Order Code RL33948
State and Local Economic Sanctions:
Constitutional Issues
April 2, 2007
Jeanne J. Grimmett
Legislative Attorney
American Law Division

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State and Local Economic Sanctions:
Constitutional Issues
Summary
States and localities have often proposed or enacted measures restricting their
agencies’ economic transactions with firms that do business with or in foreign
countries whose conduct the jurisdictions find objectionable. While some maintain
that sub-federal entities may enact such laws under sovereign proprietary powers and
other constitutional prerogatives, others argue that such statutes impermissibly invade
federal commerce and foreign affairs authorities and in some cases may be preempted
by federal law. In 2000, the U.S. Supreme Court unanimously held in Crosby v.
National Foreign Trade Council that a Massachusetts law restricting state
transactions with firms doing business in Burma was preempted by a federal Burma
statute. In American Insurance Association v. Garamendi, a 2003 case, the Court
reaffirmed the relevance of the dormant federal foreign affairs power to preempt state
law, but the scope of the 5-4 decision is unclear.
Due to the current situation in Darfur, a number of states have recently proposed
or enacted some type of divestment legislation against Sudan. In the 109th Congress,
House-passed H.R. 3127, the Darfur Peace and Accountability Act, provided that
federal statutes were not to be construed to preempt certain state sanctions against
Sudan, but the final, enacted version (P.L. 109-344) does not contain the provision.
On February 23, 2007, a federal district court held Illinois’ Sudan sanctions law to
be unconstitutional and permanently enjoined its enforcement. Two 110th Congress
bills — H.R. 180 (Lee) and S. 831 (Durbin) — contain provisions in support of state
Sudan-related divestment measures. This report will be updated.

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Contents
Types of State and Local Economic Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of Constitutional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Foreign Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Intrusion into Foreign Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Federal Preemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Recent Judicial Rulings on State Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Some Future Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
110th Congress Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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State and Local Economic Sanctions:
Constitutional Issues
States and localities have often proposed or enacted measures restricting
governmental transactions with firms doing business or having financial ties with
foreign countries whose conduct the state or locality has found objectionable,
particularly in the human rights area. This report summarizes constitutional
arguments made for and against these laws and discusses Crosby v. National Foreign
Trade Council and American Insurance Association v. Garamendi, U.S. Supreme
Court decisions that address the constitutionality of state laws affecting U.S. foreign
affairs. The report also discusses National Foreign Trade Council v. Giannoulias,
a 2007 federal district court decision holding an Illinois Sudan sanctions law
unconstitutional. It also suggests some possible legal ramifications of recent case law
for future state and congressional action in this area and identifies legislation
introduced in the l10th Congress addressing state economic sanctions.
Types of State and Local Economic Sanctions
State and local sanctions measures have generally taken the form of (1) selective
purchasing or contracting laws, which generally prohibit state or local agencies from
contracting with or procuring goods and services from companies that do business
in a named country, or (2) selective investment laws, which prohibit states or local
agencies from investing public funds in such companies. A variation of the latter is
the state or local divestment law, which, for example, may require divestment by
state pension funds of stock in companies that do business with or in a named
country. In the 1990s, a number of state laws focused on conditions on Burma
(Myanmar), while others targeted Nigeria, Tibet, Cuba, Indonesia, Switzerland, and
Northern Ireland. Other state laws addressed poor foreign labor practices regardless
of country. At least one state has passed legislation prohibiting pension fund
investment in debt instruments issued by any nation designated by the State
Department as supporting or engaging in terrorism.1
1 Mich. Comp. Laws Ann. § 38.1133 (West 2005); see also La. Rev. Stat. Ann. § 11:312
(West 2006), requiring state pension and retirement funds to provide seminannual reports
on any investments in firms with facilities or employees in Iran, Libya, North Korea, Sudan
or Syria. Missouri has administratively adopted policies to screen investments by two
Missouri state funds and to require divestment from those firms known to sponsor terrorism
or to operate with the government or government agencies in countries on the State
Department’s terrorist list. See statements of Missouri policies at
[http://www.treasurer.mo.gov/antiterrorinvest.asp]. Other states are currently considering
legislation aimed at divestment of state funds from companies doing business with the same.
See, e.g., California Seeks to Ban Investment in Iran, N.Y. Times, April 2, 2007, at 14;
(continued...)

