SB 12-LIMIT RELATIONS WITH CERTAIN NATIONS  CHAIR THERRIAULT announced SB 12 to be up for consideration and invited Senator Dyson to come forward. 3:37:03 PM SENATOR FRED DYSON, primary sponsor, informed members that Ambassador John Miller, who is in charge of trafficking of persons for the State Department, was online and he would like the committee to hear from him first. Ambassador Miller would give a history of the federal efforts to stop human trafficking, but he couldn't render an opinion on the bill. CHAIR THERRIAULT recognized Ambassador Miller and told him that members had copies of "Facts About Human Trafficking." He noted in particular that the second and third pages explain the tier system and which countries fall into each tier. 3:38:46 PM AMBASSADOR JOHN MILLER testified via teleconference and said he was pleased to speak to the trafficking challenge they face around the world and to comment on the impact the federal sanctions have had. 3:39:06 PM The U.S. Government estimates that up to 800,000 men women and children are trafficked across international boarders every year for the purpose of slavery. Because that figure doesn't count domestic slavery, the real figure could be in the millions. Modern slavery takes many forms, but sex slavery is the largest category. Congress and the President want the U.S. to take the lead in addressing the issue as evidenced by the fact that 20 percent of the President's speech at the UN General Assembly more than a year ago was devoted to slavery and what nations can do about it. 3:41:42 PM AMBASSADOR MILLER said the State Department is addressing the challenge through diplomacy, and by instituting plans for prevention, protection of victims and prosecution. Several years ago the State Department developed a three-tier system to evaluate how governments are addressing human trafficking and the Secretary of State evaluates those efforts in an annual report. Tier 1 governments meet minimum standards to protect victims from traffickers. Tier 2 includes governments that don't meet minimum standards, but that are making significant effort to address trafficking. The Tier 2 Watch List contains the countries that are in danger of dropping into Tier 3, which includes those governments that are not making significant effort. A government classified as Tier 3 is given three months to take steps to increase protection, prevention and prosecution of human trafficking after which the Secretary of State advises the President and discussion ensues as to whether sanctions should be applied by removing certain U.S. aid. 3:44:22 PM Non-compliance sanctions have had a salutary affect as evidenced by the fact that friendly governments took significant steps to address human trafficking after they were classified as Tier 3 in the June 2003 report. This, he said, is an issue that impacts national stability because human trafficking is a major source of revenue for organized crime. 3:45:59 PM 3:46:53 PM AMBASSADOR MILLER reported there were nearly 3,000 global trafficking convictions last year and that over 50 countries have now passed anti-human trafficking of laws. The progress is a result of diplomacy, increased visibility, and the threat of sanctions in the form of reduced aid by the U.S., he concluded. 3:47:35 PM CHAIR THERRIAULT asked whether committee members had any questions. 3:47:45 PM SENATOR DYSON noted that federal legislation says the U.S. may not impose humanitarian aid or trade sanctions and he questioned why trade sanctions aren't allowed. AMBASSADOR MILLER said he assumes that Congress believes that humanitarian aid and trade aid are so important that those sanctions shouldn't be used. SENATOR DYSON noted the emphasis on domestic organizations that are involved in sex tourism and questioned whether American companies doing business in Tier 3 countries receive similar pressure. AMBASSADOR MILLER said they haven't received pressure, but Congress did pass legislation asking federal agencies to work with the travel industry to warn Americans going abroad of the dangers of sex tourism and to make it clear that conviction on child sex charges brings up to 30 years U.S. prison time. 3:50:46 PM CHAIR THERRIAULT stated that the proposed legislation would place permissible restrictions on the three branches of government and he was curious whether the federal law had the same mechanism. 3:51:12 PM AMBASSADOR MILLER replied the intersection of state and federal law is outside his area of expertise, but Alaska is the first state he knows of to consider legislation addressing the issue of modern day slavery. 