HB34

Regular Session

Relating to prohibiting the investment of state money in certain countries and in certain private business entities in those countries.

ModeratePlan for compliance

High Cost

Effective:2025-06-20

Enforcing Agencies

Comptroller of Public Accounts (List Maintenance) • Office of the Governor (Country Designation) • State Investing Entities (ERS, TRS, Permanent School Fund - Execution of Divestment)

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

Effective Date: June 20, 2025 (Immediate effect due to supermajority vote).
Compliance Deadline: January 1, 2026 (Comptroller publishes the initial "Scrutinized Companies" list). Companies receiving notice after this date have 90 days to cure status before divestment occurs.
Agency Rulemaking: The Comptroller must finalize list criteria and publish the initial list by Jan 1, 2026. The Office of the Governor has ongoing authority to designate additional "countries of concern" without legislative action.

Immediate Action Plan

Audit Ownership Immediately: Identify if >50% of your stock is held by citizens of the four named countries.
Calculate Revenue Exposure: Confirm if revenue from the named countries exceeds the 50% threshold.
Prepare the "U.S. Person" Certification: Have outside counsel prepare this opinion letter now to have on file for the Comptroller.
Monitor the Comptroller’s Website: Assign a compliance officer to check for the preliminary list release prior to the January 1, 2026 deadline.
Engage D&O Insurers: Discuss coverage limits regarding potential state-led divestment events.

Operational Changes Required

Contracts

Commercial Loan Covenants: Review credit agreements immediately. A forced divestment by a major institutional investor like TRS may trigger "Material Adverse Change" (MAC) clauses or default provisions.
State Vendor Agreements: While this law targets *investment*, expect flow-down requirements in state procurement contracts. Prepare to certify that your entity is not a "Scrutinized Company" to maintain eligibility for future state contracts.
Shareholder Agreements: Review buy/sell agreements. You may need mechanisms to force a buyout of shareholders whose citizenship triggers "Scrutinized" status.

Hiring/Training

Investor Relations (IR): IR teams must be trained to identify and track ownership percentages held by Texas state funds to model the impact of a forced sell-off.
Board Governance: Corporate Secretaries must audit the citizenship of all board members and majority shareholders to rebut presumptions of foreign "control."

Reporting & Record-Keeping

"U.S. Person" Defense File: Maintain a standing legal certification proving your status as a "U.S. Person" under 15 C.F.R. Section 772.1. This is your primary affirmative defense against divestment.
Revenue Segmentation: Finance departments must segregate and report revenue by country. You must be able to prove on demand that revenue from China, Iran, North Korea, or Russia comprises less than 50% of global annual revenue.
Cure Documentation: Establish a protocol to restructure (divest subsidiaries or dilute ownership) within the strict 90-day cure window if noticed.

Fees & Costs

Capital Access: Anticipate a potential increase in cost of capital if Texas state funds (major market movers) liquidate positions.
Insurance Premiums: Review Directors & Officers (D&O) liability coverage. Divestment-driven stock drops often trigger shareholder derivative suits; ensure your policy covers geopolitical risk management failures.

Strategic Ambiguities & Considerations

The Governor's "Blacklist" Authority: The Governor may unilaterally designate additional "countries of concern" after consulting with the Homeland Security Council. This creates a moving target; a geopolitical shift could instantly place operations in other nations (e.g., Venezuela) on the prohibited list.
Definition of "Control": The statute defines control broadly, including "power to exercise a controlling influence." It is unclear if a minority shareholder with a board seat constitutes "control." Expect the Comptroller to take a conservative, expansive view until challenged.
Dual Citizenship: The law penalizes ownership by "citizens" of concerned countries but does not explicitly address dual citizens (e.g., U.S.-Chinese nationals). Until rulemaking clarifies, treat dual citizenship in leadership/ownership roles as a compliance risk.

