HB 396-DIVEST INVESTMENTS IN RUSSIAN ENTITIES  3:07:03 PM CHAIR KREISS-TOMKINS announced that the first order of business would be HOUSE BILL NO. 396, "An Act restricting certain investments of state funds in certain Russian entities; and providing for an effective date." 3:09:05 PM CHAIR KREISS-TOMKINS invited Mr. Saravalle to share opening remarks on private entities divesting from Russian assets and the extent to which it had a sanctioning effect on Russia. 3:09:42 PM EDUARDO SARAVALLE, a former researcher for the Energy, Economics & Security program at the Center for a New American Security (CNAS), answered yes, ever since the first escalation of U.S. sanctions against Russia, there had been a voluntary worldwide divestment from the Russian market, which was in turn, destabilizing the Russian economy. He noted that voluntary actions could be helpful to the U.S. policy; however, they could also be counterproductive. He encouraged private entities or state governments to align their actions with U.S. policy and opined that HB 396 was well-thought out in that respect. CHAIR KREISS-TOMKINS sought to confirm that divestment policy should include a "stick and carrot" approach that included a "renormalization" mechanism to reinvest in Russia. MR. SARAVALLE answered yes, to ensure that the entity or state government was being as constructive as possible in fostering U.S. policy. 3:13:38 PM REPRESENTATIVE TARR asked how the legislature should consider its actions relative to unintended consequences or other disruptions in the marketplace that wouldn't achieve that long- term goal. MR. SARAVALLE acknowledged that the risk of a less ethical investor profiting from divestment policy was a concern in any divestment campaign. Nonetheless, he pointed out that the concern about other actors swooping in and taking advantage of a strong principal move would likely be from jurisdictions that weren't complying with sanctions or ones that were skeptical of sanctions. 3:19:07 PM REPRESENTATIVE CLAMAN asked how to approach the political decision of instructing APFC or other state agencies to divest from Russian assets, which were worth very little, with no place to sell them. He questioned the practicality of that scenario. MR. SARAVALLE acknowledged that uncertainty was harming the value of Russian assets, as well as the intermediaries of global security transactions, which were extremely risk averse and limited the ability to change ownership. Finally, Russia was imposing limitations on transactions as well. He explained that all of those factors combined were lowering the price of Russian assets and making them "uninvestable" and illiquid. He acknowledged the difficulty of the situation, adding that any divestment scenario would have to confront the mechanics of selling low price shares and changing ownership. He pointed out that any decision would have to wait and see how the situation developed, as issuing a blanket divestment order would be difficult. REPRESENTATIVE CLAMAN asked whether there was a secondary market for Russian stocks in other parts of the world. MR. SARAVALLE said he was unsure. He cautioned that other intermediaries would be even more risk averse than a Russian- based exchange. 3:24:22 PM REPRESENTATIVE EASTMAN asked for a contrasting analysis of Chinas support for the Russian invasion of Georgia [in 2014] versus China's support for the Russian incursion into Ukraine. Additionally, he asked how likely it was that China would invest in place of those who were divesting. MR. SARAVALLE pointed out that it was a highly fluid situation. He noted that the sanctions in 2014 were significantly lighter, making it relatively easy for China to invest and circumvent the sanctions. He stated that if China was interested in helping Russia now, it would be a "different ballgame," as current sanctions were much heavier. REPRESENTATIVE EASTMAN recalled that Mr. Saravalle had mentioned the need for a "clear ask" when stipulating divestment policy. He asked what the clear ask was in terms of U.S. sanctions and who the sanctions were designed to harm. MR. SARAVALLE indicated that the U.S. ask was still developing. Potential options included the recognition of Eastern Ukraine as independent, as well as the de-annexation of Crimea and reparation or support for the reconstruction of Ukraine. He reminded the committee that sanctions were a bargaining measure, adding that those in the administration were carefully ensuring that the sanctions did not impose unnecessary harm. Nonetheless, he pointed out that there were likely multiple targets, noting the so-called "oligarch sanctions" were intended to turn those closest to President Vladimir Putin against him. REPRESENTATIVE EASTMAN referenced a report that suggested that President Putin's support had increased since the conflict began. He asked whether sanctions were working. MR. SARAVALLE explained that the shared experience of suffering could bring a "rally around the flag" effect. He reiterated that sanctions were intended to alter the decision making of the president, as opposed to causing a revolution. He noted that they could have the potential to change the calculus of leadership. 3:37:52 PM REPRESENTATIVE TARR sought to confirm that the purpose of sanctions was to put pressure on leaders to negotiate. MR. SARAVALLE answered yes. 3:39:14 PM CHAIR KREISS-TOMKINS asked what should be included or avoided in terms of crafting divestment policy. MR. SARAVALLE recommended keeping it specific, targeted, and clear. He noted that more clarity would make the policy easier to "technically undo." He provided an example. He addressed the uncertainty in regard to the mechanics of divestment and recommended clarifying "the how" as well. CHAIR KREISS-TOMKINS sought to confirm that a trigger for renormalization should be included, as well as narrowly prescribed policy. Additionally, proper flexibility should be included to account for "wonky" market mechanics. He asked if that was accurate. MR. SARAVALLE answered yes. 3:43:21 PM REPRESENTATIVE KAUFMAN sought to confirm that by divesting, an opportunity would be created for the worst actors who lacked qualms about buying Russian shares at fire sale prices. He asked if that was correct. MR. SARAVALLE answered yes, that would be a potential risk. 3:44:28 PM REPRESENTATIVE VANCE asked how many states had divested in Russia. MR. SARAVALLE did not know the answer. REPRESENTATIVE VANCE expressed concern about backlash due to Alaska's geopolitical position. MR. SARAVALLE acknowledged that any sanctioned action may likely lead to backlash. However, as Russia was involved in a physical invasion, he pointed out that the country would have to stabilize its economy before considering backlash. REPRESENTATIVE VANCE recalled that since 2013 or 2014, Russia had embargoed Alaska seafood, which was costing the state millions. She expressed her concern about Russia's "long memory" and asked whether there could be backlash that directly impacted the Alaska seafood industry. MR. SARAVALLE acknowledged that Russia could impose counter sanctions that could be detrimental to the Alaskan economy. He emphasized the need to include the lifting of sanctions in the U.S. ask, adding that it would be a matter of diplomacy for the U.S. government to clearly articulate. 3:50:29 PM CHAIR KREISS-TOMKINS announced that HB 396 was held over. 3:51:17 PM The committee took a brief at-ease.