The Honorable Michael E. Capuano:
House of Representatives: 

The Honorable Barbara Lee:
House of Representatives: 

Since 1993, the U.S. Secretary of State has included Sudan on the 
"State Sponsors of Terrorism" list for repeatedly providing support 
for acts of international terrorism.[Footnote 1] In 2003, U.S. 
concerns grew, as militias supported by the Sudanese government in 
Khartoum began waging what the U.S. government has characterized as 
genocide against the civilian population of Darfur. According to 
several nongovernmental groups and experts, this campaign may be 
financed, in part, by revenue collected from companies with business 
operations in Sudan ("operating companies"), particularly in four key 
economic sectors--power production, mineral extraction, oil-related 
activities, and production of military equipment. In 2007, the U.S. 
Congress enacted the Sudan Accountability and Divestment Act[Footnote 
2] (SADA), which supports U.S. states' voluntary decisions to divest 
from foreign companies conducting certain business operations in Sudan 
in these four key economic sectors.[Footnote 3] The act also contains 
a "safe harbor" provision, which gives investment companies that 
divest[Footnote 4] from these companies safe harbor from lawsuits 
"based solely upon the investment company divesting from, or avoiding 
investment in, securities issued by persons[Footnote 5] that conduct 
or have direct investments in business operations" designated under 
SADA, provided the investment companies file disclosure forms with the 
SEC in accordance with SADA. In addition, the act seeks to prohibit 
the U.S. government from contracting with companies that conduct 
certain business operations in Sudan. To that end, section 6 of the 
act (Prohibition on United States Government Contracts) requires all 
U.S. government agencies to ensure that each contract entered into for 
the procurement of goods or services includes a clause requiring the 
contractor to certify that it does not conduct certain business 
operations in Sudan in the four key economic sectors. The federal rule 
implementing this requirement stipulates that, in most cases, the 
required certification must be included in the solicitation for each 
new federal contract.[Footnote 6] 

At your request, we (1) identified actions that U.S. state fund 
managers and U.S.-based investment companies have taken regarding 
their Sudan-related assets and attempted to determine the reasons for 
these actions; (2) described the factors that these entities 
considered in determining whether and how to divest; and (3) 
determined whether the U.S. government has contracted with companies 
identified as having Sudan-related business operations and assessed 
compliance with the contract prohibition provision of SADA. 

To address the first two objectives regarding U.S. states' actions, we 
conducted a survey of treasurers and public pension fund managers in 
all 50 states and the District of Columbia.[Footnote 7] Specifically, 
we surveyed (1) the 51 state treasurers or their equivalents; (2) the 
51 state-run public employee retirement system funds; and (3) managers 
of 50 other state-run public pension funds, such as teacher retirement 
funds.[Footnote 8] (In some states, holdings are contained in several 
funds managed by different individuals.) We chose the first and second 
categories because they were frequently identified in state laws as 
the entities responsible for implementing any divestment actions. We 
chose the third category to include the funds with the largest asset 
values after the funds managed by public employee retirement systems 
and treasurers, since some state laws also affected these state-run 
funds. For the purposes of this report, we refer to the individuals in 
each of these categories as "state fund managers." We administered the 
survey between February and April 2010. Ninety-one percent (or 138 of 
151) of fund managers responded to our survey, with at least 1 fund 
manager from each of the 51 states providing responses. We also 
reviewed state laws and policies[Footnote 9] regarding investment of 
their Sudan-related assets.[Footnote 10] 

To identify the actions that investment companies took regarding their 
Sudan-related assets, we first had to identify foreign operating 
companies with business ties to Sudan as a way to isolate and track 
U.S. investors' holdings in these companies. We obtained and compared 
three lists of such operating companies, including those that are 
widely used by states in determining whether and how to divest from 
Sudan. From these lists, we selected six operating companies that 
appeared on all three lists, including companies that have been 
targeted through public divestment campaigns, and have operations in 
Sudan's oil sector, which plays a central role in that country's 
economy. To analyze U.S. investment companies' holdings in these six 
key foreign operating companies, as well as the stock prices of these 
companies, we used shareholder ownership and market data (purchased 
from Thomson Reuters). We also interviewed investment companies 
regarding Sudan-related assets. We identified these companies by 
selecting those that had spoken publicly about the issue of Sudan 
divestment, as well as by issuing an invitation through a large 
national association of investment companies to all of its members. 
[Footnote 11] Six investment companies agreed to speak with us, and 
one provided written answers anonymously from 31 of its sub-advisers. 
In addition, we interviewed eight foreign operating companies that 
have Sudan-related business operations or had previously operated in 
Sudan. We identified and contacted 22 companies that appeared on at 
least one of the lists we analyzed and represented a mix of both 
Western (primarily European) and Eastern (or Asian) companies. Nine 
agreed to speak with us, all of them Western.[Footnote 12] Finally, we 
reviewed documents and interviewed agency officials from the SEC and 
the Departments of Justice, State, and Treasury. (States are required 
to submit written notice of divestment to the Department of Justice; 
investment companies seeking to rely upon the safe harbor provision of 
SADA are required to disclose their divestment in a filing with the 
SEC.) The SEC is responsible for overseeing the federal securities 
laws, which require public companies to disclose information about 
their operations, among other things, to investors. Through its Office 
of Global Security Risk, the SEC monitors operating companies' 
disclosure of material[Footnote 13] business activities in or with 
ties to state sponsors of terrorism and issues comments to these 
companies when appropriate. The Department of State oversees U.S. 
foreign policy toward Sudan, and the Department of the Treasury 
administers and enforces U.S. sanctions against Sudan. 

To address the third objective, we searched the Federal Procurement 
Data System--Next Generation on March 2, 2010, to determine whether 
the U.S. government awarded federal contracts from June 12, 2008, to 
March 1, 2010, to foreign companies identified as having business ties 
to Sudan, as well as to some of their subsidiaries and affiliates. (We 
determined that this data system was sufficiently reliable for the 
purposes of our review because we did not need to identify the 
universe of contracts subject to SADA in order to complete our 
analysis.)[Footnote 14] We then selected the highest dollar amount 
contract or contract modification for each of the 31 companies we 
identified and, if the solicitation was issued on or after June 12, 
2008--when the interim implementing regulations took effect--reviewed 
the solicitation or other relevant documentation for presence of the 
applicable Sudan-related certification clause.[Footnote 15] We also 
reviewed federal rules related to the requirement and interviewed U.S. 
officials at the Office of Management and Budget, the Department of 
the Treasury, and the General Services Administration. 

We conducted this performance audit from August 2009 to June 2010 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. (Appendix I 
provides a detailed discussion of our objectives, scope, and 
methodology.) 

Results in Brief: 

U.S. state fund managers reported that, since 2006, they have divested 
or frozen[Footnote 16] about $3.5 billion in assets primarily related 
to Sudan in response to their state laws and policies; U.S. investment 
companies, which also sold Sudan-related assets, most commonly cited 
normal business reasons for changes in their holdings. We found that, 
from 2006 to 2010, 23 states divested their assets from a total of 67 
operating companies, with New Jersey's divestment of almost $2.2 
billion representing about 62 percent of the total. The fund managers 
responding to our survey who had divested or frozen or planned to 
divest or freeze their states' Sudan-related assets indicated that 
their primary reason for doing so was to comply with their states' 
laws or policies, rather than out of concern for the situation in 
Darfur. Thirty-five U.S. states have enacted legislation or 
implemented policies affecting investments related to Sudan, primarily 
in response to the Darfur crisis, as well as in response to Sudan's 
designation by the U.S. government as a state sponsor of terrorism. 
They also reflect a variety of approaches, such as mandating or 
encouraging divestment and prohibiting state contracts with certain 
companies that have business operations related to Sudan. Data 
indicate that U.S.-based investment companies have also reduced their 
Sudan-related holdings. Specifically, we determined that, from March 
2007 to December 2009, the total value of U.S. shares invested in six 
key foreign companies with Sudan-related business operations declined 
by almost 60 percent. This decline cannot be accounted for solely by a 
reduction in stock prices for these companies, indicating that U.S. 
investors, on net, decided to sell shares in these companies. Most 
commonly, U.S. investment companies told us or reported that they 
bought and sold Sudan-related assets for normal business reasons, such 
as maximizing shareholder value consistent with the guidelines in each 
fund's prospectus, as well as in response to specific client 
instructions. 

U.S. states and investment companies have often considered the 
following three factors when determining whether and how to divest 
from companies tied to Sudan: 

* Whether divesting from Sudan is consistent with fiduciary 
responsibility.[Footnote 17] For example, of the 29 state fund 
managers responding to our survey who had divested or frozen their 
Sudan-related assets, or planned to do so, 17 (or 59 percent) said 
they were concerned to a moderate or large extent that "it would be 
difficult to divest while ensuring that fiduciary trust requirements 
were not breached and my office/state was not made vulnerable to law 
suits." Private investment companies expressed differing views on 
their fiduciary duty in the context of Sudan-related divestment. Some 
expressed the view that taking social concerns into account when 
making investment decisions, rather than focusing on maximizing 
returns on investment, is inconsistent with fiduciary responsibility. 
Other companies, particularly those identifying themselves as socially 
responsible, expressed the view that divesting from Sudan is 
consistent with fiduciary responsibility, provided that the divested 
assets are placed in alternative investments that can compete 
financially. Despite the different views expressed on fiduciary 
responsibility in the context of divesting for social reasons, several 
investment companies told us that SADA's safe harbor provision from 
lawsuits alleging breach of fiduciary duty was not necessary, either 
because they viewed divesting for social concerns as consistent with 
fiduciary responsibility or because they would not characterize their 
decision to sell shares related to Sudan as divestment. As of May 
2010, two investment companies have taken advantage of the safe harbor 
provision. 

* The difficulty in identifying authoritative and consistent 
information about companies with Sudan-related business operations. 
Under SADA, states that divest from operating companies with business 
operations in Sudan must use credible information to identify those 
companies. However, there is no single, authoritative list of 
operating companies with business ties to Sudan, and the three lists 
we analyzed differed significantly from one another. Although 
information provided directly by companies is particularly useful to 
investors, companies' SEC disclosure filings do not consistently 
contain all information about their operations in Sudan because 
federal securities laws do not specifically require companies to 
report all activities in or ties to U.S.-designated state sponsors of 
terrorism, including Sudan. Although the SEC has the discretionary 
authority to request additional information from companies that trade 
on U.S. exchanges, it has not exercised this authority by adopting a 
specific disclosure requirement and has indicated that it is committed 
to the practice of relying on companies to ensure that their 
disclosures contain all material information about their operations in 
these countries. 

* The effect that divestment might have on operating companies with 
Sudan-related business activities. Some advocates and investors have 
raised concerns that divestment campaigns can prompt companies 
interested in promoting corporate social responsibility to leave, 
creating room for companies that do not share that interest to enter 
the Sudanese market. As a result of this concern about divestment, 
some advocacy groups, as well as some U.S. states and investment 
companies, have increasingly focused on engaging with operating 
companies to improve their business practices. For example, they have 
written letters to or met with companies' senior management 
encouraging them to fund humanitarian programs that aid the Sudanese 
people, conduct human rights assessments of their business operations 
in Sudan, or pressure the Sudanese government to change its practices. 

Our search of federal contract awards since June 12, 2008, as well as 
our review of a selection of contracts, indicates that the U.S. 
government has complied with SADA's federal contract prohibition 
provision. We determined that, of 88 companies identified on a widely 
used list of companies that have business ties to Sudan, only 1 has 
received federal contracts since the requirement took effect. However, 
because of the contract type, the Sudan-related certifications were 
not required for these particular contracts, and therefore there was 
no violation of SADA. The U.S. government has contracted with 
subsidiaries and affiliates of companies with business ties to Sudan, 
as permitted under SADA. We found that all contracts that we selected 
for review complied with federal rules implementing SADA. We also 
found that no contracting agency has requested a waiver from the 
contract prohibition requirement. Such a waiver, if granted, would 
allow a company to obtain federal contracts even while conducting 
business operations in Sudan that are normally prohibited under SADA. 
Finally, we determined that no companies had been included on the list 
of contractors barred from federal contracting for falsely certifying 
that they did not conduct prohibited business operations in Sudan. 

In order to enhance the investing public's access to information it 
needs to make well-informed decisions when determining whether and how 
to divest Sudan-related assets, we recommend that the SEC consider 
issuing a rule requiring companies that trade on U.S. exchanges to 
disclose their business operations related to Sudan, as well as 
possibly other state sponsors of terrorism. 

The SEC's Division of Corporation Finance provided written comments on 
a draft of our report, which are reprinted in appendix IV. The 
Division of Corporation Finance agreed that it would present our 
recommendation to the commission for its consideration. However, the 
division expressed concern that adopting a disclosure requirement that 
is excessively broad and beyond what GAO recommends could possibly 
lead to a volume of information that would overwhelm the investor and 
possibly obscure other material information. 

Background: 

Since gaining independence from Britain and Egypt in 1956, Sudan has 
endured civil war rooted in cultural and religious divides. The North, 
which has traditionally controlled the country, has sought to unify it 
along the lines of Arabism and Islam, whereas non-Muslims and other 
groups in the South have sought, among other things, greater autonomy. 
Since 1993, the Secretary of State has included Sudan on the "State 
Sponsors of Terrorism" list for harboring and supporting local and 
international terrorists. In 1997, the U.S. government imposed a trade 
embargo against the entire territory of Sudan and a total asset freeze 
against the Government of Sudan,[Footnote 18] and in 2006 it blocked 
the property and interests in property of certain persons connected 
with the conflict in Darfur,[Footnote 19] where militias supported by 
the Sudanese government led a "campaign of genocide" and forced 
displacement. The Department of the Treasury's Office of Foreign 
Assets Control administers and enforces these sanctions in part 
through its Specially Designated Nationals list, which identifies 
individuals and companies owned or controlled by, or acting for or on 
behalf of, targeted countries, including Sudan.[Footnote 20] 

As awareness of the Darfur conflict and the role of the Sudanese 
government in perpetuating the conflict grew, activists at U.S. 
colleges and universities and political officials at city and state 
levels in the United States initiated campaigns to encourage 
divestment from Sudan. This Sudan divestment movement was coordinated, 
in part, by the Sudan Divestment Task Force, a U.S.-based initiative 
established in 2005 and incorporated in 2006 as a project of the 
Genocide Intervention Network, a nonprofit organization based in 
Washington, D.C. This task force developed a divestment approach 
called "targeted" divestment, which aims to maximize impact on the 
Sudanese government and minimize potential harm to Sudanese civilians. 
It also created model legislation for use by U.S. states based on this 
approach. 

SADA, enacted in December 2007, appears to incorporate many of the 
elements of this targeted divestment approach. For example, SADA 
applies to companies operating in four key economic sectors--power 
production, mineral extraction, oil-related activities, and production 
of military equipment--and outlines several exceptions to operations 
in these sectors. Specifically, it exempts business operations that: 

* are conducted under contract directly and exclusively with the 
regional government of southern Sudan [which is autonomous from the 
Khartoum-based government of Sudan]; 

* are conducted under a license from the Department of the Treasury's 
Office of Foreign Assets Control or are expressly exempted under 
federal law from the requirement to be conducted under such a license; 

* consist of providing goods or services to marginalized populations 
of Sudan; 

* consist of providing goods or services to an internationally 
recognized peacekeeping force or humanitarian organization; 

* consist of providing goods or services that are used only to promote 
health or education; or: 

* have been voluntarily suspended. 

In addition, business operations in the oil sector are exempted if the 
company is involved in the retail sale of gasoline or related consumer 
products in Sudan but is not involved in any other oil-related 
activity, or if the company is involved in leasing, or owns, rights to 
an oil block in Sudan but is not involved in any other oil-related 
activity. For the purposes of this report, the term "prohibited 
business operations" refers to business operations in Sudan in the 
sectors of oil, power production, mineral extraction and production of 
military equipment, provided that they do not qualify for one of the 
exceptions listed above. 

Under SADA, the SEC was directed to prescribe regulations that require 
disclosure by each registered investment company that divests itself 
of securities in accordance with SADA. Under the SEC's regulations, 
investment companies seeking to rely upon the safe harbor provision of 
SADA must disclose the divestment on their next form N-CSR or form N- 
SAR[Footnote 21] that it files following the divestment.[Footnote 22] 
The information disclosed must include, among other things, the 
specific securities divested, the magnitude of divestment, and the 
dates that the securities were divested. In addition, if the 
investment company continues to hold any securities of the company 
from which it divested, it will be required to disclose, among other 
things, the total number of shares or, for debt securities, the 
principal amount of such securities, held on the date of filing. 

U.S. State Fund Managers and Investment Companies Have Sold Sudan- 
related Assets for Varying Reasons: 

Our survey responses show that state fund managers have divested or 
frozen about $3.5 billion in assets primarily related to Sudan in 
response to their states' laws and policies. The value of U.S. 
investment companies' Sudan-related asset holdings has declined 
considerably since March 2007, and companies told us that their 
decisions regarding these shares were motivated primarily by normal 
business reasons. 

State Fund Managers Reported That They Have Divested or Frozen about 
$3.5 Billion in Assets Primarily Related to Sudan in Response to Their 
States' Laws and Policies: 

Fund managers from 23 of the states responding to our survey reported 
that, from 2006 to January 2010, they divested or froze almost $3.5 
billion in assets held in 67 operating companies they identified as 
related either to Sudan specifically or to a larger category of 
divestment targets, such as state sponsors of terrorism. New Jersey 
accounted for almost $2.2 billion, or about 62 percent, of this total. 
(See table 1.) Illinois was 1 of the 23 states that reported divesting 
or freezing its Sudan-related assets, but it did not provide the value 
or dates of these actions. 