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Legislative Timeline

This bill's path through the Texas Legislature

TopicsGovernor Intergovernmental Relations Retirement Systems Retirement Systems--general State Agencies, Boards & Commissions State Finances State Finances--management & Control International Relations Homeland Security Council Public Safety, Department of Comptroller of Public Accounts Terrorism & Internal Security

Official Analysis

View HRO Analysis View All Bill Documents

BILL ANALYSIS

H.B. 34

By: Metcalf

Homeland Security, Public Safety & Veterans' Affairs

Committee Report (Unamended)

BACKGROUND AND PURPOSE

The bill author has informed the committee of the issue of the State of Texas investing in entities tied to countries of concern seen as risks to national security, such as China, Iran, North Korea, and Russia. H.B. 34 seeks to reduce the state's financial exposure to such countries and entities and promote a stance of economic divestment from them by prohibiting the investment of state money in certain countries of concern and in certain private business entities associated with those countries.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

H.B. 34 amends the Government Code to prohibit an investing entity, as defined under statutory provisions regarding the prohibited investment of public money in certain investments, from acquiring a security issued by a country of concern or an entity owned or controlled by or subject to the jurisdiction of a country of concern, and from investing or making a deposit in a bank with a principal place of business located in a country of concern. The bill authorizes the governor, for purposes of these provisions and after consultation with the public safety director of the Department of Public Safety, to designate a country as a country of concern. The bill requires the governor to consult the state Homeland Security Council to assess the status of a country of concern for purposes of that designation and defines "country of concern" as China, Iran, North Korea, or Russia, or a country designated by the governor under the bill.

H.B. 34 establishes that a company is a scrutinized company if it meets one of the following conditions:

·the company is organized under the laws of, has its principal place of business in the territory of, or is controlled by a country of concern;

·the company is owned by a country of concern or individuals who are citizens of a country of concern; or

·the majority of stock or other ownership interest of the company is held or controlled by a country of concern or individuals who are citizens of a country of concern.

The bill provides for the inclusion of such a company on the list of scrutinized companies subject to investment prohibitions and divestment requirements for certain investments of public money, which is maintained by the comptroller of public accounts. The bill accordingly makes the exception to divestment or investment prohibition for a company that the U.S. government affirmatively declares to be excluded from its federal sanctions regime applicable with respect to a federal sanctions regime relating to any country of concern.

H.B. 34 requires an investing entity, for each listed company identified by the comptroller that is a scrutinized company under the bill's provisions, to send a written notice informing the company of its listed company status and warning the company that it may become subject to divestment by investing entities. The bill requires the notice to offer the company the opportunity, not later than the 90th day after the date the company receives the notice, to change its organizational or ownership structure or location so as to not be a scrutinized company in order to avoid qualifying for such divestment. The bill does the following regarding such a company:

·if the company makes any applicable changes during that time period, requires the comptroller to remove the company from the list of scrutinized companies and makes provisions regarding the prohibited investment of public money in certain investments no longer applicable to the company unless the company later again becomes a scrutinized company as described by the bill; or

·if the listed company continues to operate as a scrutinized company as described by the bill after that time period expires, requires the investing entity to sell, redeem, divest, or withdraw all publicly traded securities of the company, except securities that are indirect holdings in actively managed investment funds or private equity funds, according to the schedule provided by statutory provisions governing the divestment of such assets.

H.B. 34 requires the comptroller, not later than January 1, 2026, to include on the maintained list of all scrutinized companies the companies identified as such under the bill's provisions.

EFFECTIVE DATE

September 1, 2025.

Bill Text(with markup)