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Due to the current situation in Darfur, a number of states have recently proposed
or enacted some type of divestment legislation against Sudan.2 H.R. 3127, the Darfur
Peace and Accountability Act, as originally passed the House, provided that federal
laws were not to be construed to preempt certain Sudan-related state sanctions. In
September 2006, the Senate passed an amended version without the state law
provision, and the House later agreed to the Senate amendment (P.L. 109-344). On
February 23, 2007, in National Foreign Trade Council v. Giannoulias, an Illinois
federal district court struck down the Illinois Sudan sanctions statute as
unconstitutional.3
Overview of Constitutional Issues
State and local economic sanctions targeted at what is perceived as
objectionable foreign government behavior ordinarily raise three constitutional
issues: (1) whether they burden foreign commerce in violation of the Foreign
Commerce Clause and, if so, whether they are protected by the market participant
exception to the Clause; (2) whether they impermissibly interfere with the federal
government’s exclusive power to conduct the nation’s foreign affairs; and (3) where
Congress or the President has acted, whether they are preempted by federal law.4
1 (...continued)
Calpers Pressed to Drop Iran ‘Terrorism’ Investments (Update 1), Mar. 19, 2007, at
[http://www.bloomberg.com]. The State Department, pursuant to section 6(j) of the Export
Administration Act, currently lists Cuba, Iran, North Korean, Sudan, and Syria as countries
whose governments have repeatedly provided support for acts of international terrorism.
See 15 C.F.R. Part 742, Supp. No. 2, para. (a), at [http://www.access.gpo.gov/bis/ear/pdf/
742.pdf].
2 State statutes include Or. Rev. Stat. § 293.814 (2005); N.J. Stat. Ann. § 52:18A-89.9
(2005); 15 Ill. Comp. Stat. Ann. 520/22.5-22.6 and 5/1-110.5 (2006); 2006 Me. Legis. Serv.
Ch. 537 (West); 2006 Conn. Legis. Serv. P.A. 06-51 (West); 2006 Cal. Legis. Serv. Ch. 442
(West).
3 For further discussion, see infra notes 34-45 and accompanying text.
4 For legal background, see, e.g., Cong. Research Service, The Constitution of the United
States of America, 2004 Supp. at 11-14 (H.Doc. 108-19)[hereinafter Constitution
Annotated]; Louis Henkin, Foreign Affairs and the United States Constitution 149-69 (2d
ed. 1996)[hereinafter Henkin]; Adrian Barnes, Do They Have to Buy From Burma?: A
Preemption Analysis of Local Antisweatshop Procurement Laws, 107 Colum. L. Rev. 426
(2007); Lucien J. Dhooge, Condemning Khartoum: The Illinois Divestment Act and Foreign
Relations, 43 Am. Bus. L. J. 245 (2006); Todd Steigman, Lowering the Bar: Invalidation
of State Laws Affecting Foreign Affairs Under the Dormant Foreign Affairs Power After
American Insurance Association v. Garamendi, 19 Conn. J. Int’l L. (2004); Brandon P.
Denning, American Insurance Ass’n v. Garamendi, and Deutsch v. Turner Corp., 97 Am.
J. Int’l L. 950 (2003); David D. Caron, The Structure and Pathologies of Local Selective
Procurement Ordinances: A Study of the Apartheid-Era South Africa Ordinances, 21
Berkeley J. Int’l L. 161 (2003); Robert Stumberg, Preemption & Human Rights: Local
Options After Crosby v. NFTC, 32 Law & Poly Int’l Bus. 109 (2000); Brandon P. Denning
& Jack H. McCall, Crosby v. National Foreign Trade Council, 94 Am. J. Int’l L. 750 (2000);
Daniel M. Price & John P. Hannah, The Constitutionality of United States State and Local
(continued...)