Table 1: Total Sudan-related Assets Divested or Frozen by States, 2006 
to January 2010: 

State: New Jersey; 
Total amount divested or frozen: $2,162,564,000; 
Earliest divestment or freezing action: [A]; 
Most recent divestment or freezing action: May 2006. 

State: Oregon; 
Total amount divested or frozen: $362,000,000; 
Earliest divestment or freezing action: 2006; 
Most recent divestment or freezing action: 2009. 

State: Texas; 
Total amount divested or frozen: $225,990,790; 
Earliest divestment or freezing action: October 2008; 
Most recent divestment or freezing action: January 2009. 

State: Massachusetts; 
Total amount divested or frozen: $164,489,806; 
Earliest divestment or freezing action: March 2008; 
Most recent divestment or freezing action: March 2008. 

State: Florida[B]; 
Total amount divested or frozen: $154,947,926; 
Earliest divestment or freezing action: April 2008; 
Most recent divestment or freezing action: July 2008. 

State: California; 
Total amount divested or frozen: $81,739,949; 
Earliest divestment or freezing action: May 2006; 
Most recent divestment or freezing action: September 2008. 

State: Colorado; 
Total amount divested or frozen: $76,066,122; 
Earliest divestment or freezing action: July 2007; 
Most recent divestment or freezing action: January 2010. 

State: Indiana[B]; 
Total amount divested or frozen: $67,203,695; 
Earliest divestment or freezing action: December 2008; 
Most recent divestment or freezing action: December 2009. 

State: Maryland[B]; 
Total amount divested or frozen: $35,430,790; 
Earliest divestment or freezing action: September 2007; 
Most recent divestment or freezing action: April 2008. 

State: Michigan[B]; 
Total amount divested or frozen: $24,332,285; 
Earliest divestment or freezing action: May 2009; 
Most recent divestment or freezing action: December 2009. 

State: Maine[C]; 
Total amount divested or frozen: $21,500,000; 
Earliest divestment or freezing action: April 2006; 
Most recent divestment or freezing action: June 2009. 

State: Connecticut[B]; 
Total amount divested or frozen: $15,388,947; 
Earliest divestment or freezing action: May 2007; 
Most recent divestment or freezing action: September 2009. 

State: Kansas; 
Total amount divested or frozen: $13,378,022; 
Earliest divestment or freezing action: [A]; 
Most recent divestment or freezing action: June 2008. 

State: Hawaii; 
Total amount divested or frozen: $13,288,052; 
Earliest divestment or freezing action: February 2008; 
Most recent divestment or freezing action: December 2008. 

State: New York[B]; 
Total amount divested or frozen: $12,300,000; 
Earliest divestment or freezing action: June 2009; 
Most recent divestment or freezing action: June 2009. 

State: New Mexico; 
Total amount divested or frozen: $12,000,000; 
Earliest divestment or freezing action: [A]; 
Most recent divestment or freezing action: January 2008. 

State: Iowa; 
Total amount divested or frozen: $10,576,749; 
Earliest divestment or freezing action: October 2007; 
Most recent divestment or freezing action: October 2008. 

State: New Hampshire; 
Total amount divested or frozen: $5,636,966; 
Earliest divestment or freezing action: September 2008; 
Most recent divestment or freezing action: March 2009. 

State: Ohio[B]; 
Total amount divested or frozen: $2,341,595; 
Earliest divestment or freezing action: November 2009; 
Most recent divestment or freezing action: November 2009. 

State: Minnesota; 
Total amount divested or frozen: $1,012,038; 
Earliest divestment or freezing action: January 2008; 
Most recent divestment or freezing action: April 2009. 

State: Pennsylvania; 
Total amount divested or frozen: $945,247; 
Earliest divestment or freezing action: January 2008; 
Most recent divestment or freezing action: January 2008. 

State: Arizona[B]; 
Total amount divested or frozen: $727,480; 
Earliest divestment or freezing action: November 2009; 
Most recent divestment or freezing action: November 2009. 

State: Total[D]; 
Total amount divested or frozen: $3,463,860,458. 

Source: GAO's survey of states and public state investment reports. 

[A] States with no entry for "earliest date" did not provide us with 
this information. 

[B] The state has a law or policy, which either focuses on both Sudan 
and Iran or targets state sponsors of terrorism. 

[C] Maine's law on Sudan-related investments, enacted in 2005, expired 
July 1, 2009. 

[D] This total reflects the amounts divested or frozen as reported in 
responses to our survey or in public documents. There may be 
additional fund managers whose funds were not included in our survey 
population or who divested but did not respond to our survey. 

[End of table] 

All of the states that reported having divested or frozen Sudan-
related assets had laws or policies regarding their Sudan-related 
assets, and the state fund managers who responded to our survey cited 
compliance with these laws and policies as their primary reason for 
divestment. In response to our survey, 29 fund managers from 23 
states[Footnote 23] reported that they had divested or frozen their 
Sudan-related assets or planned to do so. Nineteen of these fund 
managers said they were required to divest by their state's law or 
policy; eight said they were not required to divest.[Footnote 24] When 
asked in our survey to consider various possible reasons for divesting 
and characterize them as major, moderate, or minor reasons, all of the 
fund managers responding to these questions who indicated they were 
required to divest cited their state's requirement as a major reason 
for divesting. In comparison, only two of the managers who indicated 
they were required to divest said they divested in order to reduce the 
financial risk their fund was exposed to, and only seven said that 
concerns about supporting genocide or supporting state sponsors of 
terrorism were a major or moderate consideration when divesting. 

35 States Have Enacted Laws or Adopted Policies Affecting Sudan-
Related Investments, Largely out of Concern Regarding Darfur: 

Thirty-five U.S. states have enacted legislation, adopted policies, or 
both affecting their Sudan-related investments.[Footnote 25] 
Specifically, 26 states have current legislation that affects their 
Sudan-related investments, and 9 states without Sudan-related 
legislation have policies regarding Sudan-related investments. 
[Footnote 26] In three of the states with such legislation, individual 
funds not covered by the legislation also issued their own policies 
affecting their Sudan-related investments. For example, Indiana's law 
requires the Teachers Retirement Fund and the Public Employees 
Retirement Fund (both overseen by the governor) to divest from Sudan-
related companies. In addition, the Indiana state treasurer issued a 
policy statement prohibiting all state funds under the treasurer's 
management (such as the State Police Pension Fund) from investing in 
any debt issued by a state sponsor of terrorism. 

The 35 states that enacted or adopted these laws and policies did so 
often out of concern for the genocide in Darfur, as well as some 
concerns about terrorism. Specifically, 29 states' laws or policies 
identify the genocide in Darfur (or in Sudan) as a finding in enacting 
the measure or say that the measure may expire or cease to be 
effective after the genocide in Darfur has halted.[Footnote 27] For 
example, California's law requiring divestment from companies with 
Sudan-related business operations states that the law will remain in 
effect until "the government of Sudan halts the genocide in Darfur for 
12 months as determined by both the Department of State and the 
Congress of the United States" or until "the United States revokes its 
current sanctions against Sudan." Some states, including some that 
target Sudan, have laws or policies that target countries or entities 
due to terrorism concerns. For example, Colorado's law requiring Sudan 
divestment by public pension plans begins with eight declarations 
regarding Darfur, genocide, and human rights abuse.[Footnote 28] The 
law then cites concerns about U.S. sanctions against Sudan and the 
designation of Sudan as a state sponsor of terrorism in 1993, as well 
as a statement regarding the "financial risk posed by investments in 
companies doing business with a terrorist-sponsoring state." In 
contrast, Pennsylvania's Treasurer's policy does not mention Sudan 
specifically, but requires the state treasurer to "determine whether a 
company in which it is considering investing, or a company in which it 
already holds a position, is doing sufficient business--directly, or 
through contractual or ownership interests--in or with a state sponsor 
of terrorism." Six states have laws or policies that target both Sudan 
and Iran. In addition, a few states have laws or policies focusing on 
companies identified by the U.S. Department of the Treasury's Office 
of Foreign Assets Control in its list related to sanctions, or the 
Department of State's list of Foreign Terrorist Organizations. 
[Footnote 29] 

The 35 states' laws and policies we identified vary in the specificity 
with which they address the sale and purchase of Sudan-related assets. 
For example, only one law explicitly defines "divestment action," 
[Footnote 30] while most of the laws describe only the actions 
required to achieve divestment. In addition, two laws state that a 
"public fund shall sell, redeem, divest or withdraw all publicly 
traded securities of the company" on their "scrutinized companies 
list," with certain exceptions. Other laws simply state that the 
public fund in question "shall divest" from or "shall not be invested 
in" companies with ties to Sudan. Most states with laws and policies 
requiring divestment also prohibit or restrict future investments in 
Sudan-related companies. However, some laws and policies only mention 
prohibiting future investments but do not require divestment of Sudan- 
related investments held prior to enactment of the measures. 

In addition to divestment, many state laws and policies also mandate 
or encourage engagement--identifying companies and leveraging power as 
a shareholder or potential shareholder in an effort to change the 
investment or operating behavior of that company. Notably, most states 
that require or encourage divestment also require or encourage the 
state funds to communicate with companies prior to divesting. Eight 
laws state that if, after a certain number of days following a public 
fund's first engagement with a company, the company continues to have 
scrutinized active business operations a "public fund shall sell, 
redeem, divest or withdraw all publicly traded securities of the 
company" on their "scrutinized companies list," with certain 
exceptions.[Footnote 31] Arizona's law requires the public fund to 
review the list of companies it invests in directly and identify those 
companies that may have both business in specific sectors and ties to 
Sudan. The public fund must put the identified companies on a 
"scrutinized companies" list and send a written notice informing the 
company of its scrutinized status and that it may become subject to 
divestment by the fund. If the company fails to respond with 
information about its activities or does not cease its scrutinized 
business operations within 180 days, the fund "shall sell, redeem, 
divest or withdraw all publicly traded securities of the company." 
Finally, a limited number of states prohibit state contracting with 
companies operating in Sudan.[Footnote 32] Table 2 outlines the laws 
and policies in effect with regard to Sudan-related investments in 35 
states. 

Table 2: State Laws and Policies Regarding Sudan-related Assets 
Effective as of April 2010: 

State: Arizona; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Check]. 

State: California; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check][A]; 
Prohibits state contracts with: firms operating in Sudan: [Check]. 

State: Colorado; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Connecticut; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check][B]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Check][B]; 
Prohibits future direct investment: [Check][B]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: District of Columbia; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Florida; 
Has law(s): [Check][C]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Georgia; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Check]. 

State: Hawaii; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Illinois; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Empty]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Indiana; 
Has law(s): [Check]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Check][D]; 
Requires divestment: [Check][D]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check][D]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Iowa; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Kansas; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Louisiana; 
Has law(s): [Check][C]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Maryland; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Massachusetts; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Empty]; 
Requires divestment: [Check]; 
Encourages engagement: [Check]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Michigan; 
Has law(s): [Check]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Check][E]; 
Requires divestment: [Check][E]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Check][E]; 
Prohibits future direct investment: [Check][E]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Minnesota; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: New Hampshire; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: New Jersey; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Empty]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: North Carolina; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Ohio; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Oregon; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Check]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Rhode Island; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: South Carolina; 
Has law(s): [Check]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Empty]; 
Requires divestment: [Check][F]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check][F]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Tennessee; 
Has law(s): [Check][G]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Texas; 
Has law(s): [Check]; 
Has non-legislative policy: [Empty]; 
Requires engagement: [Check]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Missouri; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check][H]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Nevada; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Empty]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: New Mexico; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Empty]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: New York; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Check]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Check]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Pennsylvania; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Check][I]; 
Requires divestment: [Empty]; 
Encourages engagement: [Check][I]; 
Encourages divestment: [Check][I]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Vermont; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Check]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Washington; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Check]; 
Encourages divestment: [Check]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Wisconsin; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check][J]; 
Requires engagement: [Empty]; 
Requires divestment: [Empty]; 
Encourages engagement: [Check][J]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Empty]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

State: Wyoming; 
Has law(s): [Empty]; 
Has non-legislative policy: [Check]; 
Requires engagement: [Empty]; 
Requires divestment: [Check]; 
Encourages engagement: [Empty]; 
Encourages divestment: [Empty]; 
Prohibits future direct investment: [Check]; 
Prohibits state contracts with: firms operating in Sudan: [Empty]. 

Total States Affected: 
Has law(s): 26; 
Has non-legislative policy: 12; 
Requires engagement: 21; 
Requires divestment: 25; 
Encourages engagement: 4; 
Encourages divestment: 7; 
Prohibits future direct investment: 27; 
Prohibits state contracts with: firms operating in Sudan: 3. 

Source: GAO analysis of state legislation, policies, and survey 
responses. 

Notes: We believe our review of states' laws and policies and survey 
responses from relevant state officials provides a reasonable basis 
for the numbers in the table. The vague language in some states' laws 
and policies, as well as their interpretation as indicated by some 
state officials' survey responses, can impact the conclusion about 
whether a law or policy contains a provision that falls within one of 
the designated categories. 

These laws and policies affect different funds within each state 
(e.g., some affect the state treasurers' assets; others affect the 
state investment boards' assets; and others affect multiple funds). 
The chart summarizes the approaches taken by the various laws and 
policies that are in effect in each state, since several states, 
including Arizona, California, Florida, Illinois, Indiana, Michigan, 
South Carolina, and Pennsylvania, have more than one law or policy. 

[A] In addition, California's law regarding the University of 
California system indemnifies the regents and other officials and 
employees of the University of California for decisions not to invest 
in the future. 

[B] While Connecticut law mandates divestment from government of Sudan-
owned debt and securities and prohibits future direct investment in 
these assets, it only encourages (but does not require) divestment 
from Sudan-related companies and recommends avoiding future direct 
investment in them. 

[C] In addition, Florida's laws require that the Municipal Police 
Pensions, the Public Employee Optional Retirement Plan, and the 
Firefighter Pensions create a terror-free index. Louisiana's law 
requires public funds to invest an unspecified portion of their assets 
in a similar terror-free index. 

[D] While Indiana's Public Retirement and Disabilities Benefits law 
requires engagement and divestment and prohibits future direct 
investment, the Indiana treasurer's policy only prohibits future 
investment. 

[E] While Michigan's law requires the public employee retirement 
system authorities to engage and divest, the Municipal Employees 
Retirement System's policy does not mention engagement, and encourages 
divestment and the prohibition of future direct investment. 

[F] Both South Carolina's Retirement System law and Investment 
Commission policy prohibit future direct investment. While the law 
requires divestment, the policy does not mention divestment. 

[G] Tennessee's law requires the treasurer to monitor the state's 
holdings related to state sponsors of terrorism and report them to the 
Council on Pensions and Insurance, but does not mention any further 
action. 

[H] According to a Missouri State Employee Retirement System official, 
if they receive a list of terrorist-sponsoring companies from a 
federal agency, they are obligated to divest in accordance with their 
policy. 

[I] A Pennsylvania Public School Employees Retirement Board resolution 
mandates engagement and another encourages divestment. The 
Pennsylvania Treasury's policy encourages engagement first. If 
engagement does not elicit an acceptable response, Treasury will 
consider either making no new investments or pursuing divestment 
consistent with sound investment practice. 

[J] Wisconsin's Investment Board policy "opposes divestment, whether 
total or targeted." The policy encourages engagement and the sale of 
assets based on "risk and economic factors." 

[End of table] 

The Value of U.S. Investment Companies' Sudan-related Asset Holdings 
Has Declined Considerably since March 2007; Investment Companies Cited 
Normal Business Reasons as Their Motivation for Buying or Selling 
These Assets: 

Our analysis shows that U.S.-based investment companies have sold some 
or all of their Sudan-related shares in six key foreign companies with 
Sudan-related business operations. Specifically, we found that U.S. 
holdings in these six companies fell from $14.4 billion at the end of 
March 2007 to $5.9 billion at the end of December 2009, a decline of 
nearly 60 percent. The number of investors holding these assets also 
declined, from 303 in March 2007 to 272 in December 2009, a 10 percent 
drop. While hundreds of U.S. investors have held shares in these six 
companies, 80 percent of the value of these shares, on average, has 
been held by the top 20 investors.[Footnote 33] 

This decline of nearly 60 percent in the value of Sudan-related shares 
held cannot be accounted for solely by changes in share prices, 
indicating that U.S. investors, on net, chose to sell shares in these 
companies. In order to determine whether the decline in value of Sudan-
related equities was due solely to fluctuations in the market value of 
shares we constructed price indices for the U.S. holdings. Any decline 
in the value of the Sudan-related holdings not explained by a decline 
in prices indicates selling, on net, of Sudan-related equities. We 
constructed three different price indices using three standard methods 
to estimate changes in prices.[Footnote 34] All three price indices 
indicate that U.S. investors, on net, sold shares of Sudan-related 
companies. Based on the price index weighted to the U.S. portfolio of 
Sudan-related equities, prices rose by roughly 7 percent from March 
2007 to December 2009, while equity holdings fell by nearly 60 percent 
(see fig. 1). This suggests that net selling of Sudan-related equities 
explains the majority of the decline in U.S. holdings. However, it is 
not certain if this selling is related to conditions specific to Sudan 
or represents a more general reallocation of assets by U.S. 
investors.[Footnote 35] Nevertheless, some evidence suggests that 
Sudan-specific factors may have influenced investors' decisions to 
sell. Specifically, from December 2007 to December 2008, U.S. holdings 
in Sudan-related equities declined as a percentage of foreign oil and 
gas equity holdings (the proportion fell from 3.4 percent to 2.3 
percent) and as a percentage of all foreign equity holdings (the 
proportion fell from 0.3 percent to 0.2 percent). 