3:52:06 PM SENATOR DYSON explained he has also considered whether or not to have this effort apply to the Permanent Fund. Currently, the fund is guided by the Prudent Investor Rule, which calls for careful financial scrutiny but precludes investigation of other criteria. He questioned whether the World Bank or others consider criteria such as human rights when making investments. 3:53:17 PM AMBASSADOR MILLER said that too is outside his area of expertise. 3:53:51 PM SENATOR DYSON thanked Ambassador Miller for his efforts. AMBASSADOR MILLER said he appreciates the interest in the issue. 3:54:46 PM CHAIR THERRIAULT thanked Ambassador Miller and asked Senator Dyson to introduce the bill. SENATOR DYSON noted companion legislation then informed members that Alaska has a larger human trafficking problem than most people would ever imagine. He detailed instances of child sex trafficking to Southeast cruise ship passengers and Asian women held in captivity in the Spenard area to emphasize that this is an ongoing issue and that he is zealously working with Representative Croft to criminalize the sexual tourism industry in Alaska. 3:57:52 PM SENATOR DYSON pointed out that the Legislature could elect to make compliance mandatory and that version \F would include the investment of the Permanent Fund. The Legislature has policy choices and deliberation should be thoughtful. 3:59:17 PM JASON HOOLEY, staff to Senator Dyson, explained the intent of the proposed \F version committee substitute (CS) is to include quasi-governmental corporations such as the Permanent Fund Corporation. However, he was unclear whether the language actually does that. 3:59:51 PM CHAIR THERRIAULT asked why the sponsor changed the language in Sections 2, 3, and 4 from "prohibiting or eliminating" financial relationships to "restricting" financial relationships. JASON HOOLEY said it was intended to give agencies more flexibility. 4:01:00 PM CHAIR THERRIAULT questioned how the agencies would determine whether suppliers have a financial relationship with a Tier 3 country. SENATOR DYSON replied the State Department would be a good resource for doing that. Also, he understands that Governor Murkowski drafted an Executive Order that accomplishes what the bill talks about. 4:02:14 PM SENATOR DYSON said whenever he's received feedback from international company headquarters, the feedback has always been supportive. The bill would provide a clear policy that would then be easier to implement in the field, he said. He envisions that Alaska agencies would ask companies about their policy to keep employees from becoming involved in exploiting children and to mitigate slavery if they do business in a Tier 3 nation. A process would be established to determine whether or not the companies' word is good on those activities. 4:04:08 PM CHAIR THERRIAULT referred to Section 4 and asked whether the \F version was drafted to include quasi-governmental agencies such as the railroad and AIDEA whereas the original version didn't include them. JASON HOOLEY said yes. 4:04:32 PM CHAIR THERRIAULT called for questions. SENATOR KIM ELTON referenced Section 4 of the \F version and asked how the administration might deal with a major North Slope producer that was interested in participating in the gas pipeline, but also had an interest in a refinery in an oil- producing Tier 3 country. 4:06:25 PM SENATOR DYSON replied there is nothing in the law that precludes doing business with a company doing business in a Tier 3 country. The company would have to certify that they are not exacerbating the problem and that they are doing whatever is in their purview to mitigate the problem. The day may come when the Administration and or we legislators will face the decision. Are we willing to do business with a company or a country that is flagrantly and blatantly trafficking in children and destroying lives? Are we willing to sell our soul to do that? And fortunately for us, our mineral and natural resource wealth is such that it's almost never that there's a single bidder wanting to do business with us. I think we will never face the situation where the utilization of our resources or provision of service won't happen if we turn down doing business with pimps. 4:08:44 PM SENATOR ELTON noted that restricting financial relationships seemed to be the suggested remedy yet the Executive could make a determination that the activities of a company doing business in a Tier 3 country wouldn't necessarily be sanctioned if they weren't exacerbating trafficking. 4:09:35 PM SENATOR DYSON said that's probable, but if the Legislature decides that state investments, including the Permanent Fund, may not include Tier 3 countries, they may have to face decisions about imposing sanctions. He warned that he would withdraw the bill if it were amended beyond trafficking of persons. 