H.B. No. 34

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

	AN ACT
	relating to prohibiting the investment of state money in certain
	countries and in certain private business entities in those
	countries.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1. Section 2270.0001, Government Code, is amended
	by adding Subdivisions (2-a) and (2-b) and amending Subdivision (9)
	to read as follows:
	(2-a) "Control" means the power to exercise a
	controlling influence over the management or policies of a company,
	including involvement in the company's governance structure,
	monitoring, or internal human resources decisions, unless such
	power is solely the result of an official position with the company.
	(2-b) "Country of concern" means:
	(A) China, Iran, North Korea, or Russia; or
	(B) a country designated by the governor under
	Section 2270.0121.
	(9) "Scrutinized company" means:
	(A) a company that:
	(i) engages in scrutinized business
	operations described by Section 2270.0052; or
	(ii) has been complicit in the Darfur
	genocide during any preceding 20-month period;
	(B) a company that engages in scrutinized
	business operations described by Section 2270.0102; [~~and~~]
	(C) a company that is a scrutinized company under
	Section 2270.0124; and
	(D) a company that engages in scrutinized
	business operations described by Section 2270.0152.
	SECTION 2. Section 2270.0002, Government Code, is amended
	to read as follows:
	Sec. 2270.0002. EXCEPTION. Notwithstanding any other law,
	a company that the United States government affirmatively declares
	to be excluded from its federal sanctions regime relating to Sudan,
	its federal sanctions regime relating to Iran or another country of
	concern, or any federal sanctions regime relating to a designated
	foreign terrorist organization is not subject to divestment or
	investment prohibition under this chapter.
	SECTION 3. Chapter 2270, Government Code, is amended by
	adding Subchapter C-1 to read as follows:
	SUBCHAPTER C-1. GENERAL PROVISIONS RELATING TO INVESTMENTS IN
	COUNTRIES OF CONCERN
	Sec. 2270.0121. DESIGNATION AS COUNTRY OF CONCERN. (a) The
	governor, after consultation with the public safety director of the
	Department of Public Safety, may designate a country as a country of
	concern for purposes of this subchapter.
	(b) The governor shall consult the Homeland Security
	Council, established under Subchapter B, Chapter 421, to assess the
	status of a country of concern for purposes of making a designation
	under this section.
	Sec. 2270.0122. PROHIBITION ON INVESTMENT IN COUNTRY OF
	CONCERN. An investing entity may not acquire a security issued by a
	country of concern or an entity owned or controlled by or subject to
	the jurisdiction of a country of concern.
	Sec. 2270.0123. PROHIBITION AGAINST INVESTMENT OR DEPOSIT
	IN CERTAIN BANKS. An investing entity may not invest or make a
	deposit in a bank with a principal place of business located in a
	country of concern.
	Sec. 2270.0124. SCRUTINIZED COMPANIES IN COUNTRIES OF
	CONCERN. (a) Except as provided by Subsection (b), a company is a
	scrutinized company if:
	(1) the company is organized under the laws of, is
	headquartered in, or has its principal place of business in the
	territory of a country of concern;
	(2) the company is controlled by a country of concern,
	the government of a country of concern, the ruling political party
	of a country of concern, or the military of a country of concern; or
	(3) the majority of stock or other ownership interest
	of the company is held or controlled by a country of concern or
	individuals who are citizens of a country of concern.
	(b) A scrutinized company does not include a company that:
	(1) is a U.S. person, as defined by 15 C.F.R. Section
	772.1; or
	(2) receives not more than 50 percent of its total
	annual global revenue from a country of concern, regardless of
	whether it has one or more subsidiaries or affiliates that are
	companies described by Subsection (a).
	SECTION 4. Sections 2270.0201(a) and (b), Government Code,
	are amended to read as follows:
	(a) The comptroller shall prepare and maintain a list of all
	scrutinized companies. The list must be categorized according to:
	(1) companies that are scrutinized companies under
	Section 2270.0001(9)(A);
	(2) companies that are scrutinized companies under
	Section 2270.0001(9)(B); [~~and~~]
	(3) companies that are scrutinized companies under
	Section 2270.0001(9)(C); and
	(4) companies that are scrutinized companies under
	Section 2270.0001(9)(D).
	(b) In maintaining the list of scrutinized companies under
	Subsection (a), the comptroller may review and rely, as appropriate
	in the comptroller's judgment, on publicly available information
	regarding companies with business operations in Sudan, in Iran or
	another country of concern, or with designated foreign terrorist
	organizations, as applicable, including information provided by
	the state, nonprofit organizations, research firms, international
	organizations, and governmental entities.
	SECTION 5. Subchapter E, Chapter 2270, Government Code, is
	amended by adding Section 2270.02035 to read as follows:
	Sec. 2270.02035. ACTIONS RELATED TO LISTED COMPANY OWNED OR
	CONTROLLED BY OR LOCATED IN COUNTRY OF CONCERN. (a) For each
	listed company identified under Section 2270.0202 that is a
	scrutinized company under Section 2270.0124, the investing entity
	shall send a written notice informing the company of its listed
	company status and warning the company that it may become subject to
	divestment by investing entities.
	(b) The notice shall offer the company the opportunity to,
	not later than the 90th day after the date the company receives
	notice under this section, change its organizational or ownership
	structure or location so as to not be a scrutinized company as
	described by Section 2270.0124 in order to avoid qualifying for
	divestment by investing entities.
	(c) If, during the time provided by Subsection (b), the
	company makes any applicable changes required by that subsection,
	the comptroller shall remove the company from the list of
	scrutinized companies and this chapter will no longer apply to the
	company unless the company later again becomes a scrutinized
	company as described by Section 2270.0124.
	(d) Notwithstanding Section 2270.0207, if, after the time
	provided by Subsection (b) expires, the listed company continues to
	operate as a scrutinized company as described by Section 2270.0124,
	the investing entity shall sell, redeem, divest, or withdraw all
	publicly traded securities of the company, except private equity
	funds described by Section 2270.0207, according to the schedule
	provided by Section 2270.0206.
	SECTION 6. Not later than January 1, 2026, the comptroller
	of public accounts shall include on the list maintained under
	Section 2270.0201(a), Government Code, as amended by this Act, the
	companies described by Subsection (a)(3) of that section.
	SECTION 7. This Act takes effect September 1, 2025.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION


April 1, 2025

TO:	Honorable Cole Hefner, Chair, House Committee on Homeland Security, Public Safety & Veterans' Affairs

FROM:	Jerry McGinty, Director, Legislative Budget Board

IN RE:	HB34 by Metcalf (Relating to prohibiting the investment of state money in certain countries and in certain private business entities in those countries.), As Introduced

The fiscal implications of the bill cannot be determined due to the lack of data related to the possible loss of return on investments from the Employees Retirement System of Texas and the Teacher Retirement System.

The bill would amend the Government Code to prohibit the investment of state funds in certain countries and in certain private business entities in those countries. The bill would require the Comptroller of Public Accounts (CPA) to categorize scrutinized companies based on their involvement with China, Iran, North Korea, Russia, or other countries of concern and to include new scrutinized companies on an official list by January 1, 2026.

According to the Employees Retirement System of Texas (ERS), the bill would have an indeterminate fiscal impact to the agency's programs and operations because the agency cannot determine its intention to acquire investments in countries that could be added to the list of countries of concern at a future date.

According to the Teacher Retirement System (TRS), the fiscal impact of the bill cannot be determined as the difference in returns between affected investments and those that would replace them cannot be estimated.

It is assumed costs to the CPA related to implementing the provisions of the bill could be absorbed by the agency.

Local Government Impact

The fiscal implications of the bill cannot be determined at this time.

Source Agencies:

300 Trusteed Programs Within the Office of the Governor, 304 Comptroller of Public Accounts, 323 Teacher Retirement System, 326 Texas Emergency Services Retirement System, 327 Employees Retirement System, 338 Pension Review Board, 706 Texas Permanent School Fund Corporation

LBB Staff:

JMc, MGol, LCO, JPO, NV

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Frequently Asked Questions

Common questions about HB34

What does Texas HB34 do?

HB34 mandates the immediate divestment of Texas state funds (TRS, ERS, Permanent School Fund) from companies with significant ties to China, Iran, North Korea, and Russia, or other countries designated by the Governor. This legislation creates immediate liquidity and reputational risks for publicly traded entities and global supply chain companies with majority foreign ownership or those deriving more than 50% of revenue from these nations. Implementation Timeline Effective Date: June 20, 2025 (Immediate effect due to supermajority vote).

Who authored HB34?

HB34 was authored by Texas Representative William Metcalf during the Regular Session.

When was HB34 signed into law?

HB34 was signed into law by Governor Greg Abbott on June 20, 2025.

Which agencies enforce HB34?

HB34 is enforced by Comptroller of Public Accounts (List Maintenance), Office of the Governor (Country Designation) and State Investing Entities (ERS, TRS, Permanent School Fund - Execution of Divestment).

How urgent is compliance with HB34?

The compliance urgency for HB34 is rated as "moderate". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

What is the cost impact of HB34?

The cost impact of HB34 is estimated as "high". This may vary based on industry and implementation requirements.

What topics does HB34 address?

HB34 addresses topics including governor, intergovernmental relations, retirement systems, retirement systems--general and state agencies, boards & commissions.

Legislative data provided by LegiScanLast updated: November 25, 2025

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