Figure 1: U.S. Holdings and Prices of Sudan-related Companies, March 
2007 to December 2009: 

[Refer to PDF for image: multiple line graph] 

Index value: March 2007 = 100. 

Date: March 2007; 
US holdings: $14.4 billion; 
Price Index: 100. 

Date: June 2007; 
US holdings: $16.3 billion; 
Price Index: 126.45. 

Date: September 2007; 
US holdings: $15.4 billion; 
Price Index: 152.22. 

Date: December 2007; 
US holdings: $15.3 billion; 
Price Index: 159.87. 

Date: March 2008; 
US holdings: $15.9 billion; 
Price Index: 105.46. 

Date: June 2008; 4 billion; 387
Price Index: 107.92. 

Date: September 2008; 
US holdings: $7.7 billion; 
Price Index: 88.58. 

Date: December 2008; 
US holdings: $6.2 billion; 
Price Index: 73.45. 

Date: March 2009; 
US holdings: $4.9 billion; 
Price Index: 72.44. 

Date: June 2009; 
US holdings: $5.5 billion; 
Price Index: 94.67. 

Date: September 2009; 
US holdings: $5.2 billion; 
Price Index: 99.24. 

Date: December 2009; 
US holdings: $5.9 billion; 
Price Index: 106.55. 

Source: GAO analysis of Thomson Reuters data. 

[End of figure] 

Investors said they weighed various factors in their decisions 
regarding their Sudan-related assets.[Footnote 36] We interviewed or 
obtained information from 37 institutional advisers on their views 
regarding Sudan-related assets. Most commonly, investors stated that 
they bought and sold Sudan-related assets for normal business reasons, 
such as maximizing shareholder value consistent with the guidelines in 
each fund's prospectus, as well as in response to specific client 
instructions. In the process of assessing an investment, "normal 
business reasons" could incorporate, as appropriate, information 
related to the target company's environmental, social, governance, and 
other practices. 

Each of the investment companies we interviewed issued a corporate 
statement regarding Sudan-related investing, and these corporate 
statements reflect a variety of investor perspectives.[Footnote 37] 
For example, one firm's corporate statement observed that "The 
situation in Darfur is the most urgent human rights and humanitarian 
crisis in the world right now…and we resolved to make the most 
appropriate contribution we could--above and beyond ensuring that our 
own funds do not invest in companies materially involved in Sudan." 
Another company's statement expressed its sensitivity to the ongoing 
tragedy in Darfur and respected the request by some investors to 
divest holdings in companies that have Sudan-related activities as one 
way to bring pressure to bear on the Sudanese government. This 
company, however, explained that "when it is appropriate to remain 
actively invested in a company, we will do so, thus retaining the 
ability to oppose company practices that we do not condone. This, in 
the long term, may have the greatest chance of ending those practices." 

Only one investment company we spoke with indicated that it was 
considering the sale of its Sudan-related assets for socially-
motivated reasons. Specifically, this company stated that it would 
pressure companies that maintain business relations with the Sudanese 
government to cease those relations or to attempt to end genocide and 
ease suffering in Darfur. It would divest from these companies if they 
failed to take meaningful steps to respect human rights within a 
reasonable amount of time.[Footnote 38] Another investment company 
issued a public statement regarding its sale of shares in a specific 
company with business ties to Sudan saying that it "sold shares based 
on valuation, reputational, and commodity risk." This company also 
decided to exclude certain companies from future investments because 
they posed high risk due to their ties to the Sudanese government and 
its connection to human rights abuses. Other investment companies 
similarly expressed the view that their investment processes (or 
financial assessments) consider all risk factors relevant to a 
company's long-term sustainability, including those related to social 
and political issues, though this may or may not result in the sale of 
Sudan-related assets. 

U.S. Investors Have Often Considered Three Factors When Determining 
Whether and How to Divest from Companies Tied to Sudan: 

Investors we contacted (including both state fund managers and private 
investment companies) told us they consider whether a decision to 
divest Sudan-related assets is consistent with fiduciary 
responsibility--generally the duty to act solely and prudently in the 
best interest of the client.[Footnote 39] These investors, 
particularly state fund managers, have also faced challenges in 
identifying which foreign companies have business ties to Sudan and 
may warrant divestment. Finally, investors we spoke with have taken 
into account the effects of divestment on foreign operating companies 
with business ties to Sudan. 

Investors Weighing Sudan Divestment Options Have Considered Their 
Fiduciary Responsibilities: 

State Fund Managers Responsible for Sudan Divestment Have Been 
Concerned about Fiduciary Responsibility: 

Representatives from organizations that advocate for the interests of 
state fund managers told us that fiduciary duty could be a 
disincentive to divesting but that it depends on how each individual 
state's law is written. For instance, they expressed concerns that if 
the laws place emphasis on maximizing returns first and on divesting 
as a secondary priority, then fiduciary responsibility can be a 
disincentive to divesting.[Footnote 40] While some states make no 
explicit mention of fiduciary responsibility in their divestment 
policies and laws, some state constitutions describe this 
responsibility and emphasize its priority above all other 
responsibilities. For example, California's state constitution says 
the retirement board of public pension systems must maximize benefits 
and minimize employer contributions and administrative costs, 
concluding that "a retirement board's duty to its participants and 
their beneficiaries shall take precedence over any other duty." In 
2009, the New Hampshire Retirement Plan and the New Hampshire Judicial 
Retirement System sued the state, arguing that complying with the 
state's Sudan divestment legislation would have been inconsistent with 
their fiduciary trust obligations under the state constitution. 
[Footnote 41] 

State policies vary in how they characterize fund managers' fiduciary 
responsibilities in divesting Sudan-related assets. For example, the 
State of Wisconsin Investment Board's Sudan-related policy describes 
its fiduciary responsibility as the duty to "invest in the best 
financial interest of the trust funds it manages" and concludes that 
"this means that the [board] may not make investments based on 
political, social, or personal reasons."[Footnote 42] In contrast, the 
Washington State Investment Board's policy states that its "fiduciary 
responsibilities include watching for potential impacts on the 
valuations of its investments that may result from reputational risks 
to the companies in which the [board] invests that may flow from 
companies doing business in Sudan." In addition, the Vermont Pension 
Investment Committee determined that it would be prudent to refrain 
from investing in certain companies identified as having prohibited 
business operations in Sudan because the value of its portfolio could 
suffer if it continued to hold these securities while other investors 
took affirmative action to sell them. 

Many state laws allow fund managers to stop divesting or to reinvest 
if there is a drop in the fund's value. For example, under Hawaii law, 
the board of trustees of the state employees' retirement system can 
stop divesting from and reinvest in scrutinized companies if, in the 
board's good faith judgment, the value of the assets managed by the 
board drops 50 basis points (or 0.5 percent). Additional states that 
have laws with a 50 basis point threshold for ceasing divestment and 
reinvesting include Colorado, the District of Columbia, and Indiana. 
Other states have similar provisions with lower thresholds. For 
example, under Arizona law, the threshold is 25 basis points.[Footnote 
43] 

While most of the 35 states' Sudan-related measures generally require 
divestment of Sudan-related assets consistent with the investing 
authority's fiduciary responsibilities, laws and policies enacted or 
implemented by 6 states--California, Hawaii, Kansas, Maryland, Ohio, 
and South Carolina--include clauses explicitly stating that the 
investing authority should only divest if doing so will not constitute 
a breach of fiduciary trust. For example, Kansas's law states that, 
"Nothing in this section shall require the board to take 
action...unless the board determines, in good faith, that the 
action...is consistent with the fiduciary responsibilities of the 
board...." Notably, some fund managers responding to our survey 
indicated that they believed their fiduciary responsibilities allowed 
them not to divest, even though their laws and policies did not 
include provisions specifically exempting them from divestment 
requirements. 

Our survey results demonstrate that state fund managers, when 
expressing concerns about fiduciary responsibility, focused on the 
impact that divestment might have on a fund's returns and 
administrative costs. Respondents who divested and those who did not 
frequently cited fiduciary responsibility as a concern. Specifically, 
17 of the 29 fund managers (or 59 percent) who had divested or frozen 
their Sudan-related assets, or planned to do so, said they were 
concerned to a moderate or large extent that "it would be difficult to 
divest while ensuring that fiduciary trust requirements were not 
breached and my office/state was not made vulnerable to law suits." 
This same concern was also cited as a moderate to large concern for 25 
of the 41 (or 61 percent) fund mangers who did not divest. In 
contrast, only 5 of the 29 (17 percent) managers who divested or 
planned to divest and 3 of the 41 (7 percent) who did not divest were 
concerned to a large or moderate extent that divesting might force an 
operating company out of the Sudanese market, leaving room for one 
with more questionable business practices. 

Survey results also showed concern among state fund managers, 
regardless of whether they divested, regarding the financial risk of 
divesting. Specifically, 20 of the 29 managers (or 69 percent) who 
divested or planned to divest and 18 of the 41 (44 percent) who did 
not divest were concerned to a large or moderate extent that 
divestment could cause their funds to incur high transaction costs, 
earn reduced returns on investment, or both. Finally, only 4 of the 29 
fund managers (14 percent) who divested or planned to divest said that 
reducing the exposure of their funds' investments to financial risk 
was a major reason for divestment. (Two more managers said it was a 
minor or moderate reason.) Likewise, only 3 of the 29 (10 percent) 
said divestment would improve returns on their offices' investments. 

Although fiduciary responsibility was the primary concern for state 
fund managers in considering divestment, only a few managers responded 
that they took advantage of applicable state laws or policy provisions 
explicitly allowing them not to divest if they determined that doing 
so would conflict with their fiduciary responsibility. Specifically, 
only 4 of the 41[Footnote 44] fund managers who did not divest or 
freeze any of their Sudan-related assets said their state had a law or 
policy containing such an explicit provision. Eleven fund managers who 
divested did so even though they said their state's law or policy 
contained such an explicit provision. 

Investment Companies Expressed Differing Perspectives on Their 
Fiduciary Responsibilities, Based on Their Institutional Focus and 
Investment Approach: 

Private investment companies expressed differing perspectives on 
whether divesting from Sudan is consistent with their fiduciary 
responsibilities. The investment companies we interviewed or obtained 
information from generally explained fiduciary responsibility to mean 
making investment decisions in the best interests of their clients, 
consistent with the guidelines in their funds' published prospectuses. 
However, investment companies' determination as to what constitutes 
the best interest of the client differs, depending on their investment 
approach. 

According to investment companies whose primary goal is maximizing 
returns, ceasing to invest in companies with Sudan-related operations 
based on criteria other than financial merit is inconsistent with 
their fiduciary responsibilities, unless their clients established 
these restrictions. Some of these investors stated that limiting the 
number of investment opportunities based on non-financial criteria can 
result in lower investment returns. These firms indicated that they 
may take factors, such as a company's environmental, social, and 
corporate governance standards, into account in order to assess the 
financial strength of that company as a possible investment. The 
results of these firms' financial analyses of these risk factors vary. 
For example, several investment companies cited Sudan-related risk 
factors in their decisions to remove select securities from their 
portfolios. Others evaluated the risks and chose to continue to hold 
or increase their Sudan-related asset holdings. 

Other investment companies, particularly those identifying themselves 
as socially responsible, maintained that divesting from Sudan based on 
non-financial criteria is consistent with fiduciary responsibility, as 
long as alternative equities selected can compete on the basis of 
financial criteria.[Footnote 45] According to these investment 
companies, creating financially viable investment options that respond 
to social concerns, such as genocide or the environment, is the 
primary goal. As one firm's prospectus explains, "socially responsible 
investors seek to use their investments to create a more fair and 
sustainable world…and encourage greater corporate responsibility." 
Another's prospectus states that it seeks to invest in companies and 
other enterprises that demonstrate positive environmental, social and 
governance performance as they address corporate responsibility and 
sustainability challenges. The self-designated socially responsible 
investment companies we interviewed typically described a two-part 
process for selecting investments--screening them according to their 
particular fund's social criteria and evaluating investments for their 
financial soundness. These firms also expressed confidence that taking 
non-financial factors into account results in an investment product 
that is competitive with other investments. 

As of May 2010, two companies that sold their Sudan-related assets had 
relied upon SADA's "safe harbor" provision by filing disclosures of 
such divestments with the SEC. Most companies told us that this 
provision, which limits the civil, criminal, and administrative 
actions that may be brought against firms that divest from, or avoid 
investing in, companies with prohibited business operations in Sudan, 
was not necessary to their decision-making regarding Sudan-related 
assets. 

U.S. Investors Have Faced Difficulties Identifying Operating Companies 
with Ties to Sudan, including Those Monitored by the SEC: 

States Have Relied Heavily on Nongovernmental and Private Lists of 
Companies with Business Ties to Sudan, Which Often Conflict: 

SADA requires that, before divesting from Sudan-related companies, 
responsible entities must use credible, publicly available information 
to identify which companies have prohibited business operations 
related to Sudan. Nongovernmental organizations and private companies 
have sought to create and, in some cases, sell their lists of 
operating companies with business ties to Sudan to the public. Our 
survey results indicate that state treasurers and public pension fund 
managers have relied heavily on these sources of information to 
identify companies with ties to Sudan. For example, 42 out of 61 fund 
managers (or 69 percent) who attempted to identify companies with ties 
to Sudan used private research firms and 48 out of 61 fund managers 
(or 79 percent) used nongovernmental advocacy organizations. Thirty-
two of the 42 fund managers (or 76 percent) who used private research 
firms found them to be "very useful" or "useful." Similarly, 32 of the 
48 fund managers (or 67 percent) who consulted nongovernmental groups 
found them to be "very useful" or "useful." However, some fund 
managers, even those that considered the sources they consulted to be 
sufficient or somewhat sufficient for identifying companies tied to 
Sudan, also reported concerns with the lists. For example, one 
treasurer stated that "Commercial sources of information are only 
moderately reliable. We are never confident that we are receiving 
complete and accurate information on companies in emerging markets." 
Another respondent noted that "Information was dated, not current or 
incomplete. Information also was often misleading as to the effect of 
the company's involvement." Finally, one respondent concluded that "It 
is difficult for anyone to get accurate information in this regard. 
Our sources did as well as possible." 

These concerns have been echoed in other public statements. For 
example, in 2005, representatives from 50 public employee retirement 
systems wrote to the Departments of State, Treasury, and Commerce, as 
well as the SEC, requesting assistance in identifying any publicly 
traded companies that are of concern to the U.S. government. 
Specifically, they cited a need for adequate information to determine 
whether companies in which their funds are invested are doing business 
in Sudan so that they can make informed investment decisions.[Footnote 
46] In addition, the Pennsylvania Public Employee Retirement 
Commission observed in an October 2007 report that the cost of 
monitoring investment in companies tied to Sudan is "compounded by the 
fact that no governmental agency provides a list of such companies and 
the pension systems are compelled to purchase that service from 
private contractors, thereby delegating substantial administrative 
discretion." 

Our analysis of available lists indicates that they differ 
significantly from one another. We compared three lists of companies 
with business ties to Sudan--one from a widely-used nongovernmental 
organization, one from a widely-used private research company, and one 
from an investment company that has designated itself as socially 
responsible. We found that, of the over 250 companies identified on 
one or more of these lists, only 15 appeared on all three. Figure 2 
illustrates the extent to which these lists differ from one another. 

Figure 2: Comparison of Three Lists Identifying Operating Companies 
with Ties to Sudan: 

[Refer to PDF for image: illustration] 

List A Total companies = 164; 
List B Total companies = 132; 
List C Total companies = 38. 

Companies in both List A and B = 18; 
Companies in both List A and C = 4; 
Companies in both List B and c = 3; 
Companies in List A, List B and List C = 15. 

Source: GAO analysis of three lists of companies with business ties to 
Sudan. 

Note: Some of the companies that appear in only one list are mentioned 
in profiles of other companies identified in another list. For 
example, some companies identified in List A are mentioned in profiles 
of other companies included in List B. 

[End of figure] 

Some of these discrepancies are likely due to the lists' different 
criteria for including companies. For example: 

* List A focuses on public and private companies[Footnote 47] that the 
list's creator has determined have material[Footnote 48] Sudan-related 
business operations, primarily in the areas of oil, mineral 
extraction, power, and defense. 

* List B includes companies (primarily those that are publicly-traded) 
that have any business ties to Sudan, regardless of the industries in 
which they operate. 

* List C focuses only on publicly-traded companies that the list's 
creator has determined provide certain direct benefits to the 
government of Sudan, particularly in the areas of oil, mining, 
electricity infrastructure, and military or where the company is 
otherwise complicit in human rights abuses in Sudan. 

These varying criteria, however, cannot explain fully the 
discrepancies in the lists, indicating that the lists' creators differ 
in their judgment regarding which companies' ties to Sudan warrant 
scrutiny. For example, lists B and C both include companies that, 
according to list A, have ceased their Sudan-related business 
operations. Five companies that do not appear on list C are companies 
that, according to list A, are publicly-traded and have material Sudan-
related business operations in the same industries that list C covers 
and that have been largely unresponsive to engagement by shareholders 
or unwilling to alter problematic practices in Sudan. Similarly, list 
C, which appears to have the narrowest criteria, includes 16 companies 
that do not appear on either of the broader two lists.[Footnote 49] 

Representatives from the organizations that created these lists told 
us that obtaining and evaluating information on operating companies 
with business ties to Sudan is difficult. Because companies do not 
typically publicize details of their business dealings in state 
sponsors of terrorism, researchers must comb through several different 
sources of data to extract information on specific companies and then 
use their judgment to evaluate that information for reliability and 
accuracy. The researchers we spoke to told us that they rely on a 
combination of information from company Web sites, personnel, and 
documents; industry wide publications, such as oil industry 
newsletters; financial databases, such as Thomson Reuters or 
Bloomberg; local media reports; and advocacy group publications. 
Analyzing information from these sources and determining how to use it 
can be difficult. For example, one researcher told us that it is not 
clear how to describe a company if it has a dormant interest in an oil 
lease, but is also running a gas station. In addition, companies 
change their names, create new subsidiaries or affiliates, or enter 
and exit different marketplaces. 