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Foreign Commerce Clause
In granting Congress exclusive power to regulate interstate and foreign
commerce (Art. I, § 8, cl. 3), the Constitution also impliedly prohibits states and
localities from unreasonably burdening or discriminating against such commerce
unless they are authorized by Congress to do so.5 In a series of cases involving state
taxes, the Supreme Court has set out criteria for examining whether state measures
impermissibly burden foreign commerce where affirmative congressional permission
is absent. In sum, the Court has required a closer examination of measures alleged
to infringe the Foreign Commerce Clause than is required for those alleged to
infringe its interstate counterpart, but has also provided scope for state measures in
situations where a federal role is not clearly demanded.
In Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979), the
Supreme Court struck down on Foreign Commerce Clause grounds a California state
statute that applied an ad valorem property tax on foreign cargo containers, stating
that “a more extensive constitutional inquiry is required” in foreign commerce cases
for two reasons: (1) the “enhanced risk of multiple taxation” and (2) the possibility
that the disputed measure “may impair federal uniformity in an area where federal
uniformity is essential,” or, in other words, may “prevent[] the Federal Government
from ‘speaking with one voice when regulating commercial relations with foreign
governments.’”6 The Court made clear that “[i]f a state tax contravenes either of
these precepts, it is unconstitutional under the Commerce Clause.”7
In Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 194
(1983), the Court upheld a state income tax law at variance with federal policy,
indicating that state law may have “merely foreign resonances” without implicating
foreign affairs and stating that a differing state tax law “will violate the ‘one voice’
standard if it either implicates foreign policy issues which must be left to the Federal
4 (...continued)
Sanctions, 39 Harv. Int’l. L. J. 443 (1998) [hereinafter Price & Hannah]; Alejandra Carvajal,
State and Local ‘Free Burma’ Laws: The Case for Sub-National Trade Sanctions, 29 Law
& Pol’y Int’l Bus. 257 (1998) [hereinafter Carvajal]; Jack L. Goldsmith, Federal Courts,
Foreign Affairs, and Federalism, 83 Va. L. Rev. 1617 (1997); David Schmahmann & James
Finch, The Unconstitutionality of State and Local Enactments in the United States
Restricting Business Ties with Burma (Myanmar), 30 Vand. J. Transnat’l L. 175
(1997)[hereinafter Schmahmann & Finch]; Richard B. Bilder, The Role of States and Cities
in Foreign Affairs, 83 Am. J. Int’l L. 821 (1989); Harold G. Maier, Preemption of State
Law: A Recommended Analysis, 83 Am. J. Int’l L. 832 (1989); Constitutionality of South
African Divestment Statutes Enacted by State and Local Governments, 10 Op. Off. Legal
Counsel 49 (1986) (concluded that certain state divestment laws were
constitutional)[hereinafter DOJ Opinion].
5 New York v. United States, 505 U.S. 144, 171 (1992); South-Central Timber Dev., Inc.
v. Wunnicke, 467 U.S. 82, 87-93 (1984); note, e.g., Kraft Gen. Foods v. Iowa Dept. of
Revenue, 505 U.S. 71, 81 (1992)(“Absent a compelling justification ... a State may not
advance its legitimate goals by means that facially discriminate against foreign commerce.”).
6 Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 446-48, 451 (1979).
7 Id. at 451.

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Government or violates a clear federal directive.”8 The Court noted that the second
of these factors “is, of course, essentially a species of preemption analysis.”9 The
Court later concluded in Barclays Bank PLC v. Franchise Tax Board of California,
512 U.S. 298 (1994), a case examining California’s income-based corporate franchise
tax, that even a state statute that may make it more difficult for the federal
government to speak in a solo international trade voice will be sustained if there is
no clear indication that Congress had intended to bar the state practice. The Court
stated that Container Corporation and a subsequent case, Wardair Canada Inc. v.
Florida Dep’t of Revenue, 477 U.S. 1 (1986), in which the Court upheld a state tax
on jet fuel purchased by foreign airlines, suggest that “Congress may more passively
indicate that certain state practices do not ‘impair federal uniformity in an area where
federal uniformity is essential,’ ...; it need not convey its intent with the unmistakable
clarity required to permit state regulation that discriminates against interstate
commerce....”10
Where Congress has not clearly immunized a state selective purchasing or
divestment law for Foreign Commerce Clause purposes, arguments that the law
impermissibly burdens foreign commerce11 may be countered by invocation of the
market participant doctrine. First articulated in Hughes v. Alexandria Scrap Corp.,
426 U.S. 794 (1976), the doctrine exempts from the clause those laws in which the
state or local government acts as a buyer or seller of goods rather than as a
regulator.12 It is counter-argued, however, that the doctrine is inapplicable where the
state seeks to affect behavior beyond the immediate market in which it is operating,
that it does not immunize laws from other constitutional challenges, and that, as
suggested by the Supreme Court, it may not even apply in Foreign Commerce Clause
cases.13
8 Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 194 (1983).
9 Id.
10 Barclays Bank PLC v. Franchise Tax Board of California, 512 U.S. 298, 323 (1994).
11 See Price & Hannah, supra note 4, at 478-82; Schmahmann & Finch, supra note 4, at
189-91.
12 Carvajal, supra note 4, at 270-74 (1998); DOJ Opinion, supra note 4, at 53-59
(1986)(concluded that state divestment laws were constitutional). Trojan Technologies, Inc.
v. Pennsylvania, 916 F.2d 903, 909-913 (3d Cir. 1990), cert. denied, 501 U.S. 1212 (1991),
applied the doctrine to a state “Buy America” law.
13 See, e.g, South Central Timber Dev., Inc. v. Wunnicke, 467 U.S. at 99 (downstream
effects); United Building & Construction Trades Council v. Mayor & Council of Camden,
465 U.S. 208 (1984)(no immunity from other constitutional challenges); Reeves, Inc. v.
Stake, 447 U.S. 429, 437-38, n.9 (1980)(application in Foreign Commerce Clause cases
unclear). See generally Price & Hannah, supra note 4, at 482-90; Schmahmann & Finch,
supra note 4, at 191-97.
The Court of Appeals in National Foreign Trade Council v. Natsios, 138 F.3d 38 (1st
Cir. 1999), infra note 24, concluded that the State of Massachusetts was not acting as a
market participant in enacting its Burma sanctions law because it was “attempting to impose
on companies with which it does business conditions that apply to activities not even
remotely connected to such companies’ interactions with Massachusetts.” Id. at 63. The
(continued...)

