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HB34

Regular Session

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

Moderate
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)

HB34
Relating to prohibiting the investment of state money in certain countries and in certain private business entities in those countries.
Moderate Urgency
Heavily Contested
House Vote119 - 20
YEA
86% in favor139 voting
Senate Vote29 - 2
YEA
94% in favor31 voting
22
Total Opposition Votes
Cost Impact
High
Effective
2025-06-20
Enforcing Agencies
Comptroller of Public AccountsOffice of the GovernorState Investing Entities
Primary Author: Rep. William Metcalf
89th Texas Legislature
jdkey.com
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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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Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

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Legislative Timeline

This bill's path through the Texas Legislature

Filed
Mar 13, 2025
Passed House
Apr 30, 2025
Passed Senate
May 19, 2025
Signed
Jun 20, 2025
TopicsGovernorIntergovernmental RelationsRetirement SystemsRetirement Systems--generalState Agencies, Boards & CommissionsState FinancesState Finances--management & ControlInternational RelationsHomeland Security CouncilPublic Safety, Department ofComptroller of Public AccountsTerrorism & Internal Security
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House Authors

Rep. William MetcalfRepublican · Primary Author
Joint Authors
Coauthors (17)

Senate Sponsors

Sen. Bryan HughesRepublican · Primary Sponsor
Cosponsors (4)

Bill Text(with markup)

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

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Quick Reference

Frequently Asked Questions

Common questions about HB34

Q

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).

Q

Who authored HB34?

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

Q

When was HB34 signed into law?

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

Q

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).

Q

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.

Q

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.

Q

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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