Federal Securities Laws Do Not Specifically Require Operating 
Companies to Disclose Business Ties to Sudan: 

Research groups we spoke to said that they find information that comes 
directly from the companies they are examining to be particularly 
useful. For example, they would consider an SEC disclosure filing to 
be a reliable source of information. However, the federal securities 
laws do not require companies specifically to disclose operations in 
countries designated as state sponsors of terrorism. Nevertheless, SEC 
regulations require disclosure of such operations if they constitute 
"material information" that is necessary to prevent a company's SEC 
statements from being misleading.[Footnote 50] The meaning of 
"material information" is not explicitly defined by law, but the 
Supreme Court has determined that information is material if there is 
a substantial likelihood that a reasonable investor would consider the 
information important in making an investment decision or the 
information would significantly alter the total mix of available 
information.[Footnote 51] This is a question of both law and fact, and 
the company is ultimately responsible for the accuracy and adequacy of 
the information it discloses to investors. According to SEC officials, 
companies have a strong incentive to make appropriate judgments about 
materiality because they may face significant federal securities law 
liability for disclosure that includes material misstatements or 
material omissions that make the information provided misleading. 

The SEC's Office of Global Security Risk, created in 2004, monitors 
whether the documents public companies file with the SEC include 
disclosure of material information regarding global security risk- 
related issues. According to officials from this office, they focus 
their reviews on companies with business activities in U.S.-designated 
state sponsors of terrorism, including Sudan. This office has 
suggested to companies that any operations they have in state sponsors 
of terrorism might be considered material because divestment campaigns 
and legislation mandating divestment from Sudan indicate that 
investors would consider this information important in making 
investment decisions. For example, the office has repeatedly noted 
that "various state and municipal governments, universities, and other 
investors have proposed or adopted divestment or similar initiatives 
regarding investment in companies that do business with U.S.-
designated state sponsors of terrorism" and has instructed companies 
that their materiality analysis "should address the potential impact 
of the investor sentiment evidenced by such actions directed toward 
companies that have operations associated with Cuba, Iran, Syria, and 
Sudan." The office also asks companies, in assessing materiality, to 
take both quantitative factors (such as the amount of company revenue 
associated with a state sponsor of terrorism) and qualitative factors 
(such as the potential impact of corporate activities upon a company's 
reputation and share value) into account. 

However, in their correspondence with the SEC, companies have raised 
concerns about these instructions. For example, one energy company 
wrote that, "We are concerned that the SEC seems to be implying a … 
disclosure obligation with respect to business dealings with Sponsor 
Countries [state sponsors of terrorism] even though we are not aware 
of such a rule or regulation." Furthermore, the company wrote that "it 
is [the company's] view that its business dealings in the Sponsor 
Countries may be of interest to certain [company] investors but are 
not material to [company] investors in general or the general 
investing public. As such, it remains [the company's] view that its 
dealings in the Sponsor Countries do not need to be further disclosed 
in its annual reports..." Another oil company wrote to the SEC that, 
"We believe that any actual divestments of our securities for reasons 
related to [our limited contacts with state sponsors of terrorism] are 
isolated incidents and not representative of the overall investment 
climate and the Company's reputation among investors." Unlike the 
first company, this company agreed to revise its annual report for the 
following year to include information on purchases of crude oil 
sourced from Sudan and other state sponsors of terrorism. 

In general, the Office of Global Security Risk's monitoring of these 
companies appears limited. For example, SEC officials told us that 
they have corresponded with 59 of the 74 companies that file periodic 
reports with the SEC and that they have identified as having ties to 
Sudan.[Footnote 52] However, many of these companies operate in 
industries not covered under SADA, such as food services, 
telecommunications, and pharmaceuticals. In addition, our analysis 
shows that the office has only corresponded with 5 of the 15 companies 
that are identified in all three of the lists we analyzed and that 
file with the SEC. All 15 of these companies operate in the four key 
economic sectors identified in SADA. Furthermore, the office has not 
always followed up with companies concerning their correspondence, 
even when it has disagreed with companies' assessments of their 
operations. For example, in September 2007, the Office of Global 
Security Risk requested that an oil company whose parent company has 
extensive Sudan-related business operations disclose in future filings 
information regarding measures it has taken to ensure that investments 
in it cannot be used to fund the parent company's operations 
associated with Sudan. The company replied later that month that it 
had "concluded that such disclosure is not material information about 
the company that its investors are entitled to know" and "respectfully 
disagree[d] with the need for this disclosure." The Office of Global 
Security Risk responded a little over a month later, stating that it 
had completed its review of this matter and did not have any further 
comments at that time. According to an SEC official, this letter does 
not indicate that the staff agreed with the company's decisions, but 
rather that the information presented did not appear to be materially 
misleading. The office did not correspond again with the company until 
February 2010, after we inquired about the status of communication 
with the company. In another instance, in December 2005, the Office of 
Global Security Risk asked an oil company that was reported to have 
possible ties to Sudan to describe all current, historical, and 
anticipated operations in, and contacts with Sudan, including through 
subsidiaries, controlling shareholders, affiliates, joint ventures, 
and other direct and indirect arrangements. The company did not 
provide a response to the request; the office reiterated its question 
to the company in December 2009. 

Office of Global Security Risk officials told us that, if they believe 
a company is not disclosing material information, they will exercise 
their authority to extensively question the company and continue to 
comment, with the goal of working with the company to produce the best 
disclosure for investors. Correspondence with a company ends when the 
office has no further questions and has determined that the company 
has provided a reasonable argument as to why its disclosure is not 
materially incomplete or misleading, even if the office does not fully 
agree with the company's judgment. These officials also told us that, 
in cases where the office determines that its comment process has not 
resulted in full disclosure of material operations by a company, it 
will refer the company to the SEC's Division of Enforcement for 
possible investigation. According to SEC officials, the Office of 
Global Security Risk has referred one company to this division since 
the office was created in 2004. 

The SEC has the discretionary authority to adopt a specific disclosure 
requirement for companies that trade on U.S. exchanges (such as 
requiring disclosure of any operations in state sponsors of 
terrorism). Although the SEC has not done so, it could exercise this 
authority by issuing an interim rule for comment and a final rule in 
the Federal Register. However, the agency has indicated that it is 
committed to the practice of relying on companies to ensure that their 
disclosures contain all material information about their operations in 
these countries.[Footnote 53] 

Investors We Spoke with Have Considered the Possible Effects of 
Divestment on Operating Companies and the Sudanese People: 

Some Operating Companies That Ceased Operating in Sudan Warned of a 
Negative Effect on the Sudanese People: 

The companies we spoke with that ceased operating in Sudan expressed 
concerns about the effect of their departure from the Sudanese market. 
[Footnote 54] For example, one company we spoke with told us that when 
it decided to leave Sudan and sell its stake in the project in which 
it was involved to another company, that company refused to sign the 
sales agreement until language conferring responsibility for 
continuing the seller's humanitarian programs was removed from the 
agreement. This same company also told us that it had worked out an 
agreement with the government of Sudan to monitor planes landing on a 
company air strip, which a human rights group alleged that the 
Sudanese military had been using to carry out military campaigns 
against the South during the civil war. Once the company left Sudan, 
it could no longer monitor such flights. Another company that left the 
Sudanese market stated that it had been involved in a nationwide anti-
AIDS program in Sudan, which it could no longer participate in after 
leaving Sudan.[Footnote 55] A company that continues to operate in 
Sudan told us that, should it decide to cease operations, its stake in 
the project in which it is involved would be taken over by the 
government of Sudan, which would then own 96 percent of the project. 
The company indicated that this would not only result in more revenue 
for the government of Sudan, but also would likely mean the end of 
humanitarian programs, such as building schools and medical clinics 
for the local population, in addition to its contribution to charities 
working in Darfur. Another company that continues to operate in Sudan 
told us that if it only considered its financial stake in Sudan, it 
would have likely left Sudan. However, the company decided to stay 
because it believed that it was important to continue its humanitarian 
efforts there. 

Some Investors Have Shifted Their Focus away from Divestment and 
toward Engagement: 

Because of their concerns with divestment, some investors have shifted 
their approach toward engaging with companies in order to leverage 
their resources as shareholders to influence companies' behavior and 
promote efforts aimed at improving the lives of the Sudanese people. 
Some advocacy groups that were originally at the forefront of the 
divestment campaign also have shifted their focus toward engagement. 
One advocacy group we spoke with stated that it believed that 
divestment was too blunt of an approach because it targeted a wide 
array of companies, some of which may not have had material operations 
in Sudan. Instead, this group argued for an approach that targets 
companies involved in the industries that are most lucrative for the 
Sudanese government and that provides alternatives to divestment, such 
as engaging companies to try to influence their behavior. This group 
uses a three-step engagement process, which (1) reviews the potential 
human rights and environmental impact of the company's operations in 
Sudan, (2) encourages companies to interact outside of their normal 
sphere of influence, and (3) gains support for programs aimed to help 
the Sudanese population negatively affected by the Sudanese government 
or the company's operations. This approach uses the leverage that 
shareholders have to influence companies to make positive 
contributions that help the people of Sudan, such as building 
hospitals and schools, providing training and job opportunities, and 
contributing to a microfinance loan program. 

Like advocacy groups, some U.S. investment companies have also 
embraced the idea of engagement and increasingly view divestment as a 
last resort because engagement allows companies to continue operating 
and provides positive incentives for them to use their resources to 
help the Sudanese people. The investment companies we spoke to took a 
variety of different actions to engage operating companies, such as 
developing a formal engagement policy with a list of actions required 
to avoid divestment and writing letters to companies. While investment 
companies stated that these engagement actions did not always result 
in meaningful changes in company behavior, those companies that were 
open to engagement often took positive steps and implemented 
humanitarian projects aimed at helping the people of Sudan. For 
example, one investment company told us that nearly half of the 
companies it engaged with were responsive to its outreach efforts and 
made efforts to address its concerns. In cases where companies 
continued to be unresponsive to engagement, investment companies had 
the option to divest their holdings, which some decided to do. 

U.S. states have also endorsed engagement as a viable alternative to 
divestment, with a few states identifying divestment as a last resort. 
Nineteen of the 25 states whose laws or policies require divestment 
also encourage or require engagement. For example, Minnesota law 
mandates that the State Board of Divestment identify "scrutinized 
companies" with Sudan-related business operations and send written 
notice to each company notifying it of possible future divestment if 
the company does not cease its scrutinized operations within 90 days. 
[Footnote 56] However, under the law, a company can take "substantial 
action" by conducting humanitarian activities in proportion to its 
Sudan-related business operations, engaging with the government of 
Sudan, or formalizing and executing a plan to cease operating in Sudan 
within 1 year. If a company undertakes these actions, it may no longer 
be considered a scrutinized company targeted for divestment. Investing 
authorities of the states with investment laws or policies that 
provide for engagement believe that they gain more leverage by 
pressuring companies to change their behavior than by outright 
divestment, since other investors without the same concerns about 
Sudan might purchase the divested shares. Twenty of the 29 managers 
responding to our survey who had divested or frozen their Sudan-
related assets, or planned to do so, stated that they could retain 
these investments if companies changed their behavior in Sudan. 
However, according to the results of our survey, 10 of the 29 fund 
managers that answered the related survey question indicated that, to 
a large to moderate extent, engaging with companies was too difficult 
or costly. Furthermore, representatives from state advocacy 
organizations told us that, due to time and resource constraints faced 
by many states, engagement with companies is a large undertaking for 
them, and some states may not be able to manage engagement campaigns. 

Western Foreign Operating Companies We Spoke with Said They Generally 
Welcomed Engagement Efforts and Took Actions in Sudan as a Result: 

The eight foreign operating companies we spoke with generally agreed 
that, for them, engagement is preferable to divestment because it 
allows them to continue operating in Sudan and to discuss possible 
ways to improve the situation there. For example, one company we spoke 
with argued that divestment ultimately separates the people who 
advocate for positive change in Sudan from the companies that have the 
capacity and desire to be constructive actors in Sudan. This company 
told us that, after a visit to Sudan, the company's home government 
issued a report arguing that the company should stay in Sudan so that 
its humanitarian presence could be maintained. When the company 
ultimately decided to leave Sudan, advocacy groups stated that losing 
this company's presence was a missed opportunity to continue 
developing and implementing humanitarian projects in Sudan. Another 
company argued that the choice to engage companies does not inhibit 
stakeholders from future divestment, should companies ultimately be 
unwilling to take positive actions and change the way they conduct 
their Sudan-related business operations. 

The operating companies we spoke with generally appreciated the 
opportunity to "set the record straight" and to explain their business 
activities to groups with whom they engaged. These companies 
consistently told us that they believe their business operations 
positively impact the Sudanese people. For example, one company told 
us that 90 percent of its workforce is hired in-country. The company 
gives these local employees opportunities to receive an education 
outside of Sudan. Many of the companies we spoke with also explained 
that their presence is beneficial for the Sudanese people because they 
often choose to engage in community development. For example, a mining 
company told us that it built seven schools and a medical clinic, 
brought water and power supplies to the area around the mine, and 
started agricultural training programs for the local population. This 
company said it also convinced its business partners from the Sudanese 
government to contribute some of their profits from the mine to 
support a humanitarian organization operating in Darfur. 

Almost all of the companies we spoke with said they donated to or 
became directly involved in humanitarian projects as a direct result 
of their engagement with various advocacy groups and shareholders. 
After engaging with an advocacy group, one operating company decided 
to contribute funding to develop hospital facilities in South Sudan. 
In addition, a few of the companies we spoke with also engaged with 
the government of Sudan on politically sensitive issues after being 
advised to by an advocacy group. For example, as a part of one 
company's engagement process with a number of advocacy groups and 
investors, the company launched an official protest with the 
government of Sudan when members of the militia opened fire on the 
local Sudanese population living in the vicinity of the company's 
project site. Some companies we spoke with also underwent independent 
human rights impact assessments of their business operations as a 
result of engaging with advocacy groups. One company told us that its 
assessment helped it identify ways to further improve its business 
operations by promoting more ethnic diversity in the workplace and 
offering HIV/AIDS testing for employees. 

A few of the companies we spoke with decided to limit their business 
activities in Sudan as a result of engagement processes. For example, 
one company we spoke with committed to not pursue any new business in 
Sudan until the situation in Darfur changes and United Nations 
peacekeepers are allowed in the country. The company indicated that 
this commitment sent a strong signal to the government of Sudan, which 
depends on the company to explore and identify natural resource 
deposits. 

Our Analysis Indicates That the U.S. Government Has Complied with the 
Federal Contract Prohibition Provision of SADA: 

We found no evidence to suggest that the U.S. government has awarded 
contracts to companies identified as having prohibited business 
operations in Sudan. The U.S. government has, as allowed under federal 
law, contracted with subsidiaries and affiliates of companies with 
Sudan-related business operations. We found that for a non-random 
selection of contracts awarded to these companies, the contractors 
provided the necessary certification, when required. Furthermore, the 
U.S. government has not waived this requirement or determined that any 
contractors submitted false certifications under SADA. 

Our Analysis Indicates the U.S. Government Has Not Awarded Contracts 
That Violate SADA: 

Section 6 of SADA requires the heads of federal agencies to ensure 
that each contract for the procurement of goods or services includes a 
clause requiring the contractor to certify that it does not conduct 
prohibited business operations in Sudan. SADA's contract prohibition 
section also contains remedies for false certifications, such as 
suspending or debarring the contractor from receiving future federal 
contracts, and provides for waivers in certain situations. Section 6 
was implemented in subpart 25.7 of the Federal Acquisition Regulation 
(FAR) via an interim rule on June 12, 2008,[Footnote 57] and a final 
rule on August 11, 2009.[Footnote 58] The FAR rule also includes a 
solicitation provision whereby parties seeking federal contracts 
(offerors) certify that, by submission of an offer, they do not 
conduct any restricted business operations in Sudan.[Footnote 59] 

Based on our analysis of one of the most widely used lists of 
companies with prohibited business ties to Sudan,[Footnote 60] we 
found that only 1 of 88 companies identified in the list has received 
federal contracts since the FAR requirements took effect in June 2008. 
However, the contract certification provision was not required for 
these particular contracts because they were purchase orders under 
simplified acquisition procedures,[Footnote 61] which generally do not 
require the SADA certification under the FAR.[Footnote 62] Therefore, 
these contract awards were not in violation of SADA's implementing 
regulations. 