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Intrusion into Foreign Affairs
In Zschernig v. Miller, 389 U.S. 429 (1968), the Supreme Court struck down an
Oregon law prohibiting nonresident aliens from inheriting property if they could not
satisfy the state courts that their home country allowed U.S. nationals to inherit
estates on a reciprocal basis and that payments to foreign heirs from the Oregon
estate would not be confiscated. Although the federal government had not exercised
its power in the area, the Court nonetheless found that the inquiries required by the
state statute would result in “an intrusion by the State into the field of foreign affairs
which the Constitution entrusts to the President and the Congress.”14 The Court
distinguished Clark v. Allen, 331 U.S. 503 (1947), which had upheld a similar
California statute, on the ground that the statute in that case could be implemented
through “a routine reading of foreign law” and did not require the particularized
inquiries demanded by the Oregon law.15 Although Zschernig’s parameters have
been viewed as unclear,16 it is argued that selective procurement laws are directed at
influencing or scrutinizing foreign behavior in the manner that the Zschernig Court
found objectionable17 and that courts that have upheld restrictive procurement laws
attacked on Zschernig grounds have emphasized that the laws applied neutrally to all
foreign products and thus did not require the assessment of a particular government’s
policies that might result in constitutional infirmity.18
13 (...continued)
court also found that in any event the state would not be shielded from Foreign Commerce
Clause scrutiny because of questions as to whether the exception “applies at all (or without
a much higher level of scrutiny) to the Clause.” Id. at 65; see also Antilles Cement Corp.
v. Acevedo Vilá, 408 F.3d 41, 46-47 (1st Cir. 2005). As indicated infra, the Supreme Court
did not take up the Foreign Commerce Clause issue in its ruling on the Massachusetts law.
14 Zschernig v. Miller, 389 U.S. 429, 432 (1968).
15 Id. at 433-36.
16 See, e.g., Henkin, supra note 4, at 162-65; Bilder, supra note 4, at 825-26; or further
discussion, see Constitution Annotated, supra note 4, at 11-14.
17 E.g., Price & Hannah, supra note 4, at 457-65; Schmahmann & Finch, supra note 5, at
198-99.
18 See Trojan Technologies, 916 F.2d 903; K.S.B. Technical Sales Corp. v. North Jersey
Dist. Water Supply Comm’n, 381 A.2d 774 (N.J. 1977); and generally Price & Hannah,
supra note 5, at 469-71. Prior to the lower court rulings on the Massachusetts Burma law,
see infra note 24, at least one state “Buy America” law had been struck down on foreign
affairs grounds. Bethlehem Steel Corp. v. Bd. of Comm’rs of the Dep’t of Water & Power
of Los Angeles, 276 Cal. App. 221 (1969).

It has also been argued that while state and local divestment measures may well
survive Zschernig scrutiny, the principles underlying the market participant doctrine — that
the Commerce Clause was not intended “to limit the ability of the States themselves to
operate freely in the free market” and that judicial restraint in the area is “counseled by
considerations of state sovereignty, the role of each state as ‘guardian and trustee of its
people,’” — should make the doctrine generally applicable and thus state proprietary actions
should not be subject to the Zschernig principle. DOJ Opinion, supra note 4, at 63-64,
quoting Reeves, Inc. v. Stake, 447 U.S. at 437-38.

