My first visit to JLG’s recently completed new Wall Street Headquarters Office perfectly captured 2020’s surreal duality.
Upon arrival, I eagerly began to explore – traversing corridors of polished glass, steel, and wood – marveling at state-of-the-art conference rooms and a floor-to-ceiling wine refrigerator which I most certainly intend to help stock during the year to come. It all felt right – Harmonious, even. If you have not yet had the chance to visit in person, please take a moment to check out this short press release (pictures and all). After a year spent mostly working from the confines of my apartment, suddenly transitioning to panoramic views of the financial district’s soaring architecture set off against soft interior lighting brought back that once familiar thrill of New York City itself. Our firm was on the move – and FAST. Behind my mask, I may even have smiled.
Yet, right then, something else hit me with equal force: It was a weekday – mid-afternoon – and I remained completely alone. No magic had occurred. Same year – same problems… Pausing to reflect, I reclined on the leather sofa you can see in the press release photo. I pondered how far we had all traveled – separately and together – weathering the “perfect storm” that was 2020. I silently questioned how long it would be until silence and solitude would again be replaced by the hum of life and the camaraderie of shared experience. Can a journey and destination be one in the same? How would we know?
Saying goodbye to 2020 will require something more than that fleeting serenity I discovered within our new offices: A gaze back with sadness and appreciation – A determined look forward with excitement and humility. Let us begin…
JLG Global Enforcement: I am proud to note that 2020 marked the first full year of the practice group I oversee, Global Enforcement, and its focus on trans-national business, cross-cultural communication, and helping clients unravel the world’s tangled web of intersecting regulations. Accomplishments included: creating proactive solutions for a major Chinese pharmaceutical company regarding privacy laws in the US and EU; assisting businesses ranging from start-ups to established companies find shelter from the economic storm that followed quickly in COVID’s wake; winning tough fights against the FDA and FTC, as well as producing successful results for clients facing actual and potential international litigation.
It was also an honor to be interviewed by global news outlets and to address diverse groups including the American Bar Association, leading Chinese law firms and legal organizations, one of China’s largest investment firms, as well as civil rights advocates demanding social and political change. Just ten days ago, I was fortunate to moderate “JLG’s First Fireside Chat for a New Era: Global and Domestic Perspectives on the 2020 Election” – a panel discussion with four extraordinary speakers from the worlds of politics, global business and journalism. With each of these experiences, I noticed that same strange dichotomy I mentioned earlier: 2020’s inescapable isolation nonetheless tempered by the resiliency of colleagues, clients, and friends, more dedicated than ever to connecting across every imaginable type of border.
Enough nostalgia. In summarized form, here are the key issues and trends Global Enforcement most looks forward to helping clients navigate in 2021.
Cross-Border Transactions: As vaccination gradually becomes more prevalent during Q1 and Q2 and election trauma gives way to what I predict will be the relative placidity of the Biden/Harris Presidency, now is the ideal time to be preparing and planning. Key recommendations:
For businesses and investors already involved in US-China commerce, the Brookings Institution has the world’s covers the world’s two largest economies from every conceivable angle – “The Future of US Policy Toward China – Recommendations for the Biden Administration” Get reading: This was what think-tanks were actually meant to do. Cheers to you, smart Brookings people!
If you don’t know about CFIUS – a relatively small but enormously powerful hybrid intelligence/regulatory government agency that has doubled its number of investigations in recent years, (for good or ill) disrupting, dismantling, and destroying cross-border entities large and small), now is the time to learn. Some liberalization is likely once under new management, but particularly on the defense/dual-use side of the equation, don’t expect an immediate relaxation of activity– especially at a time when China is increasingly retaliating with its own Export Controls Law.
Trade: After four years of the Trump Administration’s open hostility to trade and seemingly continuous announcement of new Tariffs and import controls, it might seem shocking to learn that China’s trade surplus with the US grew $75.42 billion in 2020, the largest overall surplus since 1981. On the other hand, China’s foreign direct investment in the US dropped a staggering 88% by the end of 2019 (final numbers for 2020 expected to relatively on par although not yet officially measured due to the importance of adjusting for COVID-19). When thinking about the future, expect increased openness to international trade regimes and global institutions like the WTO and treat regimes akin to what would have been TPP. Any sort of complete thaw, however, is likely to be slow in arriving, both due to pressures from Biden’s domestic constituencies and Beijing’s greater emphasis on self-reliance. And, clearly, the “One Belt – One Road Initiative” remains as relevant, if not more, than any potential US policy shift.
Political Risk Management: Based on what we know about President Biden’s cabinet picks, his longstanding commitment to collective action, desire to rebuild traditional US alliances, and disdain for “America First” isolationism, the odds would seem to favor those betting on a more globalist future. Nevertheless, no single president – nor any one nation – constitutes a reliable measuring stick for political risk.
As a starting point, the Carnegie Endowment for International Peace assembled this great primer, albeit with bit more of a pessimistic slant than Brookings: “US-China Relations Under Biden: A Look Ahead.”