4:10:49 PM CHAIR THERRIAULT compared version \A and \F and commented that it's a leap of faith to believe that the regulations won't say, if you're doing business with a Tier 3 country then you're not doing business with the State of Alaska period. You wouldn't necessarily want to deny access to a multi-national corporation that may very well be the best source of employment in the country, he said. SENATOR DYSON agreed. 4:11:54 PM CHAIR THERRIAULT asked Vern Jones to come forward. VERN JONES, chief procurement officer for the State of Alaska, reported that the administration has worked with the sponsor on this issue for considerable time. Although they don't believe it's practical to cut ties with all U.S. companies that do business in Tier 3 countries, they do believe they could implement procedures to comply with the intent of the legislation. For future contracts they would ask businesses to disclose whether they have locations in or do business in the Tier 3 countries. If they do, the company would be required to submit their policy on human trafficking for evaluation. 4:14:24 PM CHAIR THERRIAULT commented that RFPs [request for proposal] would be modified, but he was curious whether a contract might be terminated if a company were found to be noncompliant. MR. JONES said certainly if the conditions were in place when they did the procurement. The policy would have to be well planned to anticipate those sorts of things. He suggested establishing a policy with some teeth would make sense as long as it was clear up front. 4:15:36 PM SENATOR ELTON asked if awarding contracts to companies that do business in Tier 3 countries might not increase contract challenges. JONES replied, "Anytime you add requirements to a procurement that would have us go and check external conditions, you are increasing the risk of that procurement. You are increasing the availability or the probability that competitors will - if the business is significant enough - try and make a case." That's a cost of doing business. SENATOR ELTON said he wasn't necessarily suggesting that it's bad, but it is a possibility. CHAIR THERRIAULT asked Mr. Jones if the wording in Section 4 of the \F version would include the Railroad and AIDEA in his view. MR. JONES acknowledged he hadn't looked at it from that perspective and he hadn't seen version \F before, but he prefers language that calls for "restricting" rather than "prohibiting and eliminating" relationships. 4:17:52 PM CHAIR THERRIAULT noted that \F version language appears to be preferable and has the additional reference to the investment issue, but he would accept a motion to adopt one version or the other as the working document. 4:18:13 PM SENATOR BETTYE DAVIS motioned to adopt \F Version of SB 12 as the working document. There being no objection, it was so ordered. 4:18:38 PM SENATOR CHARLIE HUGGINS said he supports the bill, but he knows that unilateral economic sanctions can be problematic. He asked Mr. Jones whether he thought this would actually have consequences. MR. JONES said it's likely that the state doesn't offer enough business and therefore doesn't have the clout to cause a multi national corporation to stop doing business in a Tier 3 country where they are making a profit. However, the sponsor's intent is to highlight the situation so that businesses operating in Tier 3 countries are made aware that the issue is important to Americans and Alaskans specifically. It's a step in the right direction. 4:20:44 PM SENATOR DYSON commented that the elimination of apartheid in South Africa was a slow process and many people struggled with the associated philosophical questions. The development of resources in Alaska is a large prize, he emphasized, and companies that are eager to do business in the state will change practices to ensure that they are able to vie for that prize. Some companies will establish and implement policies so that they can do business in Alaska. It's too early to tell whether it will change other nations, but petroleum companies that are doing business in Alaska often times have large holdings overseas. If they have to develop and implement an acceptable policy to do business in Alaska they will eventually have an affect in the Tier 3 countries where they operate. 4:22:37 PM SENATOR HUGGINS referenced the list of Tier 3 countries and remarked that North Korea traded in weapons systems for the most part and he questioned whether Alaska maintained any trade relationship with the country. MR. JONES admitted he wasn't sure which business relationships Alaska maintains that also operate in North Korea, but the South American countries caught his attention because of the number of highly recognizable companies doing business there. 