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Federal Preemption
In exercising its delegated powers, Congress may, by virtue of the Supremacy
Clause (Art. VI, cl. 2), preempt state and local laws that conflict with or are
incompatible with federal legislation and thus limit the use of powers that a state or
locality may exercise concurrently with Congress. Where Congress has not expressly
preempted state and local laws, two types of implied federal preemption may be
found: field preemption, in which federal regulation is so pervasive that one can
reasonably infer that states or localities have no role to play,19 and conflict
preemption, in which “compliance with both federal and state regulations is a
physical impossibility,”20 or where the state law, as described by the Supreme Court
in Hines v. Davidowitz, 312 U.S. 52 (1941), “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress.” In
preemption cases involving foreign affairs, courts may well weigh the deference
traditionally accorded areas subject to state and local regulation against the policy
considerations implicated by the federal scheme affecting foreign affairs or
commerce. In Hines, which invalidated a state alien registration statute on conflict
grounds, the Court reiterated the long-recognized, constitutionally based supremacy
of federal authority in foreign affairs and made clear that any concurrent state power
in the area must be “restricted to the narrowest of limits,” distinguishing the states’
limited authority with regard to aliens from their broadly-based power to tax.
Depending on the nature of a state statute and the type of federal action taken
to deal with a problematic foreign nation, opponents of a sanctions law may thus
argue that, absent express preemption, a state law may conflict with federal laws and
policies targeted at a specific country with respect to the activities and persons
covered, or that there is reason to presume that Congress intended that all state and
local measures targeting a particular country be preempted.21 In response, it might be
maintained, inter alia, that federal limitations on the exercise of proprietary powers
to contract and invest must be expressly intended or must result from a highly
pervasive federal scheme.22 Moreover, state laws may arguably mandate
consequences that differ from federal remedies or that do not exist on the federal
level so long as the federal legislation or action involved does not constitute a
“complex and interrelated federal scheme of law, remedy and administration.”23
19 See, e.g., Wardair Canada Inc. v. Florida Dep’t of Revenue, 477 U.S. 1, 6 (1986).
20 Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963).
21 Price & Hannah, supra note 4, at 472-78; Schmahmann & Finch, supra note 4, at 184-89.
22 See, e.g., DOJ Opinion, supra note 4, at 64-65.
23 See id. at 65-66, citing Wisconsin Dep’t of Industry, Labor, and Human Relations v.
Gould, Inc., 475 U.S. 282, 286 (1986); Carvajal, supra note 4, at 261-65.

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Recent Judicial Rulings on State Sanctions
In Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000), the
Supreme Court unanimously ruled that a Massachusetts selective purchasing law
targeted at Burma was preempted by federal Burma sanctions contained in the
Foreign Operations Appropriations Act, 1997, P.L. 104-208.24 At the time, the
absence of well-developed case law directly addressing sub-federal sanctions had
made the outcome of a constitutional challenge to state sanctions laws unclear.
Although various Supreme Court cases had examined aspects of such laws, none
directly ruled on such a statute. Moreover, the few state cases scrutinizing such
measures on constitutional grounds differed in result.25
Although Congress had not expressly preempted state laws in the federal Burma
statute, the Court, applying conflict preemption, found that the state law served as
“an obstacle to the accomplishment and execution of the full purposes and objectives
of Congress,” as it “undermines the intended purpose and ‘natural effect’ of at least
three provisions of the federal Act, namely, its delegation of effective discretion to
the President to control economic sanctions against Burma, its limitation of sanctions
solely to United States persons and new investment, and its directive to proceed
diplomatically in developing a comprehensive, multilateral strategy towards
Burma.”26
After rejecting the state’s argument that the law could not be preempted because
it was based on the state’s spending power, the Court found that the law lacked the
flexibility inherent in the federal statute: the former had stringent application
requirements and no termination provision, while the latter authorized the President
to lift federal measures in certain circumstances, allowed him to prohibit new
investment based on his own findings, and provided waiver authority with regard to
24 The Supreme Court narrowed the ruling of the First Circuit Court of Appeals, which had
held that the state law infringed the federal foreign affairs power, violated the Foreign
Commerce Clause, and was preempted by federal law. National Foreign Trade Council v.
Natsios, 181 F.3d 38 (1st. Cir. 1999). The district court ruled that the statute was an
unconstitutional infringement on the federal foreign affairs powers. National Foreign Trade
Council v. Baker, 26 F.Supp.2d 287 (D.Mass.1998).
25 Compare , e.g., Bd. of Trustees of Employees’ Retirement System v. Mayor of Baltimore
City, 317 Md. 72, 562 A.2d 720 (Md. 1989), cert. denied sub nom. Lubman v. Mayor and
City Council of Baltimore, 493 U.S. 1093 (1990)(municipal ordinance requiring city pension
funds to divest their holding in companies doing business in South Africa upheld in face of
preemption, foreign affairs and Foreign Commerce Clause challenges), with Springfield
Rare Coin Galleries v. Johnson, 115 Ill. 2d 221, 503 N.E. 2d 300, 307 (Ill. 1986)(state could
not use its constitutional taxing power to exempt from state taxes coins and currencies
issued by the United States or any foreign country except South Africa; creation of tax
classification based on political and social policies of a single foreign nation impermissibly
intruded into regulation of foreign affairs; “regulations which amount to embargoes or
boycotts” found to be “outside the realm of permissible State activity”). Like the federal
Burma law implicated in Crosby, the Comprehensive Anti-Apartheid Act of 1986, cited in
Bd. of Trustees, supra, did not expressly preempt sub-federal laws.
26 Crosby v. National Foreign Trade Council, 530 U.S. 363, 373-74 (2000).