In addition to the purchase orders with the company that has business 
ties to Sudan, we found that from June 12, 2008, to March 1, 2010, the 
U.S. government awarded 756 contracts to 29 affiliates and 
subsidiaries[Footnote 63] of the companies identified in the list as 
having prohibited business ties to Sudan. While SADA aims to prevent 
companies with prohibited business operations in Sudan from receiving 
federal contracts, it does not restrict contracting with these 
companies' affiliates and subsidiaries, provided that the affiliates 
and subsidiaries certify that they do not have prohibited business 
operations in Sudan. (Only the company directly bidding on a contract 
has to certify that it does not have any restricted business 
operations in Sudan.) Our review of a non-random selection of 
contracts awarded to these affiliates and subsidiaries indicates that 
the contractors provided the necessary certification, when required. 
Therefore, for these specific contracts, the U.S. government has 
complied with the contract prohibition section of SADA.[Footnote 64] 
Contract actions to these subsidiaries and affiliates totaled almost 
$335 million.[Footnote 65] 

Some advocacy groups have disagreed with the FAR councils' decision to 
apply the requirement only to the entity directly contracting with the 
government because it allows companies that have certified to the 
federal government that they do not conduct prohibited business 
operations to continue operating in Sudan through their subsidiaries 
or affiliates. One of these groups expressed particular concern that 
affiliates and subsidiaries can still receive contracts, but may also 
receive revenue from or contribute to the operating budget of their 
parent companies, particularly if they are majority-owned. In their 
comments on the interim FAR rule, they argued that SADA defines 
"person" to include subsidiaries, parent companies, and other 
affiliates and that the FAR councils should implement the contract 
prohibition provision with this definition in mind. However, the FAR 
councils concluded that the contract prohibition provision of SADA did 
not use the term "person" and instead used the term "contractor." 
Since these terms were not defined in SADA as being synonymous, the 
FAR councils decided to stay as close as possible to the requirements 
and definitions used in the statute. The FAR councils also stated that 
expanding the scope of the rule would require offerors to attest to 
the business operations of parent companies, subsidiaries, and other 
affiliates about which they may not have information. In addition, the 
FAR councils noted that the company may not have any influence over 
the affairs of its related companies. 

U.S. Government Has Not Granted Any Waivers to SADA or Determined That 
Any Companies Submitted False Certifications under SADA: 

Under section 6(c) of SADA, the certification requirement can be 
waived on a case-by-case basis if the president determines that it is 
in the national interest to do so and notifies the appropriate 
congressional committees in writing. Under the FAR, agencies can seek 
waivers by submitting requests to the Office of Federal Procurement 
Policy (OFPP). OFPP reported that no waivers have been issued pursuant 
to SADA and no agencies have requested such waivers as of May 2010. 
[Footnote 66] OFPP opened a FAR case to consider FAR revisions to 
establish a process and criteria for waivers. 

The U.S. government has not identified any contractors that have 
submitted false certifications under SADA. Section 6(b) of SADA states 
that if the agency head determines that a contractor has falsely 
certified that it did not conduct prohibited business operations in 
Sudan, he or she may impose a number of penalties. Specifically, the 
agency head may decide to terminate the contract, suspend or debar the 
contractor from being eligible for federal contracts for a period of 
no more than 3 years, or pursue other remedies. In cases where the 
contractor is suspended, debarred, or proposed for suspension or 
debarment, SADA requires the Administrator of General Services to add 
these contractors to the Excluded Parties List System, which tracks 
companies barred from entering into contracts with the U.S. 
government.[Footnote 67] Based on information we obtained regarding 
the U.S. government's Excluded Parties List System, we determined that 
no contractors have been included on the list because of a false 
certification under SADA. 

Conclusions: 

As global awareness of the genocide in Darfur has grown, so too have 
efforts to combat this humanitarian crisis. Divestment from Sudan has 
been at the forefront of these efforts, with activists, students, and 
politicians from throughout the United States calling on shareholders 
to pull their funds from companies that directly or indirectly support 
the Sudanese government. However, in deciding whether and how to 
divest, stakeholders must consider how divestment affects foreign 
companies operating in Sudan, particularly those that strive to make a 
positive contribution to the Sudanese people. They must also ensure 
that divestment is consistent with their fiduciary responsibility. 
Additionally, they must identify and evaluate conflicting sources of 
information about which companies have Sudan-related business 
operations. Requiring companies to disclose their own operations in 
Sudan (as well as other state sponsors of terrorism) would provide 
more accurate and transparent information to investors carefully 
weighing whether and how to divest from Sudan. Furthermore, the strong 
demand for this information from states that require divestment, as 
well as from other investors, indicates that this information could be 
considered material--a judgment that the SEC has suggested in its 
correspondence with operating companies. 

Recommendation for Executive Action: 

In order to enhance the investing public's access to information it 
needs to make well-informed decisions when determining whether and how 
to divest Sudan-related assets, we recommend that the SEC consider 
issuing a rule requiring companies that trade on U.S. exchanges to 
disclose their business operations related to Sudan, as well as 
possibly other U.S.-designated state sponsors of terrorism. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the SEC and the Office of 
Management and Budget. Both provided technical comments, which we 
incorporated into the report as appropriate. The Office of Management 
and Budget chose not to provide written comments. The SEC's written 
comments, provided by the SEC Division of Corporation Finance, as well 
as our responses to these comments, are reprinted in appendix IV. The 
Division of Corporation Finance agreed that it would present our 
recommendation to the commission for its consideration. However, the 
division expressed concern that adopting a disclosure requirement that 
is excessively broad and beyond what GAO recommends could possibly 
lead to a volume of information that would overwhelm the investor and 
possibly obscure other material information. 

As we agreed with your office, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days from the date of this letter. The report will also be 
available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-9601 or melitot@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Other contacts and major contributors 
are listed in appendix V. 

Signed by: 

Thomas Melito: 
Director, International Affairs and Trade: 

Appendix I: Scope and Methodology: 

GAO Survey of U.S. States: 

To identify the actions that U.S. state fund managers took regarding 
their Sudan-related assets and the factors they considered when 
determining whether and how to divest, we designed and administered a 
Web-based survey of state treasurers and state-run pension fund 
managers. 

The survey asked about (1) Sudan-related state investment laws and/or 
policies; (2) whether or not the fund engaged with companies that did 
business in Sudan, the methods used, and the outcomes; (3) whether the 
fund froze or divested its Sudan-related assets and the reasons for 
the decision; (4) if the fund froze or divested assets, the names of 
the companies, dates, and total U.S. dollar values of the assets; and 
(5) the sources of information the fund used to identify companies 
with ties to Sudan. Appendix III contains a copy of our questionnaire. 

We included three populations in this survey: (1) the 51 state 
treasurers or their equivalents; (2) the 51 state public employee 
retirement system (PERS) funds; and (3) managers of 50 other state-run 
public pension funds, such as teacher retirement funds. For the first 
two populations, we sent surveys to all of the state treasuries and 
PERS funds. For the third population, we selected the 50 largest funds 
based on total asset values from the 2007 Annual Retirement Survey of 
State Retirement Systems conducted by the U.S. Census Bureau. These 50 
funds included in the survey represented approximately 96 percent of 
the total asset value of all funds in this group. We received 
responses from 138 of the 151 treasuries and state-run pension funds 
in our population (see table 3). We discovered 1 fund from our third 
population of 50 state-run pension funds with the greatest amount of 
assets under management to be out of our scope because it was a 
municipal-run fund, not a state-run fund. The removal of this fund 
reduced our third population from 50 to 49 funds and our total 
population from 152 to 151 funds. The overall response rate, adjusted 
for the known and estimated funds that were out of our scope, was 91 
percent. Response rates varied slightly among population groups. 

We included 117 fund managers in the survey and received responses 
from 105 managers representing 138 state funds. During data 
collection, we discovered that several of the funds we surveyed were 
managed by 1 fund manager. Specifically, 23 fund managers were 
responsible for more than one fund selected for the survey. Of these 
23 managers, 22 completed the survey for one of their funds instead of 
all of their funds. In all cases, the state fund managers later 
confirmed that their survey responses would be the same for all funds 
under their management. We then copied the completed survey responses 
into each remaining survey that the fund manager was asked to fill 
out. The copied responses were independently verified for accuracy. 

Table 3: Summary Response Table: 

Total number of funds: 
Total number surveyed: 151; 
Number of respondents: 138; 
Percent responding: 91. 

(1) State treasuries; 
Total number surveyed: 51; 
Number of respondents: 45; 
Percent responding: 88. 

(2) PERS funds; 
Total number surveyed: 51; 
Number of respondents: 49; 
Percent responding: 96. 

(3) Other pension funds; 
Total number surveyed: 49; 
Number of respondents: 44; 
Percent responding: 90. 

Total number of fund managers; 
Total number surveyed: 117; 
Number of respondents: 105; 
Percent responding: 90. 

States for which at least one treasurer or pension fund manager 
responded; 
Total number surveyed: 51; 
Number of respondents: 51; 
Percent responding: 100. 

Source: GAO analysis of survey response data. 

[End of table] 

After the survey was closed, we analyzed the survey results to 
determine what differences existed between the responding and the 
nonresponding funds. We performed this analysis for three 
characteristics--total asset holdings, state, and population group. We 
found no indications of significant bias caused by unit non-response. 
On the basis of the 91 percent response rate and this analysis, we 
chose to include the survey results in our report and consider them 
sufficiently reliable for our purposes. 

The practical difficulties of conducting any survey may introduce 
nonsampling errors, such as difficulties interpreting a particular 
question, which can introduce unwanted variability into the survey 
results. We took steps to minimize nonsampling errors by pretesting 
the questionnaire over the telephone with two state treasurers and 
five pension fund representatives in December 2009 and January 2010. 
We conducted pretests to make sure that the questions were clear and 
unbiased, the data and information were readily obtainable, and the 
questionnaire did not place an undue burden on respondents. An 
independent reviewer within GAO also reviewed a draft of the 
questionnaire prior to its administration. We made appropriate 
revisions to the content and format of the questionnaire after the 
pretests and independent review. 

We administered the Web-based survey from February 25, 2010, to April 
14, 2010. Respondents were sent an e-mail invitation to complete the 
survey on a GAO Web server using a unique username and password. 
Throughout the data collection period, nonrespondents received a 
reminder e-mail, letter, and telephone call. We also conducted follow- 
up with respondents by e-mail and telephone to confirm the value and 
dates of divestment or freezing of Sudan-related assets. Two survey 
questions gave the respondents the option to submit documentation on 
the following information instead of entering it on the Web--the list 
of companies with which the fund engaged and the names of companies, 
dates, and values of assets from which the fund divested. We entered 
this information into a spreadsheet, which was later merged with the 
survey data set for analysis. The data entered were independently 
verified for accuracy. All data analysis programs were independently 
verified for accuracy. 

State Laws and Policies: 

To identify state laws and policies enacted regarding Sudan-related 
investments and state contracts with companies tied to Sudan, we 
analyzed state legal codes, non-codified laws, state bills, and 
policies applicable to state treasurers and state-run pension fund 
managers. Our scope covered all measures (laws and policies) enacted 
or implemented since 1993 and effective as of April 2010. Using two 
legal databases, Lexis/Nexis and Westlaw, we searched for (1) all 
states that had relevant legislation and/or non-legislative policies 
in effect as of April 23, 2010; (2) states with legislation that was 
enacted but no longer in effect or repealed by the report issuance 
date; and (3) states with legislation that was introduced but not 
passed. As one way to verify this analysis, the team compared the 
search results to descriptions of state laws and policies provided by 
survey respondents. To identify non-legislative policies, we used 
online searches for such policies on state treasurers' and pension 
funds' Web sites, as well as survey responses. (Several survey 
respondents provided policies to us by e-mail.) We reviewed state laws 
and policies to identify provisions that address common subject matter 
or themes and did not independently interpret those laws or policies. 
Instead, we relied on survey responses and interviews with the state 
treasurers and other officials knowledgeable of and responsible for 
implementing their respective laws and policies in carrying out their 
duties to manage state employee pension funds. 

U.S. Investment Companies: 

To determine how U.S. investors' Sudan-related asset holdings changed 
since March 2007, we analyzed volume, value, and other related data of 
U.S. firms' equity holdings, as reported in the Thomson Reuters 
ThomsonONE ownership database. The ThomsonONE ownership database is a 
Thomson Reuters database module that provides ownership and financial 
information on shares held by institutions (such as investment 
companies), reflecting the latest filings from stock exchanges 
worldwide. After extensive discussions with Thomson Reuters staff 
about their aggregation methodology for institutions and the funds 
they manage, sources and frequency of data for non-U.S. traded 
equities, use of data prior to 2007, and other specific data issues, 
we determined that the data obtained from Thomson Reuters provide a 
reasonable basis for our findings on U.S. investors' holdings of 
certain Sudan-related equities. Our scope covered U.S. investors' 
holdings of 20 securities of six key foreign companies for each 
quarter from March 2007 to December 2009. We chose these six key 
companies with Sudan-related assets because they (1) appear on all 
three lists we analyzed of companies with business ties to Sudan; (2) 
include companies that have been targeted through public divestment 
campaigns; and (3) have operations in Sudan's oil sector, which plays 
a central role in the country's economy. Included among the 20 
securities we analyzed for these six companies are the securities of 
affiliates where the parent company ownership stake was identified as 
being greater than 50 percent.[Footnote 68] We chose this approach 
because, under the "structure of responsibility," a parent company can 
use a publicly traded subsidiary in which it has a controlling 
interest (i.e., greater than 50 percent), to fund other projects, such 
as operations in Sudan. This relationship is relevant in additional 
situations, such as: 

* when the parent company has a Sudan-related business operation, but 
the parent company is state owned and not publicly traded or: 

* when the affiliate doing business in Sudan is a private company. 

Since equities are not traded in these situations, shareholders may 
try to gain influence through the publicly traded parent or, if the 
parent is not publicly traded, through a publicly traded affiliate 
company over which the parent has a controlling influence. 

To attempt to determine the reasons behind U.S. investors' actions 
regarding Sudan-related assets, we obtained information from 
investment companies. We identified investment companies by selecting 
those that had spoken publicly about the issue of Sudan divestment, as 
well as by issuing an invitation through a large national association 
of investment companies to all of its members. Six firms agreed to 
speak with us, and one, which chose to remain anonymous, addressed our 
questions with written responses from 31 of its 34 sub-advisers. The 
views these seven investment companies expressed are not generalizable 
to all investment companies. To determine if changes in the value of 
investor holdings were due to price changes or buying or selling of 
Sudan-related assets, we constructed price indices for U.S. holdings 
of Sudan-related equities. (Further information on constructing a 
control or comparison group to assess whether U.S. investor behavior 
was driven by Sudan-specific conditions or a general reallocation of 
assets is in appendix II.) 

Factors Related to Divestment Decisions: 

To describe the factors that U.S. states and investment companies 
considered in determining whether and how to divest, we analyzed 
relevant data, reviewed documents, and interviewed key individuals. 

* For the first factor regarding fiduciary responsibility, we analyzed 
the results of our state survey, reviewed state laws and policies to 
identify provisions explicitly allowing fiduciaries to not divest, and 
interviewed or obtained information from the seven U.S.-based 
investment companies and from national associations that advocate for 
the interests of state fund managers. 

* For the second factor regarding the difficulty identifying 
information on operating companies with business ties to Sudan, we 
analyzed three available lists of these companies--one from an 
advocacy group (which provided its list in October 2009, January 2010, 
and February 2010), one from a private research firm (which provided 
its list in February 2010), and one from a socially-responsible 
investment company (which provided its list in March 2010). Each of 
these three groups provided its list at no cost to GAO.[Footnote 69] 
The three lists we analyzed are widely used by investors divesting 
from companies tied to Sudan or seeking to avoid investing in these 
companies. We compared the lists to determine which companies appeared 
on any or all three lists and we interviewed the individuals who 
created the lists to understand their methodologies, as well as their 
criteria for including companies on their lists. To examine this 
second factor, we also reviewed SEC correspondence with foreign 
operating companies that have business ties to Sudan and interviewed 
SEC officials about their efforts to monitor these companies. In 
addition, we analyzed the results of our survey of state fund 
managers, and interviewed and reviewed information from advocacy 
groups that represent state investment officials. 

* For the third factor regarding the effects of divestment on 
operating companies in Sudan, we interviewed advocacy groups and 
investment companies, analyzed the results of our survey, and reviewed 
provisions of state laws and policies that address engagement with 
these companies. We also interviewed representatives from eight 
companies that have or used to have business operations in Sudan. (We 
sent e-mails or letters to 22 companies soliciting an opportunity to 
speak with them about their operations in Sudan. We non-randomly 
selected companies that have appeared on at least one of the lists we 
analyzed and that represented a mix of both Western and Eastern 
companies. Of the 22 companies that we contacted, 9 responded that 
they were willing to speak with us, all of them Western. Ultimately, 
we spoke with only eight of these companies because the ninth company 
did not respond to our last communication attempting to schedule the 
meeting.) The views expressed by these eight operating companies are 
not generalizable to all operating companies that have or used to have 
business operations in Sudan. In addition, we reviewed human rights 
impact assessments conducted for some of these companies. 

* Contract Prohibition: 

To determine whether the U.S. government had contracted with companies 
identified as having business ties to Sudan and to assess compliance 
with the contract prohibition provision of SADA, we searched for 
federal contracts awarded to specific companies and obtained and 
reviewed contract solicitations to see if they contained the 
applicable Sudan-related certification as required by the Federal 
Acquisition Regulations (FAR). 

* First, we used one of the most widely used lists of companies 
identified by an outside research organization as having restricted 
business ties to Sudan. This list identified 88 such companies and 
also identified affiliates and subsidiaries of these operating 
companies. While we recognize that available lists of companies with 
business operations in Sudan are difficult to develop and often 
conflict with each other, we chose to use this particular list because 
it focuses on companies identified in the four economic sectors 
targeted in SADA and identifies subsidiaries and affiliates of those 
companies. 