Right now, US Anti-China sentiment is at an all-time peak. Whether this will dissipate depends as much on Beijing as Washington. Think: Hong Kong, Taiwan, Xinjiang, and the South China Sea. While our two nations must do everything imaginable to avoid military conflict, it would be disingenuous to suggest longstanding differences (often born from distinct cultural and historical circumstances) are likely to see short-term mutually acceptable solutions – with the same being true for Beijing’s criticisms of the West, obviously. During any period of significant global instability, preexisting tensions are more naturally exacerbated. That should not dissuade commerce but ought to be taken under consideration when evaluating transaction costs.
Most new American Presidents immediately overturn their predecessor’s executive orders. That is likely to happen this January 20 as well. The major unknown is what might not get reversed or is temporarily sidelined. Depending on your area of business, you’ll want to watch closely as there are literally so many Trump executive orders (including some that are little-known but have far-reaching consequences – e.g., Executive Order 13959 addressing the “Threat from Securities Investments that Finance Communist Chinese Military Companies” (Try guessing how stunningly broad that one is and you will quickly appreciate the importance of detail) So yes - There will be real transformation but paying serious attention to nuance remains mission-critical).
Regulatory Investigations and Enforcement
While it is true we are likely to see a return to US regulators behaving more as they did during previous administrations, there remain several areas warranting extra prudence – especially if the Senate remains under Republican control:
The Entities List: Often referred to as the “Huawei List,” this is the growing group of foreign companies specifically targeted by the US government (a mix of Treasury, Commerce and the Department of Defense) based on their (or their government’s) actual or alleged involvement with foreign espionage (political and economic). In the past month alone, dozens of Chinese companies have been added to the specific version of the list maintained by the Commerce Department – generally the most reliable indicator for impending activity. Most importantly, even seemingly tangential infractions (using products made by certain companies in your supply chain – with or without knowledge…) can bring investigations and penalties.
FCPA/AML/USA PATRIOT Act: 2020 was yet another record-breaking year for FCPA enforcement actions, netting the US government $2.66 billion – more than 2019 without even accounting for November and December. The list from SEC alone should be enough to make anyone running a public company (or involved with one as a vendor or even an attorney, accountant, etc.) more than a little nervous.
For three reasons, this year’s enforcement numbers related to China can be misleading and are worth understanding: (1) Although only one FCPA action was brought against a Chinese parent corporation in 2020, there were sixty-four others “connected with illegal behavior in China;” (2) The Holding Foreign Companies Accountable Act, passed by Congress just last month, is specifically designed to make extraterritorial enforcement easier; and (3) FCPA exacts its largest price in the investigatory process – numbers that are normally not made public but most certainly are felt by those under the klieg lights. Yes – there is good reason to think the Trump DOJ’s China Initiative will no longer weaponize US regulatory policy. But this is certainly not a smart moment to become lax about compliance.
Privacy: 2020 saw the strongest-ever consumer/data privacy law in the United States go into effect: the California Consumer Privacy Act. The smart observers over at China Law Blog did a great job explaining just why this particular set of regulations – in some ways even more than the EU’s far-reaching GDPR – may prove especially burdensome for Chinese companies operating in the US – even those that may not realize just how vague the requirement of “doing business in California” actually is. Meanwhile, it is high-time for American businesses in the PRC to better understand the ramifications of the China Cybersecurity Law – a wholly different variety of regulatory minefield. Upshot: Everything from this past autumn’s executive orders targeting WeChat and TikTok to the unavoidable culture clash that arises whenever one country attempts to define the meaning of “privacy” for every other country, this is absolutely a sector of regulatory space where compliance officers (and their attorneys) have no rational choice other than being proactive.
Maybe it Wasn’t All Terrible, But Good Riddance to 2020, Right?
Not so fast. The zig-zag progression of history has little interest in calendars. January 1 is just another day.
One of the wisest books I encountered during 2020 is, “AI Superpowers: China, Silicon Valley and the New World Oder.” The author, Dr. Kai Fu Lee, observes: “Birthplace and heritage are not the sole determinants of behavior.” Similarly, by recollecting how ignorant we were about our near-future just 365 days ago, one quickly intuits that no past year or era are the sole determinants of what comes next.
If we actively recollect how we learned to socially distance without losing each other; can recall how many dark days were brightened by even the smallest gesture from a friend, a co-worker, or a loved-one; and manage to comprehend the awesome power wrought by the largest number of people in American history choosing peacefully and responsibly to vote, then there is every reason to believe one game-changing “determinant” (if not the “sole determinant”) of a better 2021 can be us.
Meanwhile, why rush the inevitable? Take this week slowly. Spend time remembering where you are and how far you have come. Surely, there will still be plenty of time to say goodbye to 2020 – next year.
Wishing everyone health, peace, and happiness.
James Berger
Global Enforcement Partner