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all sanctions imposed in the statute. 27 The state law was also found to exceed federal
authorities in covering most state contracts, foreign and domestic firms, and firms
already operating in Burma, whereas the federal law imposed sanctions solely on
U.S. persons, authorized a prohibition on new investment only, and exempted
purchase and sales contracts from any ban.28 Finally, the state law had impeded the
President’s ability to pursue the multilateral strategy envisioned in the federal act, the
Court citing formal protests from U.S. trading partners, World Trade Organization
complaints, and the distraction caused by the state law in discussions with foreign
countries regarding the situation in Burma.29
Finally, the Court rejected the state’s argument that in not expressly preempting
the state law Congress had implicitly permitted it, the state noting that Congress was
aware of the Massachusetts law when in adopted the federal Burma statute in 1996.
The Court found that “[a] failure to provide for preemption expressly may reflect
nothing more than the settled character of implied preemption doctrine that the courts
will dependably apply” and, citing Hines, that “in any event, the existence of a
conflict cognizable under the Supremacy Clause does not depend on express
recognition that federal and state law may conflict.”30 The Court found that in this
case Congress’ silence was ambiguous and as such insufficient to warrant the state’s
inference of congressional intent.31
More recently, in American Insurance Association v. Garamendi, 539 U.S. 396
(2003), the Supreme Court reaffirmed the Zschernig Court’s finding of a dormant
federal foreign affairs power. In a 5-4 vote, the Court struck down a California law,
the Holocaust Victim Insurance Relief Act, which required any insurer doing
business in the state to disclose information about all life insurance policies issued
in Europe during the Nazi regime. An executive agreement with Germany signed by
the President provided that the International Commission on Holocaust Era Insurance
Claims serve as the sole vehicle for voluntary insurance claims to reduce litigation
between foreign nationals and German firms. Despite the lack of a specific
preemption clause, the Court, citing the “kid glove” approach chosen by the
executive branch evident in the German agreement, as well as in similar agreements
with Austria and France, and in executive branch statements supporting this
approach, determined that there was a “clear conflict” between the policies adopted
by the executive and the “iron fist” that California sought to use.32 The Court made
clear that state law could be preempted by the President’s exercise of his independent
constitutional authority to conduct foreign affairs, noting that Congress had not acted
on the matter addressed in the California law and that given this independent
27 Id. at 374-77.
28 Id. at 377-80.
29 Id. at 380-86.
30 Id. at 387-88.
31 Id. at 388.
32 American Insurance Association v. Garamendi, 539 U.S. 396, 425, 427 (2003).

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authority, “congressional silence is not to be equated with congressional
disapproval.”33
In National Foreign Trade Council v. Giannoulias, the first lower federal court
decision since Crosby and Garamendi to address a state sanctions law, the U.S.
District Court for the Northern District of Illinois held the Illinois Sudan Act
unconstitutional and permanently enjoined its enforcement.34 At issue in the
February 2007 decision was a statute that placed restrictions both on the deposit of
state funds and the investment of state and municipal pension assets. The law
amended the Deposit of State Moneys Act to prohibit the Illinois Treasurer from
investing state funds in commercial instruments of Sudan and so-called “forbidden
entities” and also from depositing state funds into any financial institution that did
not certify that it “has implemented policies and practices that require loan applicants
to certify that they are not ‘forbidden entities.’” The category of “forbidden entities”
included any company that had not certified that it did not own or control certain
Sudan-related property or assets and did not engage in certain Sudan-related
transactions.
The statute also amended the Illinois Pension Code to prohibit the fiduciary of
any pension fund established under the Code from investing in any entity unless the
company managing the funds’ assets certified that the managing company had not
transferred any assets of the Illinois retirement system or pension fund to a forbidden
entity. The statute ultimately required that none of the assets of the system or fund
be invested in “forbidden entities” by the end of July 2007. For purposes of the
pension amendments, the term “forbidden entity” included not only the firms
described above, but also any publicly traded company that owned or controlled
Sudan-related property or assets or engaged in other Sudan-related transactions, and
any non-publicly traded company that failed to submit to the fund’s managing
company a sworn affidavit averring that the company did not own or control any
Sudan-related property and did not transactions business in Sudan. The statute was
challenged on preemption, foreign affairs, and foreign commerce grounds.
In reaching its decision, the court set out federal law regarding Sudan, beginning
with a 1997 Executive Order signed by President Clinton freezing Sudanese property
in the United States and prohibiting various transactions between the United States
and Sudan, and continuing with three subsequent public laws: the Sudan Peace Act
(2002), the Comprehensive Peace in Sudan Act (2004), and the Darfur Peace and
Accountability Act (2006). None of these statutes contains a provision addressing
state law preemption and, as noted earlier, a “no preemption” provision in the House-
passed version of the 2006 enactment was not included in the final statute.
Addressing the statutory preemption argument, the court held that, with respect
to the amendment to the Deposit of State Moneys Act, the statute’s “lack of
flexibility, extended geographic reach, and impact on foreign entities interferes with
the national government’s conduct of foreign affairs,” and was thus preempted by
33 Id. at 429.
34 National Foreign Trade Council v. Giannoulias, No. 06 C 4251, slip op., 2007WL 627630
(N.D. Ill. Feb. 23, 2007), available at [http://howappealing.law.com/NFTC.pdf].