* We then searched the Federal Procurement Data System--Next 
Generation on March 2, 2010, for these companies to determine if any 
federal contracts had been awarded to them from June 12, 2008, when 
the FAR rule regarding contract prohibition went into effect, to March 
1, 2010.[Footnote 70] (We determined that this data system was 
sufficiently reliable for the purposes of this report because we did 
not need to identify the universe of contracts subject to SADA in 
order to complete our analysis.) Our search identified several dozen 
contractors, of which one is identified on the above-mentioned list as 
having restricted business ties to Sudan. The remaining contractors 
are subsidiaries and affiliates of the companies identified as having 
restricted business ties to Sudan. Twenty-nine of these contractors 
were awarded a new contract during the time period of June 12, 2008- 
March 2, 2010. Of those 29, 7 contractors had contract solicitations-- 
where the certification provision would appear--dated before June 12, 
2008, and therefore were not included in our selection assessing 
compliance with SADA. 

* For each of the remaining 22 contractors, we then identified the 
highest dollar amount contract or contract modification and obtained 
and reviewed the solicitation to verify that the Sudan-related 
certification was either present or not required. The applicable 
certification provision varied depending on whether the contract was 
for commercial items or not and whether the contracting officer relied 
on electronic Online Representations and Certifications Application 
certifications for the particular procurement. Other procurements, 
such as those conducted under simplified acquisition procedures and 
those that did not use a solicitation, are not required under the FAR 
to have any Sudan-related certification. 

The findings related to our analysis of this selection of contracts 
cannot be generalized to the entire universe of new contracts awarded 
to these companies since June 12, 2008. 

In addition, we interviewed agency officials who have responsibilities 
related to SADA's contract prohibition provision. The agencies they 
represented included the General Services Administration, the Office 
of Management and Budget's Office of Federal Procurement Policy 
(OFPP), and the Treasury Department's Office of Foreign Assets Control. 

To learn about the development of the FAR rules implementing the 
contract prohibition provision in SADA and the government's process 
for granting waivers to SADA, we spoke with officials from OFPP. We 
also spoke with Office of Foreign Assets Control officials regarding 
U.S. sanctions on Sudan and the process for issuing general and 
specific licenses that allow businesses to conduct specified 
operations in Sudan. In addition, we obtained and reviewed 
documentation of the specific licenses granted for non-humanitarian 
work in Sudan. We had officials from the General Services 
Administration search the Excluded Parties List System database in 
order to determine whether any contractors had been included on it due 
to the suspension, debarment or proposed suspension or debarment of 
the contractor for submitting a false certification under SADA. 
Finally, we interviewed officials from the contracting agencies 
associated with the 31 contract solicitations we obtained and reviewed 
in order to understand how they implement the contract prohibition 
provision. These agencies included the Departments of Defense, 
Interior, State, and Homeland Security; and the U.S. Agency for 
International Development. 

We conducted this performance audit from August 2009 to June 2010 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Sudan-related Equities Price Index Methodology: 

This appendix describes the techniques we used to estimate three price 
indices for Sudan-related equities and challenges in constructing a 
control or comparison group to assess whether U.S. investor behavior 
was driven by Sudan-specific conditions or a general reallocation of 
assets away from foreign equity markets. 

Price Index Approaches: 

We estimated three price indices for select foreign companies with 
Sudan-related business operations to ensure that our results were not 
driven by our choice of price index. The three index types we chose 
were based on standard price index methods: a capitalization weighted 
index, a LasPeyres index, and a Paasche index. For six select 
companies, we identified 20 equity securities in which U.S. investors 
had holdings from March 2007 to December 2009. Using Thomson Reuters 
Datastream (a financial database that includes global equity markets), 
we were able to identify price and market value data for 18 of those 
securities (corresponding to five different companies) for the full 
time period we studied. The two securities for which we were unable to 
find data were held by only two and seven investors, respectively. 
[Footnote 71] Our price indices are based on those 18 securities. 

Capitalization Weighted Index: 

A capitalization weighted index is defined as: 

[Refer to PDF for formula] 

Where It is the level of the index at some time t, Pj,t is the price 
of equity j at time t, Qi,t is the quantity (number of shares) of 
equity j at time t, and D is a divisor used to scale the 
index.[Footnote 72] We chose the divisor as the level of the index at 
the initial time period and multiplied the result by 100, so the index 
had an initial value of 100. Therefore, our capitalization weighted 
index becomes: 

[Refer to PDF for formula] 

So changes in the value of the index are driven by changes in the 
total market value (or capitalization) of the securities. 

LasPeyres Index: 

The LasPeyres index is defined as: 

[Refer to PDF for formula] 

Here the quantities (number of shares) are held constant over time, 
and changes are driven by the changes in the prices in the numerator. 
As with the capitalization weighted index, we multiply the result by 
100, so the index has an initial value of 100. 

Paasche Index: 

The Paasche index is defined as: 

[Refer to PDF for formula] 

Unlike the LasPeyres index, the Paasche index allows the composition 
of shares to fluctuate over time--capturing changes in the U.S. 
portfolio--while the denominator contains base-year prices, ensuring 
that changes in the index level are driven by either price changes or 
changes in the composition of U.S. equity holdings (where the price 
behavior of new holdings may differ from old holdings). As a result, 
we believe the Paasche index is the best way to capture the price of 
the U.S. Sudan-related equity portfolio. Once again, we multiply the 
result by 100, so the index has an initial value of 100. 

Price Index Results and Net Selling Analysis and Potential Comparison 
Groups: 

Our analysis is meant to answer the following questions: 

* Does the drop in the value of U.S. holdings of Sudan-related 
equities reflect the selling of securities, a drop in their value, or 
some combination of the two? 

* If U.S. investors, on net, sold shares in Sudan-related companies, 
was this driven by conditions specific to Sudan (such as SADA or civil 
conflict) or similar to broad selling of foreign equities or foreign 
equities in the oil and gas sector? 

All three price indices indicate that U.S. investors, on net, sold 
shares of Sudan-related companies, though the estimated amount of 
selling varies. The values of the three price indices, from March 2007 
to December 2009, are in figure 3 below. Prices rose by 6 percent 
(according to the LasPeyres index), 7 percent (according to the 
Paasche index) or 33 percent (according to the capitalization weighted 
index). In comparison, from March 2007 to December 2009, the value of 
U.S. Sudan-related equity holdings fell by almost 60 percent. Despite 
this variation in estimated price increases, given that the value of 
holdings did not increase by more than 6 percent (the smallest 
estimated price increase) and in fact fell significantly, some net 
selling must have occurred. Because the composition of the U.S. 
portfolio changed over time, we believe the results indicated by the 
Paasche index are the most relevant.[Footnote 73] This suggests that 
net selling of Sudan-related equities explains the majority of the 
drop in the value of U.S. holdings. Similarly, from December 2007 to 
December 2009 (a time period for which SADA was in force), the value 
of U.S. Sudan-related equity holdings fell by more than 61 percent. 
During that same time period, prices fell by 34 percent (according to 
the LasPeyres index), 33 percent (according to the Paasche index) or 
32 percent (according to the capitalization weighted index). Because 
the value of holdings fell by more than any of the price indices, some 
net selling must have occurred during this time period. 

Figure 3: Price Indices for the U.S. Sudan-related Equity Portfolio: 

[Refer to PDF for image: multiple line graph] 

Index value: March 2007 = 100. 

Date: March 2007; 
Laspeyres: 100; 
Paasche: 100; 
Capitalization Weighted: 100. 

Date: June 2007; 
Laspeyres: 126.11; 
Paasche: 126.447; 
Capitalization Weighted: 126.81. 

Date: September 2007; 
Laspeyres: 153.68; 
Paasche: 152.222; 
Capitalization Weighted: 162.228. 

Date: December 2007; 
Laspeyres: 160.704; 
Paasche: 159.866; 
Capitalization Weighted: 194.359. 

Date: March 2008; 
Laspeyres: 106.045; 
Paasche: 105.456; 
Capitalization Weighted: 119.915. 

Date: June 2008; 
Laspeyres: 107.721; 
Paasche: 107.917; 
Capitalization Weighted: 107.058. 

Date: September 2008; 
Laspeyres: 88.8002; 
Paasche: 88.5765; 
Capitalization Weighted: 104.936. 

Date: December 2008; 
Laspeyres: 75.0295; 
Paasche: 73.4538; 
Capitalization Weighted: 76.4423. 

Date: March 2009; 	
Laspeyres: 71.0421; 
Paasche: 72.4371; 
Capitalization Weighted: 84.7778. 

Date: June 2009; 
Laspeyres: 94.8432; 
Paasche: 94.6736; 
Capitalization Weighted: 109.006. 

Date: September 2009; 
Laspeyres: 101.011; 
Paasche: 99.2447; 
Capitalization Weighted: 117.246. 

Date: December 2009; 
Laspeyres: 105.731; 
Paasche: 106.547; 
Capitalization Weighted: 132.867. 

Source: GAO analysis of Thomson Reuters data. 

[End of figure] 

The question remains open as to whether this net selling of Sudan- 
related equities was related to conditions specific to Sudan (such as 
SADA or civil conflict) or broad selling of foreign equities or 
foreign equities in the oil and gas sector. An ideal approach to this 
question would involve a comparison group of foreign oil and gas 
equities available at a similar frequency and time period to the data 
we collected on Sudan-related equity holdings (quarterly, from March 
2007 to December 2009). However, such data are available from public 
data sources (Treasury International Capital U.S. Portfolio Holdings 
of Foreign Securities or Bureau of Economic Analysis International 
Investment Position) on only an annual basis, and data for the end of 
2009 were not yet available. We were able to perform a more limited 
comparison from the end of 2007 to the end of 2008, the first 12 
months SADA was in force. During 2008, the value of U.S. Sudan-related 
equity holdings fell about 59 percent. In comparison, the value of all 
U.S. foreign oil and gas holdings (according to the 2007 and 2008 
Reports on U.S. Holdings of Foreign Securities) fell by only 40 
percent, indicating that U.S. investors actively or passively allowed 
the weight of Sudan-related equity holdings to shrink in their foreign 
oil and gas portfolio (the proportion fell from 3.4 percent to 2.3 
percent). Similarly, total U.S. foreign equity holdings fell by 46 
percent in 2008, indicating that U.S. investors actively or passively 
allowed the weight of Sudan-related equity holdings to also shrink in 
their total foreign equity portfolio (the proportion fell from 0.3 
percent to 0.2 percent). This is merely suggestive that Sudan-specific 
factors played a role in U.S. investor selling decisions during 2008. 

[End of section] 

Appendix III: Questionnaire: 

Questionnaire Regarding States' Sudan Investment Policies: 

U.S. Government Accountability Office: 

Introduction: 

The U.S. Government Accountability Office (GAO) is an independent, non-
partisan research-arm of the legislative branch. GAO assists the U.S. 
Congress in evaluating the efficiency and effectiveness of federal 
laws. 

The goal of this survey is to describe the effect, if any, of the 
Sudan divestment campaign on U.S. state-owned assets and on the assets 
of state-run pension funds. In particular, we hope to identify any 
challenges faced when considering or implementing divestment policies 
and laws. 

(This survey is part of a larger study requested by the House 
Financial Services Committee regarding the federal law called the 
Sudan Accountability and Divestment Act (SADA), Public Law 110-74.) 
Your responses to this survey will help the GAO answer the House 
Financial Services Committee's questions about policies and actions 
affecting each state's assets, including your own. 

it is estimated that you will require 30 to 60 minutes to complete 
this questionnaire. It is divided into 5 sections and has 25 questions 
and most of the questions are short and may be easily answered by 
checking a box next to the appropriate response. However, you may need 
to consult records if your state has divested any assets. After 
receiving your responses, we may follow up with a brief telephone call 
to clarify your responses. 

The results of this survey will generally be provided in summary form 
in our report. Individual answers may be discussed, but they will not 
include any information that could be used to identify individual 
respondents. For more information, click here. 

We understand that there are great demands on your time, so we 
appreciate your effort in completing this questionnaire. The data you 
provide in this questionnaire will be a critical input in GAO's report 
to Congress. 

Please complete this questionnaire as soon as possible, but within the 
next two weeks. Your cooperation in returning the questionnaire 
promptly is appreciated. When it is issued, we will email you a copy 
of the report containing these survey results. We plan on issuing the 
report by summer 2010. 

Instructions: 

To learn more about navigation, exiting and printing the survey, 
please click here. 

To move from section to section: Use the menu bar on the left side of 
the screen or the "Next section" button at the bottom of each page. Do 
not use the "Enter' key on your keyboard to navigate through the 
survey. 

To exit and save: Click on the "Exit" button at the bottom of the 
screen. Always use the "Exit" button to close the survey. If you do 
not, you will lose all the information that you have entered on the 
screen of the survey where you improperly exited the program. 

To restart your survey: Log onto the survey using your username and 
password. The survey will restart at the point where you exited. 

Indicating You Have Completed the Questionnaire: 

The final question in the last section asks you to indicate that you 
have completed this questionnaire. Checking "Complete" tells us that 
your answers are official and final. Your answers will not be used 
unless you have done this. Please note we will not send follow-up e-
mails to those who have checked the "Complete" button. 

Contact: 

If you have any questions or are experiencing difficulties responding 
to the questionnaire (for example, if you are unable to complete it 
online), please contact one of the following persons. 

Thank you for your time and assistance. 

Section 1: Information on Your State's Sudan-related Investment 
Policies: 

Note: All questions contained in this survey only pertain to the _____.	
Even if you have investment authority for additional funds, please 
only provide answers that pertain to the _____. 
	
1. To the best of your knowledge, has _____passed any laws or issued
any policies that affect investment in companies that do business in 
Sudan? 

Laws or policies may directly target Sudan or include Sudan among a 
number of countries targeted for divestment, such as state sponsors of 
terrorism. 

(Check only one answer) 

1. Yes, my state has passed laws and/or state investment authorities 
have issued policies. 

2. No, my state has neither passed any laws nor issued any policies. 
(Go to question 6.) 

3. I don't know if my state hat any laws or policies. (Go to question 
6.) 

2. Which authority issued the policy/policies? (For example: the state 
legislature, the investment board, the governor, etc. If you prefer 
and it is available, you may e-mail a copy of the policy to:
SudanDivestment@gao.gov). 

3. To the best of your knowledge, tides the law, policy or policies 
include any of the following provisions? 

For the purposes of this survey, to divest is to relinquish assets 
held in specified companies. This sale of assets is intended to reduce 
financial and/or political support for an entity in an effort to 
change that entity's behavior. The sale of assets may also be intended 
to reduce the investor's exposure to financial risk. Divestment can be 
implemented either in a blanket manner or a targeted manner. With 
blanket divestment, all shares in a company are sold immediately upon 
identification of that company's ties to the scrutinized government. 
With targeted divestment, companies are contacted first and shares are 
sold (sometimes in increments) only if the companies do not respond to 
the concerns of the shareholder contacting them. 

For the purposes of this survey, to freeze assets means withholding 
additional or new investments from (one's current) investments. 

3a. Requires the person(s) with investment authority to divest from 
Sudan: 
Yes: 
No: 
Don't know: 

3b. Allows (but does not require) the person(s) with investment 
authority to divest from Sudan: 
Yes: 
No: 
Don't know: 

3c. Requires the person(s) with investment authority to contact 
companies prior to divesting: 
Yes: 
No: 
Don't know: 

3d. Allows the person(s) with investment authority to remain invested 
if targeted companies change their behavior in the Sudan: 
Yes: 
No: 
Don't know: 

3c. Requires the person(s) with investment authority to report any 
divestment actions taken to the state legislature on a regular basis: 
Yes: 
No: 
Don't know: 

3f. Requires the person(s) with investment authority to identify which 
companies have ties with Sudan: 
Yes: 
No: 
Don't know: 

3g. Requires the person(s) with investment authority to report the 
list of identified companies to the state legislature on a regular 
basis: 
Yes: 
No: 
Don't know: 

3h. Allows the person(s) with investment authority to be indirectly 
invested in Sudan through mutual funds or hedge funds: 
Yes: 
No: 
Don't know: 

3i. Allows the person(s) with investment authority not to divest if 
she/he states that divestment would constitute a breach of fiduciary 
trust: 
Yes: 
No: 
Don't know: 

3j. Prohibits state contracts with companies with ties to Sudan (as 
defined by the policy/law): 
Yes: 
No: 
Don't know: 

3k. Prohibits future investment in companies with ties to Sudan (as 
defined by the policy/law): 
Yes: 
No: 
Don't know: 

3l. Other provision (Please specify below): 
Yes: 
No: 
Don't know: 

Other provision: 

4. Has the_____had any written correspondence with the Department
of Justice regarding its change of investment policy towards Sudan? 
(Check only one answer) 
1. Yes. 
2. No. 
3. Don't know. 
4. Not applicable. 

5. Has the_____had any written correspondence with the office of the
U.S. Special Envoy to Sudan regarding its change of investment policy 
towards Sudan? 
(Check only one answer)
1. Yes. 
2. No. 
3. Don't know. 
4. Not applicable. 
5 of 20 

Section 2: Engagement: 

This section specifically asks questions about the engagement of 
companies. Engagement of a company is defined here as: identifying 
companies and leveraging ones power as a shareholder (or potential 
shareholder) in an effort to change the investment or operating 
behavior of that company. 

6. Did the_____, or a money manager acting on its behalf, engage with
companies who do or did business in Sudan? 
(Check only one answer) 
1. Yes. 
2. No (Go to question 10.) 
3. Don't know (Go to question 10.) 