4:23:23 PM SENATOR ELTON questioned whether legal issues might arise as a consequence of entering a business relationship with a company that does business in a country that falls to Tier 3 when the list is updated. MR. JONES replied there probably would be issues. The question is whether the state would have to go back and get policies from a company with which it already maintained a business relationship. In procurement, such issues are addressed up front, he said. 4:25:18 PM SENATOR DYSON suggested that Mr. Jones would probably address that in the RFP [request for proposal] and make it clear that if the list were to change the state would reserve the right to ask about human slavery policies and practices. MR. JONES replied they would certainly have the proviso in all procurements and could reserve the right to go back. However, the practical question of how you'd know of a tier change in mid contract is another matter. 4:26:20 PM CHAIR THERRIAULT commented he wasn't sure how a company that responded to an RFP would be able to evaluate what a country they do business with might do or not do in the future. SENATOR DYSON replied that is why Ambassador Miller initiated the Tier 2 watch list. Those countries bear watching. 4:27:08 PM CHAIR THERRIAULT referenced Section 4 and asked whether this would apply to lease agreements with major North Slope oil companies because that is certainly a financial arrangement. Since the pro-development and anti-development forces are usually at odds, he questioned whether this provision might help to hold up leases that would otherwise move forward. "Have you spoken to anybody in the administration about how that could be used as a tool against the State of Alaska," he asked. 4:28:32 PM SENATOR DYSON acknowledged he hadn't done that, but it was a good point. He asked the Chair to take no action on the bill that day to provide time for someone from the administration to address the issue and to give the PFD Board the opportunity to speak to Section 4 and its allegiance to the Prudent Investor Rule, which doesn't consider humanitarian or social values. CHAIR THERRIAULT noted there were no further questions for Senator Dyson and asked Karla Schofield to come forward. 4:29:47 PM KARLA SCHOFIELD, Legislative Affairs Agency (LAA), explained that procurement procedures are under the auspices of the Legislative Council so they would adopt procurement policies and procedures as directed. Companies could certify what relationships they might have with various countries and the council chair would likely make the decision whether or not to do business with them. CHAIR THERRIALUT noted that a pencil he used recently came from Vietnam, which caused him to question how far down the line the agency might try to reach with the regulation. MS. SCHOFIELD said she wasn't sure how far down the inquiry would go. She added it's quite easy to get a hold of the Tier 3 list, but it would be a lot of work to try and keep track of who is and is not on other lists. LAA buys a lot of large and small items and it could be quite a chore to keep track of the various and changing business relationships. CHAIR THERRIALUT remarked the pencils certainly are down the line, but LAA would be dealing with an office supply wholesaler instead of the pencil manufacturer. There were no further questions for Ms. Schofield and he noted that someone from the court system might be available at the next hearing. 4:32:56 PM CHAIR THERRIAULT asked Senator Dyson to explain his reference to "other list of countries" and questioned why you wouldn't want to use the established tier system list. If that system fell out of favor the Legislature could always make a policy call to switch to another known quantity, he said. 4:33:26 PM JASON HOOLEY, staff to Senator Dyson, explained the phrase in question was added in the drafting and not at their request. The drafters thought that the name of the report might change so the phrase was included to indicate that a similar report would be required. CHAIR THERRIALUT suggested making the reference specific to the tier list. The language should make it clear that this is the list to use until the State Department makes a change. SENATOR DYSON said the point was well taken. 4:34:48 PM CHAIR THERRIALUT remarked that it's unclear whether the Tier 3 list is drafted under 22 U.S.C. 7107(b)(1)(C). SENATOR DYSON said they would clarify that. 4:35:11 PM CHAIR THERRIALUT announced that at the prime sponsor's request, he would hold \F version SB 12 in committee.