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federal law.35 On the other hand, the pension amendments were found not to be
preempted, since federal law did not expressly address divestment, and, in the court’s
view “the potential effects of pension divestment on the national government’s ability
to conduct foreign policy are highly attenuated.”36 The court stated that it had not
been presented with evidence “suggesting that these pension funds’ inability to
purchase the securities of such companies would be in any way likely to affect their
decision to do business in that country” and thus, citing Crosby, it had not been
shown “that pension fund divestment stands as an ‘obstacle to the accomplishment
and execution of the full purposes and objectives of Congress’ with regard to Sudan
policy.”37
Regarding foreign affairs preemption, the court found scant prior case law on
the issue, but concluded that the amendments to the Deposit of State Moneys Act
“would have an impact on the national government’s ability to deal with Sudan that
is at least equal to or greater than the impact of the state laws in Zschernig and
Garamendi.”38 The court considered that the amendments might cause multinational
companies to pull out of Sudan resulting in a “real and direct” effect on Sudan’s
economy, and that they thus clearly had “more than an incidental or indirect effect”
in Sudan.39 Noting as well the amendments’ “substantive and direct impact on the
national government’s ability to carry out the flexible and measured approach to
Sudanese relations that Congress and the president have created,” the court held that
they interfered impermissibly with the federal government’s power to conduct the
nation’s foreign affairs.40 At the same time, the court held that the pension
amendments did not improperly intrude on the federal foreign affairs authority,
finding that they did not place the same kind of pressure on firms to sever business
ties with that country that flowed from the banking amendments and thus were not
likely to affect firms’ willingness to do business in Sudan.41
Because the court had already found the banking amendments unconstitutional
on two grounds, it did not consider them in light of the Foreign Commerce Clause.
Nevertheless, it did find that “there is little doubt that the conduct the Illinois Sudan
Act seeks to proscribe involves foreign commerce”42 and that “[w]ithout the
protection of the market participant exception, the amendment to the Pension Code
35 Giannoulias, slip op. at 17. Because of its adverse holdings on Sudan-related preemption
and the foreign affairs infringement, the court did not address whether the banking
amendments were preempted by the National Bank Act. Id. at 32-33.
36 Id. at 17.
37 Id. at 17-18.
38 Id. at 22.
39 Id. at 23.
40 Id.
41 Id. at 23-26.
42 Id. at 27.