7. Which of the following methods did the_____use when engaging
companies? 
(Please check one answer per method) 

7a. Wrote letter(s)/e-mails to companies concerning their business 
ties, to Sudan: 
Used: 
Did not use: 
Don't know: 

7b. Called or met with companies asking them for information on their 
business ties to Sudan: 
Used: 
Did not use: 
Don't know: 

7c. Informed companies the_____might divest or freeze assets if they 
did not cease all business ties to Sudan: 
Used: 
Did not use: 
Don't know: 

7d. Informed companies the_____might divest or freeze assets if they 
did not change the nature of their operations in Sudan, such as 
providing humanitarian outreach programs for Sudanese people, engaging 
with the Sudanese Government, or conducting a human rights impact 
assessment: 
Used: 
Did not use: 
Don't know: 

7e. Used an intermediary to communicate the targeted companies (For 
example, Conflict Risk Network): 
Used: 
Did not use: 
Don't know: 

7f. Other method (Please specify below): 
Used: 
Did not use: 
Don't know: 

Other method: 

8. With which operating companies did the_____"engage"? 

(You may write the names below. However, if it is easier, you may copy 
the names of the companies from your records and paste them in the 
space below. You may also send a copy of your records listing the 
companies to SudanDivestment@gao.gov.) 

9. To the best of your knowledge, how many companies gave the 
following responses after the_____'s engagement with them? 
(Please check one answer per response from companies.) 

9a. The targeted companies provided no response to our letters and/or 
phone calls: 
All: 
More than half: 
About half: 
Less than half: 
None: 
Don't know: 

9b. The targeted companies informed us that they had left/planned to 
leave Sudan: 
All: 
More than half: 
About half: 
Less than half: 
None: 
Don't know: 
9c. The targeted companies provided more information about their 
business that revealed there was no need to divest: 
All: 
More than half: 
About half: 
Less than half: 
None: 
Don't know: 

9d. The targeted companies informed us that they changed or will 
change their operations (for example: limited partnerships with 
companies that may have strong ties to the Government of Sudan (GOS), 
committed to refuse any future contracts for work in Sudan once 
current contract obligations are satisfied, increased extent of 
humanitarian activities, etc.) 
All: 
More than half: 
About half: 
Less than half: 
None: 
Don't know: 

9e. The targeted companies informed us that they did not or will not 
change their practices in Sudan: 
All: 
More than half: 
About half: 
Less than half: 
None: 
Don't know: 

9f. Other response from companies (Please specify below): 
All: 
More than half: 
About half: 
Less than half: 
None: 
Don't know: 

Other response from companies: 

Section 3: Divestment: 

For the purposes of this survey, to divest is to relinquish assets 
held in specified companies. This sale of assets is intended to reduce 
financial and/or political support for an entity in an effort to 
change that entity's behavior. The sale of assets may also be intended 
to reduce the investor's exposure to financial risk. Divestment can be 
implemented either in a blanket manner or a targeted manner. With 
blanket divestment, all shares in a company are sold immediately upon 
identification of that company's ties to the scrutinized government. 
With targeted divestment, companies are contacted first and shares are 
sold (sometimes in increments) only if the companies do not respond to 
the concerns of the shareholder contacting them. 

For the purposes of this survey, to freeze assets means withholding 
additional or new investments from (one's current) investments. 

10. Did the_____divest or freeze assets, or does it plan to 
divest/freeze, any or all of its Sudan-related assets?
(Check only one answer) 

1. Yes, the fund has divested and/or frozen some or all of its assets.
2. Yes, the fund is planning to divest and/or freeze some or all of 
its assets.
3. No, the fund is not divesting or freezing any of its assets. (Go to 
question 19.)
4. The fund did not have assets invested in Sudan-related business. 
(Go to question 20.) 
5. Don't know (Go to question 20.) 

11. Which of the following methods did the_____use, or will use, when
divesting/freezing some or all of its Sudan-related assets? 
(Please check one answer per method) 

11a. Divested and/or froze assets without contacting companies the 
_____divested from: 
Used: 
Did not use: 
Don't know: 

11b. Divested and/or froze assets after communicating with companies 
and being a a unsatisfied with their response: 
Used: 
Did not use: 
Don't know: 

11c. Informed companies that the___would not invest in them in the 
future unless they changed their business ties or operations in Sudan: 
Used: 
Did not use: 
Don't know: 

11d. Other method (Please specify below): 
Used: 
Did not use: 
Don't know: 

Other method: 

12. What were the major, moderate, and minor reasons for the_____'s
divesting/freezing assets in Sudan? 
(Please check one answer per reason.) 

12a. Divesting from Sudan could reduce the financial risk my office's 
investments were exposed to: 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

12b. Divesting from Sudan could improve the returns on my offices 
investments: 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

12c. The_____was required to divest: 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

12d. Divesting from Sudan could alleviate concerns about indirectly 
supporting a country designated as a State Sponsor of Terrorism: 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

12e. Divesting from Sudan could alleviate concerns about indirectly 
supporting the genocide and human rights abuses in Darfur: 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

12f. Divesting from Sudan was likely to have a positive impact (i.e., 
take revenue source away from the government of Sudan): 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

12g. Other reason (Please specify below): 
Major reason: 
Moderate reason: 
Minor reason: 
Not a reason: 
No opinion: 

Other reason: 

13. To what extent was the_____concerned about each of the following
when divesting/freezing Sudan-related assets? 
(Please check one answer per concern.) 

13a. Engaging companies was too difficult and/or costly: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13b. Divesting could cause my office to incur high transaction costs 
and/or earn reduced returns on investment: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13c. It would be difficult to divest while ensuring that fiduciary 
trust requirements were not breached and my office/state was not made 
vulnerable to law suits: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13d. Despite SADA's explicit authorization, it would be difficult to 
divest while ensuring that the state was not left open to law suits 
alleging that divestment practice is unconstitutional: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13e. Divesting might force an operating company out of the Sudanese 
market, leaving room for one with more questionable business practices: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13f. It would be difficult and costly to identify accurate and 
authoritative information regarding companies with business ties to 
Sudan: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13g. There was concern about setting a dangerous precedent for 
divesting because of other social concerns: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

13h. Other reason (Please specify below): 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

Other reason: 

14. Did, or will, the_____divest or freeze directly-held assets 
related to Sudan? 
(Check only one answer) 

1. Yes, all directly-held assets have been,or will be, divested or 
frozen.
2. Yes, some directly-held assets have been, or will be, divested
or frozen.
3. No, directly-held assets have not, or will not, be divested or 
frozen.
4. The fund had no directly-held assets Sudan.
5. Don't know. 

15. Did, or will, the_____divest or freeze indirectly-held assets (e.g.,
assets held in a commingled fund) related to Sudan? 
(Check only one answer) 
1. Yes, all indirectly-held assets have been, or will be, divested or 
frozen. (Go to question 17.)
2. Yes, some indirectly-held assets have been, or will be, divested or 
frozen. (Go to question 17.1
3. No, indirectly-held assets have not, or will not, be divested or 
frozen. (Go to question 16.) 
4. The fund had no indirectly-held assets in Sudan. (Go to question 17.)
5. Don't know (Go to question 17.) 

16. To what extent were each of the following factors a reason why the 
_____did not or will not divest its indirectly-held assets? 
(Please check one answer per factor.) 

16a. As one of many investors, did not have authority to divest: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

16b. It was too costly: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

16c. The law/policy only requires the divestment of directly-held 
assets: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

16d. Other factor (Please specify below): 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 

Other factor: 

If the___has not yet divested or frozen assets, click on link
below to go to question 20. 

Click here to skip to question 20. 

17. If the_____has already divested or frozen assets, what was the
name/names of the company/companies from which it divested or froze 
assets, the date of divestment or freezing, and the value divested or 
frozen from the company (in U.S. dollars)? 

(You may enter the information for up to 5 companies below. If you 
divested or froze assets from more than 5 companies, or if it is 
easier to cut and paste information from your records, you may enter 
the information in the large box at the end of question 17. You may 
also send a copy of your records listing the companies to
SudanDivestment@gao.gov.) 

Company #1 from which the fund divested/froze assets: 

17a. Name of company: 

17b. Date of divestment/date when value of frozen assets was calculated
(month/year): 

17c. Value frozen/divested from the company (in US$): 

Company #2 from which the fund divested/froze assets: 

17d. Name of company: 

17e. Date of divestment/date when value of frozen assets was calculated
(month/year): 

17f. Value frozen/divested from the company (in US$): 

Company #3 from which the fund divested/froze assets: 

17g. Name of Company: 

17h. Date of divestment/date when value of frozen assets was calculated
(month/year): 

17i. Value frozen/divested from the company (in US$): 

Company #4 from which the fund divested/froze assets: 

I7j. Name of Company: 

17k. Date of divestment/date when value of frozen assets was calculated
(month/year): 

17l. Value frozen/divested from the company (in US$): 

Company #5 from which the fund divested/froze assets: 

17m. Name of Company: 

17n. Date of divestment/date when value of frozen assets was 
calculated (month/year): 

17o. Value frozen/divested from the company (in US$): 

Please enter information on additional companies or from your records 
below. For each company, please include the company name, date of 
divestment/date when value of frozen assets was calculated, and value 
frozen/divested from each company. 

18. If the_____has already divested or frozen assets, to the best of 
your knowledge, how many companies took the following actions after 
the _____'s divestment from them? 
(Please check one answer per action): 

18a. The targeted companies changed their operations: 
All: 
More than half:	
Less than half: 
About half: 
None: 
Don't know: 

18b. The targeted companies left Sudan: 
All: 
More than half:	
Less than half: 
About half: 
None: 
Don't know: 

18c. The targeted companies increased the number or extent of 
humanitarian activities they fund in Sudan: 
All: 
More than half:	
Less than half: 
About half: 
None: 
Don't know: 

18d. The targeted companies did nothing: 
All: 
More than half:	
Less than half: 
About half: 
None: 
Don't know: 

18e. Other action (Please specify below): 
All: 
More than half:	
Less than half: 
About half: 
None: 
Don't know: 

Other action: 

After answering question 18, click on link below to go to question 20. 

Click here to skip to question 20. 

19. If the_____did not or will not freeze or divest any Sudan-related
assets, to what extent did each of the following factors influence the 
decision not to freeze or divest Sudan-related assets? 
(Please check one answer per factor.) 

19a. The_____did not divest since it is not required to: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19b. The_____determined it had no directly-held assets in companies 
operating in Sudan: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19c. The_____determined it had no indirectly-held assets (i.e., 
commingled funds) in companies operating in Sudan: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19d. The_____determined that it had indirectly-held assets (i.e., 
commingled funds) in companies operating in Sudan but did not have the 
authority to divest: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19e. The_____did not view divesting as a positive tool to promote 
change: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19f. Divesting would have caused State/name of fund to incur high 
transaction costs and/or earn reduced returns on investment: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19g. Divesting would have conflicted with my fiduciary trust 
requirements thereby making the_____vulnerable to law suits: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19h. It was too difficult and too costly to identify accurate and 
authoritative information regarding companies with business ties to 
Sudan: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19i. Engaging companies was preferable to divesting: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19j. Divesting would have forced an operating company out of the 
Sudanese market, leaving room for one with more questionable business 
practices: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19k. Adopting a policy encouraging divestment from Sudan would have 
set a dangerous precedent for divesting because of other social 
concerns: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19l. In order to divest from certain companies, the _____would have 
had to sell off entire funds, such as international funds, which are 
the most lucrative: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19m. Despite SADA's explicit authorization, divesting would have left 
the_____open to law suits alleging that divestment practice is 
unconstitutional: 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

19n. Other factor (Please specify below): 
To a large extent: 
To a moderate extent: 
To a small extent: 
To no extent: 
No opinion: 
Not applicable: 

Other factor: 

Section 4: Sources of Information: 

20. Did your state, fund, or governing body attempt to identify 
companies with ties to Sudan? 
(Check only one answer)
1. Yes. 
2. No (Go to question 24). 
3. Don't know (Go to question 24). 

21. Below is a list of sources commonly used to identify companies 
with ties to Sudan. How useful were each of these sources to your 
office as it attempted to identify companies with business operations 
in Sudan? 
(Please check one answer per source.) 

21a. Government source: The Securities and Exchange Commission's EDGAR 
database on-line (SEC): 
Very useful: 
Useful: 
Somewhat useful: 
Not at all useful: 
No Opinion: 
Did not use: 

21b. Government source: Treasury Department's Office of Foreign Asset 
Controls List (OFAC): 
Very useful: 
Useful: 
Somewhat useful: 
Not at all useful: 
No Opinion: 
Did not use: 

21c. Commercial or private source: Private research companies (such as 
CSAG, RiskMetrics, Bloomberg Terminal, etc.): 
Very useful: 
Useful: 
Somewhat useful: 
Not at all useful: 
No Opinion: 
Did not use: 

21d. Commercial or private source: Socially responsible investment 
firm (e.g., Calvert, Domini Investments, etc.): 
Very useful: 
Useful: 
Somewhat useful: 
Not at all useful: 
No Opinion: 
Did not use: 

21e. NGOs/Advocacy groups (Such as: Investors Against Genocide, The 
Sudan Divestment Task Force/Conflict Risk Network): 
Very useful: 
Useful: 
Somewhat useful: 
Not at all useful: 
No Opinion: 
Did not use: 

21 f. Other source (Please specify below): 
Very useful: 
Useful: 
Somewhat useful: 
Not at all useful: 
No Opinion: 
Did not use: 

Other source: 

22. Overall, how sufficient did your office think the information 
provided by the sources it consulted was in identifying companies with 
business ties to Sudan as defined under the_____"s policy or law?
(Check only one answer) 
1. Very sufficient. 
2. Sufficient. 
3. Somewhat sufficient. 
4.Not at all sufficient. 
5. No opinion. 
6. Don't know. 
7. Not applicable. 

23. What are the reason(s) for your response to question 22? 

Section 5: Contact information: 

24. Do you have any additional comments? 

25. What are the names, titles, phone number, and e-mail address of 
the person(s) completing this questionnaire? 

(Enter information in boxes below) 

Person #1: 

Name: 
Title: 
Phone number, including area code: 
E-mail Address: 

Person #2:
Name: 
Title: 
Phone number, including area code: 
E-mail Address: 

Completed: 

26. If you have completed the survey, please check "Completed" below.
Clicking on "Completed" indicates that your answers are final.
Your answers will not be used unless you check Completed below. 
(Check only one answer) 

1. Completed. 
2. Not completed. 

Thank you: 

Thank you for your participation! 

If applicable, please remember to send a copy of your state's 
divestment policy, a list of companies with which you engaged, and/or 
the list of companies from which you divested or froze assets, the 
date of divestment, and value divested to SudanDivestment@gao.gov. 

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[End of section] 

Appendix IV: Comments from the Securities and Exchange Commission: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

United States: 
Securities And Exchange Commission: 
Division Of Corporation Finance	
Washington, D.C. 20549: 

June 14, 2010L 

Thomas Melito: 
Director, International Affairs and Trade: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Melito: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's draft report entitled Sudan Divestment: U.S. 
Investors have Sold Assets but Could Benefit from Increased Disclosure 
Regarding Companies' Ties to Sudan (GAO-10-742). 

The GAO recommends that the SEC consider issuing a rule requiring 
companies that trade on U.S. exchanges to disclose their business 
operations tied to Sudan as well as possibly other state sponsors of 
terrorism. As the report noted, the federal securities laws do not 
specifically require public companies to disclose this information. 
Rather, these laws require this disclosure when the information is 
"material." It is important to note that companies are not free to 
make their own judgments as to whether these matters are "material." 
The materiality test for misstatements or omission of facts is an 
objective test based on the informational needs of a reasonable 
investor. In the Division of Corporation Finance's view, companies 
have a strong incentive to make appropriate judgments about 
materiality, in that they may face significant federal securities law 
liability for disclosure that includes material misstatements or 
material omissions that make the information provided misleading. The 
Division reviews company filings with this materiality standard for 
disclosure in mind. Through our review and comment process, the 
Division questions public companies about their business operations 
tied to Sudan and other state sponsors of terrorism and, where 
appropriate, the Division asks companies to explain and revise their 
disclosure about those ties. [See comment 1] 

The decision as to whether to adopt corporate disclosure requirements 
that expand beyond materiality is one which must be presented to the 
Commission for its consideration, In presenting GAO's recommendation 
to the Commission, the Division will note that jurisdictions 
throughout the U.S. have adopted numerous divestiture-like statutes 
concerning a variety of topics. While the GAO's recommendation relates 
to investors' access to information about companies' activities with 
respect to a specific subset of those divestiture statutes — those 
relating to Sudan — the Division is concerned that if the Commission 
were to adopt disclosure requirements to facilitate compliance with 
the broad span of these statutes — without consideration of the 
materiality of that disclosure to the overall mix of information about 
a company — the volume of information could overwhelm investors and 
could possibly obscure other material information. Such an outcome 
would run counter to the fundamental purposes of disclosure under the 
securities laws — i.e., to provide investors with meaningful 
information and promote price discovery efficiency in the securities 
markets. [See comment 2] 

Thank you for the courtesy the GAO extended to the SEC during the 
course of preparing its report, and thank you again for giving us the 
opportunity to provide you with comments as you finalize it. 

Sincerely, 

Signed by: 

Meredith B. Cross: 
Director: 

The following are GAO's comments on the letter from the SEC's Division 
of Corporation Finance, dated June 14, 2010. 

GAO Comments: 

1. The meaning of "material information" is not explicitly defined by 
law, but the Supreme Court has determined that information is material 
if there is a substantial likelihood that a reasonable investor would 
consider the information important in making an investment decision or 
the information would significantly alter the total mix of available 
information. In evaluating companies' disclosures regarding global 
security-risk related issues, the SEC's Office of Global Security Risk 
has asked companies to consider both quantitative and qualitative 
factors, such as the potential impact of corporate activities upon a 
company's reputation and share value. As we note in our report, 
however, companies have generally resisted these instructions and, at 
times, have refused to disclose information about their ties to Sudan. 