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violates the Foreign Commerce Clause.”43 The court found that to the extent that the
state was exercising control over municipal pension funds, however, it was acting as
a market regulator and that the market participant doctrine, even if it were determined
that the doctrine had a role in Foreign Commerce Clause cases, was inapplicable in
this situation.44 With respect to the state’s control of its own pension funds, the court
held that, even were it to find that the amendment was constitutional if only applied
to these funds, it could not sever the unconstitutional portion of the statute and thus
struck down the pension amendment as a whole.45
Defendants in the case requested and were granted an extension until April 30,
2007, to file a notice of appeal.46 The motion for the extension noted that the Illinois
General Assembly was currently contemplating legislation that would repeal or
modify the state law at issue and that any such legislation could render the appeal
moot or otherwise materially affect a decision on the issue.47
Some Future Prospects
Where state or local sanctions are held to be preempted by federal statute,
Congress could choose expressly to authorize such measures in new legislation.48 It
is also possible that a sub-national sanctions law could be written so as not to conflict
with a federal enactment. Where Congress has not enacted sanctions against a
particular country, state or local sanctions directed at that jurisdiction may be
challenged on dormant foreign affairs or Foreign Commerce Clause grounds, given
that Crosby did not address, and thus did not foreclose or limit the use of, these
constitutional arguments. At the same time, questions remain as to the outcome of
these arguments in a particular case — among them, whether in a Foreign Commerce
Clause challenge legislative silence would be construed as implied authorization of
a state sanctions law or, instead, as a manifestation of an overriding federal policy
43 Id. at 31.
44 Id. at 29-30.
45 Id. at 31-32.
46 Notification of Docket Entry, National Foreign Trade Council v. Madigan, (N.D. Ill. Mar.
27, 2007)(No. 06 CV 4251).
47 Defendants’ Agreed Emergency Motion for Extension of Time to File Notice of Appeal
Pursuant to Federal Rule of Appellate Procedure 4(a)(5), National Foreign Trade Council
v. Giannoulias (N.D. Ill. Mar. 26, 2007)(No. 06 CV 4251).
48 A sub-federal sanctions law enacted under a congressional authorization could be
challenged on statutory preemption grounds as having exceeded the scope of the
authorization. Were it found to be included, however, negative inferences to be drawn from
the dormant Foreign Commerce Clause and dormant foreign affairs power may also be
removed by virtue of the federal enactment. Moreover, Garamendi does not preclude that
such a state law would prevail over an exercise of independent executive foreign affairs
power. See 539 U.S. at 427; note Barclays Bank, 512 U.S. at 328-30; Hamdan v. Rumsfeld,
126 S.Ct. 2749, 2774, n.23 (2006); and id. at 2799-804 (Kennedy, J., concurring).

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that a particular country not be subject to restrictive U.S. measures.49 Whether the
market participant exception applies in Foreign Commerce Clause cases also remains
unclear.
Where a state law is challenged as intruding into the federal foreign affairs
power, Garamendi suggests that executive agreements or statements might preempt
any state action, despite a lack of specific agreement language showing the intent to
do so.50 At the same time, the Court recommended following Justice Harlan’s
standard from the Zschernig case as a minimum threshold for foreign affairs
preemption, that is, that the state legislation should “produce something more than
incidental effect in conflict with express foreign policy of the National
Government.”51
110th Congress Legislation
Two bills introduced in the 110th Congress contain provisions in support of state
divestment measures related to Sudan. H.R. 180 (Lee), the Darfur Accountability
and Divestment Act of 2007, introduced January 4, 2007, provides that “Congress
recognizes and supports ... States and cities that have divested or are in the process
of divesting State and city funds from companies that conduct business operations
in Sudan” (§ 3) and contains a non-preemption provision similar to that contained in
House-passed H.R. 3127, 109th Cong., discussed earlier.52 In addition, S. 831
(Durbin), the Sudan Divestment Authorization Act of 2007, provides, at § 5, that
“any State may adopt measures to prohibit any investment of State assets in the
Government of Sudan or in any company with a qualifying business relationship with
Sudan during any period in which the Government of Sudan, or the officials of such
government” are subject to federal sanctions, and states that the provision would
49 As shown in Crosby in the context of statutory preemption, an ambiguous congressional
silence does not warrant an inference of implied permission of a state law where there exists
considerable evidence of a conflict between the state and federal enactments.
50 See Garamendi, 539 U.S. at 424-25. The dissent would have left the California law intact
absent a clear statement or formal expression by the federal government disapproving it.
See id. at 430.
51 See id. at 420. Applying principles ordinarily used in statutory preemption analysis,
Justice Souter suggests that a state law should be preempted under field preemption with or
without action by the national government if the state acts in a domain of foreign affairs not
traditionally allocated to it; in the event of conflict between the federal foreign policy
interest and an act of a state within its sphere of “traditional competence” in foreign affairs,
a balancing test between the two interests might occur. Id. at 420, n.11. The Court does not
establish a precise threshold, although, citing Boyle v. United Technologies Corp., 487 U.S.
500, 507-508 (1988), it suggests that, “in an area of uniquely federal interest,” “[t]he conflict
with federal policy need not be as sharp as that which must exist for ordinary preemption.”
For additional discussion of Garamendi, see Constitution Annotated, supra note 4, at 13-14.
52 H.R. 6140, the Darfur Accountability and Divestment Act of 2006 (Lee), introduced
September 21, 2006, also included such a provision.

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apply to state legislation enacted before, on, or after the date of enactment.53 In
addition, the bill would express the sense of Congress that “States and other
governmental entities should be permitted to provide for” Sudan-related divestment
of certain State assets, and that a divestment measure authorized under § 5 of the bill
would not violate the U.S. Constitution on foreign commerce, foreign affairs, or
preemption grounds (§ 3).
53 The term “qualifying business relationship” is defined in the bill at § 4(3).

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