2. As we state in our report, the SEC's Office of Global Security Risk 
has suggested to companies that any operations they have in state 
sponsors of terrorism might be considered material because divestment 
campaigns and legislation mandating divestment from Sudan indicate 
that investors would consider this information important in making 
investment decisions. 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Thomas Melito (202) 512-9601 or melitot@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Cheryl Goodman, Assistant 
Director; Elizabeth Singer; Katy Forsyth; Michael Hoffman; R.G. 
Steinman; Julia Becker Vieweg; Sada Aksartova; Kay Halpern; Debbie 
Chung; Ann Baker; JoAnna Berry; Noah Bleicher; Martin de Alteriis; 
Patrick Dynes; Etana Finkler; Justin Fisher; Cathy Hurley; Ernie 
Jackson; Debra Johnson; Julia Kennon; Jill Lacey; Andrea Miller; and 
Linda Rego make key contributions to this report. 

[End of section] 

Footnotes: 

[1] The U.S. Secretary of State designates countries as state sponsors 
of terrorism pursuant to three laws --section 6(j) of the Export 
Administration Act; section 40 of the Arms Export Control Act; and 
section 620A of the Foreign Assistance Act. Taken together, the four 
main categories of sanctions resulting from designation under these 
authorities include restrictions on U.S. foreign assistance; a ban on 
defense exports and sales; certain controls over exports of dual use 
items (items that have commercial uses as well as military or nuclear 
proliferation uses); and miscellaneous financial and other 
restrictions. 

[2] P.L. No. 110-174, 121 Stat. 2516-23. 

[3] Under U.S. sanctions, U.S.-based companies are prohibited from 
doing business in Sudan (31 C.F.R. Part 538). Certain exemptions to 
this rule exist. For example, nongovernmental organizations involved 
in humanitarian or religious activities in Sudan are generally allowed 
to perform these activities. 

[4] SADA does not define divestment. For the purposes of this report, 
we use the term "divestment" to mean the relinquishment of all assets 
held in specified companies in order to reduce financial or political 
support for an entity and change that entity's behavior. 

[5] Under SADA, the term "person" includes, among others, a 
corporation, company, business association, and their successors, 
subunits, parent companies, or subsidiaries. 

[6] Federal Acquisition Regulation (FAR) § 25.702. 

[7] Throughout this report, the term "state" refers to the 50 states 
and the District of Columbia. 

[8] We discovered 1 fund from our third population to be out of our 
scope because it was a municipal-run fund, not a state-run fund. The 
removal of this fund reduced our third population from 50 to 49 funds 
and our total population from 152 to 151 funds. 

[9] For the purposes of this report, we use the term "policy" to refer 
to a written statement outlining actions or positions that a 
government entity intends to take. 

[10] For the state treasuries and pension funds, our analysis is based 
primarily on equities, but also includes some debt. For the investment 
companies, our analysis is based exclusively on equities. 

[11] According to this association, its members represent about 98 
percent of all investment companies registered with the Securities and 
Exchange Commission (SEC). 

[12] Ultimately, we spoke with only eight of these companies because 
the ninth company did not respond to our last communication attempting 
to schedule the meeting. 

[13] The meaning of "material information" is not explicitly defined 
by law, but the Supreme Court has determined that information is 
material if there is a substantial likelihood that a reasonable 
investor would consider the information important in making an 
investment decision or the information would significantly alter the 
total mix of available information. 

[14] GAO has identified data reliability weaknesses in the Federal 
Procurement Data System. For example, see GAO, Federal Contracting: 
Observations on the Government's Contracting Data Systems, [hyperlink, 
http://www.gao.gov/products/GAO-09-1032T] (Washington D.C.: Sept. 29, 
2009). 

[15] Our findings related to this analysis cannot be generalized to 
the entire universe of new contracts awarded to these companies since 
June 12, 2008. 

[16] For the purposes of this report, freezing assets means 
withholding additional or new investments from one's current 
investments. 

[17] State fiduciary law varies from state to state through state 
constitutions, statutes, and common law. However, for the purposes of 
this report, fiduciary responsibility is defined as the duty to act 
solely in the interest of a participant or beneficiary and for the 
exclusive purpose of providing benefits to the participant and 
beneficiary. 

[18] Executive Order 13067. 

[19] Executive Order 13400. 

[20] It also lists individuals, groups, and entities, such as 
terrorists and narcotics traffickers designated under programs that 
are not country specific. Collectively, these individuals' assets are 
blocked and U.S. persons are generally prohibited from dealing with 
them. 

[21] The N-CSR filing is the certified shareholder report of 
registered management investment companies. The N-SAR filing is the 
semi-annual report for registered management companies. 

[22] 73 Fed. Reg. 23328, 23330 (Apr. 30, 2008). 

[23] There are more fund managers than states because the pension 
holdings in some states are contained in several funds managed by 
different individuals. 

[24] Two of the 29 fund managers who indicated that they had divested 
or frozen their Sudan-related assets or planned to do so did not 
respond to our questions about the reasons for their divestment. 

[25] Some state fund managers reported having issued policy guidance 
regarding how state law affects their funds. While we consulted these 
policies when necessary, we focused our analysis on state laws and non-
legislative policies because the legislative policies generally 
reflected the state laws. 

[26] One additional state had a law that expired. Maine enacted 
legislation in 2005, which expired in July 2009. Fifteen states 
considered but failed to pass bills related to Sudan and Sudan-related 
investments. 

[27] Maryland's law states that, notwithstanding any other provisions, 
the act may not be applied to certain investments or divestment 
actions if the U.S. Congress or President affirmatively declare, among 
other things, that the government of Sudan has ceased attacks on 
civilians. 

[28] Arizona targets Sudan specifically but also targets all state 
sponsors of terrorism. The District of Columbia and Maryland have laws 
mandating divestment from Sudan-and Iran-related companies. Florida 
and Louisiana have laws requiring some of their public retirement 
systems to offer a terror-free index fund option to their retirees. 
Georgia targets "any corporation that is included in the terrorism 
sanctions issued by the Office of Foreign Assets Control of the United 
States Department of the Treasury." 

[29] According to the Department of State, this list identifies 
foreign organizations that the U.S. government has determined engage 
in terrorist activity, as defined in section 212 (a)(3)(B) of the INA 
(8 U.S.C. § 1182(a)(3)(B)), or terrorism, as defined in section 
140(d)(2) of the Foreign Relations Authorization Act, Fiscal Years 
1988 and 1989 (22 U.S.C. § 2656f(d)(2)), or that retain the capability 
and intent to engage in terrorist activity or terrorism. In addition, 
the organizations' terrorist activities or terrorism must threaten the 
security of U.S. nationals or the national security (national defense, 
foreign relations, or the economic interests) of the United States. 

[30] Maryland state code, Division II, Title 21, Subtitle 1, says 
"divestment action" means "selling, redeeming, transferring, 
exchanging, otherwise disposing of, and refraining from further 
investment in certain investments." 

[31] This wording is used in the state codes of Arizona, Colorado, 
Florida, Hawaii, Massachusetts, New Hampshire, North Carolina, and 
Rhode Island. 

[32] These states include Arizona, California, Georgia, and Utah. 
Although Utah has a law that prohibits state contracts, it does not 
appear in table 2 because it does not have any laws or policies 
specifically regarding investment of Sudan-related assets. 

[33] Many of the same investment companies have appeared frequently in 
the group of top 20 investors from March 2007 to December 2009. For 
example, 15 firms appeared in more than half of the 12 financial 
quarters during this time period, including 4 that were in the top 20 
for each of the 12 quarters. 

[34] The three index types we chose were based on standard price index 
methods used to aggregate many prices into a single index value: a 
capitalization weighted index, a LasPeyres index, and a Paasche index. 
Using Thomson Reuters Datastream (a financial database that includes 
global equity markets), we were able to identify price and market 
value data for 18 securities (corresponding to five different 
companies) that we used to calculate our price indices. See app. II 
for more information on our price index methodology. 

[35] To construct a control or comparison group would require more 
frequent and timely data than were readily available. 

[36] Some investors we interviewed did not directly hold Sudan-related 
assets because, as self-designated socially responsible investment 
companies, they screen out these assets or because the nature of the 
funds they managed precluded the inclusion of Sudan-related assets. 

[37] One investment company's policy was not Sudan-specific, but more 
generally worded regarding social concerns and investing. 

[38] Data indicate that, as of April 22, 2010, this firm sold its 
shares of three of the companies it identified as having business 
relations with the Sudanese government. This firm decided to retain or 
increase its shares in another company it had identified because it 
said that this company was receptive to its efforts to encourage the 
company to improve its business practices in Sudan. 

[39] Managers of state investment funds are generally responsible for 
meeting the duties established by applicable state law. Fiduciary 
responsibilities for other investment fund managers may be established 
by the underlying investment fund documents and applicable law, 
including common law. 

[40] State fiduciary law varies from state to state. Therefore, we did 
not make any broad generalization regarding these laws. 

[41] The Board of Trustees of the New Hampshire Judicial Retirement 
Plan and the New Hampshire Retirement System v. Gardner, New Hampshire 
Supreme Court (No. 2009-0621). This case was still pending as of May 
11, 2010. 

[42] While the Wisconsin Investment Board concluded that it is against 
"total or targeted" divestment, it screens each investment related to 
Sudan, engages with companies, and reserves the right to sell Sudan- 
related investments depending on the estimated cost of the sale versus 
the risk-related cost of keeping the investment. 

[43] Furthermore, many state laws allow for alternative Sudan-free 
investments to replace any investments in Sudan-related companies. For 
example, California law allows investment of public employee 
retirement funds in an "alternative fund or account" which excludes 
the targeted Sudan-related companies. If the state's public employee 
retirement fund's board determines that the new investment fund or 
account is "financially equivalent" to the existing fund or account, 
then the board may transfer its investments from the existing fund or 
account to the new fund or account. 

[44] This number does not include those respondents who said they had 
no Sudan-related assets to divest. 

[45] For example, SADA incorporates 29 C.F.R § 2509.94-1, which is the 
Department of Labor's "Interpretive Bulletin relating to the fiduciary 
standard under ERISA [the Employee Retirement Income Security Act] in 
considering economically targeted investment." This guidance states 
that the fiduciary standards applicable to economically targeted 
investments, which would include Sudan divestment activities under 
SADA, are no different than the standards applicable to plan 
investments generally. Under this guidance, fiduciaries may generally 
take social issues into account as long as the alternative investments 
are not expected "to provide a plan with a lower rate of return than 
available alternative investments with commensurate degrees of risk or 
[to be] riskier than alternative available investments with 
commensurate rates of return." The Department of Labor has issued more 
recent guidance (see 29 C.F.R. § 2509.08-1). However, 29 C.F.R. § 
2509.94-1 remains applicable to ERISA plan divestments made under SADA. 

[46] In June 2007, the SEC experimented with a Web site to provide 
direct access to public companies' 2006 annual report disclosures 
concerning past, current, or anticipated business activities in state 
sponsors of terrorism, including Sudan. The SEC indefinitely suspended 
the site after 1 month, citing concerns about the timeliness of data 
contained in the disclosures, as well as the possible negative 
connotation that could attach to a company, even though the company's 
disclosures may have concerned benign activities. See 72 Fed. Reg. 
65862 (Nov. 23, 2007). Other U.S. agencies have declined to publish 
lists of companies with business ties to Sudan, citing concerns that 
creating such a list would impose an ongoing, burdensome requirement 
on them; risk alienating U.S. allies by "blacklisting" companies based 
in those countries; subject the agencies to legal challenges; and 
present difficult issues in determining what type and amount of 
evidence would suffice to include a company on the list. 

[47] For a publicly-traded company, this list also identifies parent 
and subsidiary companies (public or private), provided that ownership 
stake in these vertical relationships is greater than 50 percent. In 
this case, the company with Sudan-related operations is the primary 
company listed. For a private company, the list also identifies its 
vertical structure and its parent company's vertical structure, 
provided the ownership stakes in these vertical relationships is 
greater than 50 percent. In this case, the parent company is the 
primary company listed. 

[48] This organization assesses materiality based on four factors: (1) 
whether a company has a business relationship with the government of 
Sudan, is contracted on a government-created project, or is affiliated 
with a government-created project or armed groups in Sudan; (2) 
whether a company's industry sector has a direct relationship with the 
government of Sudan or armed groups in Sudan; (3) whether a company is 
complicit in acts of violence; and (4) the question of who benefits 
from a company's investment in Sudan (e.g., marginalized populations 
or military entities). 

[49] Six of these 16 companies were removed from prior versions of 
List A. 

[50] 17 C.F.R. §§ 230.408, 240.12b-20. The SEC discusses this issue in 
Concept Release on Mechanisms to Access Disclosures Relating to 
Business Activities in or with Countries Designated as State Sponsors 
of Terrorism, 72 Fed. Reg. 65862 (Nov. 23, 2007). 

[51] TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). 

[52] The Office of Global Security Risk contracts with a private 
vendor to obtain its list of companies with ties to state sponsors of 
terrorism, including Sudan. This list is the SEC's primary tool for 
identifying companies that it will monitor. We contacted the private 
vendor to obtain a copy of this list, but it declined to provide one 
free of charge. 

[53] At an April 2010 hearing before the Senate Appropriations 
Committee Subcommittee on Financial Services and General Government, 
however, the SEC Chairman noted that the agency is considering whether 
public companies should be required to disclose business conduct 
without regard to materiality between them and one of the four 
countries designated as state sponsors of terrorism. 

[54] We spoke with eight foreign operating companies, all of them 
Western. 

[55] This company transferred its business operations to another 
company that it said it trusted, rather than one that would engage in 
"unethical" business practices. 

[56] Subdivision 3, Minnesota Statute 11A.243 (2009). 

[57] 73 Fed. Reg. 33636. 

[58] 74 Fed. Reg. 40463. 

[59] FAR § 52.225-20 and FAR § 52.212-3(m) for commercial item 
acquisitions. 

[60] We chose to use this list because it focuses on companies 
identified in the four business sectors targeted in SADA and 
identifies subsidiaries and affiliates of those companies. 

[61] Simplified acquisition procedures under FAR part 13 allow 
agencies to use a streamlined procurement process for certain 
acquisitions under specific dollar thresholds, usually $100,000. Under 
these procedures, many contractor certifications and representations 
are not required. 

[62] Contract certifications and representations, including the SADA 
certification, are usually found in the contract solicitation. 
Purchase orders do not have solicitations, and so the certifications 
and representations may not be required. In certain circumstances, 
agencies using simplified acquisition procedures may still require 
offerors to submit and maintain their FAR certifications and 
representations, including the SADA certification, via the Online 
Representations and Certifications Application (ORCA)--a Web-based 
application that replaces most of the representations and 
certifications located directly in the solicitation, allowing 
contractors to enter this information once for use on all federal 
contracts. 

[63] These affiliates and subsidiaries were identified by the list 
that also identified the 88 companies with prohibited business ties to 
Sudan. The list defines affiliates and subsidiaries as companies where 
there is a 50 percent or greater ownership stake. For example, for a 
publicly-traded company with Sudan-related operations, the list 
identifies as subsidiaries and affiliates those companies of which the 
parent company owns 50 percent or more. 

[64] We identified the highest dollar amount contract or contract 
modification for each of the 29 subsidiaries and affiliates. The 
solicitations for 22 of these contracts were issued after June 12, 
2008, and, therefore, were subject to section 6 of SADA. The 
government complied with SADA by either including the required FAR 
provisions in the solicitation or incorporating the Sudan 
certification through other means, such as ORCA. If the contracting 
officer relied on the electronic ORCA certification and representation 
submissions, the SADA certification provision may not appear in the 
solicitation. See FAR subpart 4.12. 

[65] Contract actions include new contract awards, modification to 
those contracts, and modifications to contracts with these entities 
where the original contract was awarded prior to June 12, 2008. 

[66] Some advocacy groups have written to OFPP requesting that certain 
companies be considered for blanket waivers because these companies 
have agreed to discontinue their operations in Sudan or had taken 
actions in Sudan that the groups considered positive. However, OFPP 
staff told us that they only consider waiver requests directly 
submitted by the executive agency and would only use the letters from 
advocacy groups as supplemental support for any future waiver requests 
regarding the companies. 

[67] The Excluded Parties List System is an electronic database 
maintained and posted by the General Services Administration that 
contains the list of all parties suspended, proposed for debarment, 
debarred, declared ineligible, or excluded or disqualified from 
federal contracting. 

[68] One of the three lists we analyzed identified these affiliates. 

[69] We asked another private research firm to provide a copy of its 
list, but this firm would not do so free of charge. 

[70] This initial search not only identified contracts awarded to 
these companies from June 12, 2008, to March 1, 2010, but also any 
modifications to existing contracts that were issued during the time 
period. These modifications may have been associated with contracts 
that were awarded before SADA was implemented and therefore would not 
have contained any Sudan certification. 

[71] The omission of these two securities is unlikely to have a 
significant impact on our results. One security accounted for at most 
$13 million in U.S. holdings (or less than 0.3 percent of Sudan-
related holdings at the time). Holdings of the other security 
accounted for a notable amount (4.8 percent) of the Sudan-related 
equity portfolio for only a single quarter in the time period we 
studied, and were negligible for all other quarters. 

[72] Index Mathematics Methodology. Standard and Poor's, February 2009. 

[73] Results indicated by the Paasche and LasPeyres indices are 
substantively identical. If U.S. holdings were weighted to the market 
value of their respective securities (as in the equilibrium of the 
Capital Asset Pricing Model) and the quantity of outstanding shares 
were constant, all three indices would collapse to the same value. 

[End of section] 

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