GeoLegal Weekly #18 - Your Company Has Been Drafted for War!

From tech companies enabling war to a push for corporate patriotism and "new national champions", companies must measure their exposure to legal risk from wars they didn't choose to fight.

A major thesis in this GeoLegal weekly is that the rules of the game for corporations are changing in material ways that are not always perceptible. Often that involves governments restricting what companies can do - especially their cross-border activities, which is a problem when companies are more truly trans-national or post-national than ever. This week I, along with my co-author Karthik Sankaran, look at what happens when the government forces you to be on their team.

Does your corporation have a right to be neutral in an increasingly complex geopolitical world? Or can the government draft you into its hot and cold war efforts?

We’ll look first at how companies can be deemed to be combatants in war without necessarily joining the war effort. Then we will look at the new era of national champions - companies to which the government gives advantages in return for patriotic support.

Are your civilian employees combatants?

One of the more interesting questions I came across in exploring this topic sits right at the heart of technology, politics and law. That question is whether the employees of normal companies (i.e. those that are not actively working with government or the military) could be legitimately targeted in a war.

Research on the topic was jumpstarted by Elon Musk’s Starlink providing internet access to the Ukraine military and civilians after Russia knocked Ukraine offline early in the war. Musk claimed that this was only for defensive purposes and that he personally refused to enable Starlink for offensives and escalations. A military analysis published by West Point indicates that Starlink could be legally targeted by Russia (or, in the future, China) under certain circumstances even if doing so would have ramifications for civilian employees, for civilians that rely on the same satellites (like the country of Tonga), and even if it causes environmental degradation. Basically, if you choose to play war, you get treated like a warrior.

But what about when a company supports a war effort without intending to? To understand this, I spoke with Trevor Hehn, an emerging technology lawyer with his own practice (Hehn Law), who previously served as a Judge Advocate in the US Army. In the interview below, Trevor raises the idea that since technology is so ubiquitous in war, it is reasonable that technology is providing advantages to countries fighting each other without any intention of the technology company to do so. In such a case, operations, facilities AND employees of the company could potentially be targeted in the battlefield or elsewhere in the globe by one of the hostile countries. If tech executives didn’t have enough things to worry about from a geolegal point of view, here’s another one!

There is a raft of complexity as to whether such targeting would be legitimate. Jonathan Horowitz of the Red Cross, for instance, engages with this in depth in the Chicago Journal of International Law and generally highlights that the company must actively choose to be involved in order to lose its civilian protections under the laws of war. However, the reality is that if a hostile power thinks it has legal cover to attack foreign civilians helping their enemy they may do it. With so much technology functionally dual-use nowadays, it’s worth considering that governments seeking an advantage not only might be willing and able to attack third country corporations but that they might feel like they have legal cover for doing so.

This is surely worth an internal assessment if your products, no matter how boring, are scattered on battlefields given the revenge of inter-state conflict. As Trevor points out, even simply including in your terms of use that products are not meant to be used in conflict can raise the legal stakes of targeting you.

National Champions

Shifting to the economic battlefield, national champions aren’t anything new. Governments have long looked to support (or to build) companies that are world-leading in their industry, so that they can increase exports, reduce imports, and put their own country at or closer to the technological frontier. This is believed to build national wealth and power, either directly, if the company or industry has military applications or indirectly if it just increases the physical or financial resources that the country can deploy in conflicts among nations. Typical tools in the toolkit are often candy for corporates: Subsidies for investment over here! Tariffs to keep direct competitors out over there! Some non-tariff barriers to raise the cost on competitive aspirants! Government supported cases for trade protection at the WTO!

In times of peace, this is usually driven by a desire for economic growth or, more narrowly, to please interests like corporations, labor unions, or both, whether nationally or just in key political geographies. Sensitive industries like defense or aerospace may get positive treatment as vehicles of “dual-purpose” technologies. 

But in 2024, the world is not so simple. Governments have gone beyond wanting to ensure that they have the political support of corporations and labor to demand more.  In recent years, companies are increasingly being asked to behave more “nationally”— asking not what the government can do for them but what their company can do for their country and their government.

There may be bitter divides between left and right in the US and EU over how to regulate corporations’ labor relations or their environmental impact. But ask whether there should be more legal and regulatory sticks aimed at their cross-border activities and politicians in most countries in 2024 yell “yes!”

How Did We Get Here?

It’s pretty simple. In the US, the domestic politics of jobs is one of the key fault lines of recent elections and upcoming elections in November. This is no different in the UK or in Europe. A key vector of the jobs debate is “built here” vs. “built there.”

This is a rude awakening for corporations that had benefited from globalization 2.0 after 1990, a phenomenon that made them multinational in a way very different from prior epochs. Production processes - plus technological and managerial knowhow- were spread through the globe through physical and service supply-chains, ownership was diffused through widespread cross-border shareholding, cross-border revenues became larger, and senior management personnel drawn from around the globe. But now many of those activities are not just politically suspect practices that create potential reputation risk, but subject to increasing legal/regulatory scrutiny and often outright prohibition.

Second, Western countries are still smarting from supply chain shocks of COVID and also are looking at live wars in Eastern Europe and the Middle East which make them worry more about resilience. Keeping their own corporations onside can be helpful.

Third, the Russian invasion of Ukraine in 2022 has exposed the material fragility — in terms of both defense and energy — underlying European talk of “strategic autonomy” and given a new lease of life to the Transatlantic alliance. But even this is an unstable equilibrium, given the huge differences between Biden and Trump on the issues of Russia and NATO. 

And above all this, the biggest issue hanging over business is a deepening US-China rivalry across multiple military, technological, economic and geopolitical planes. And the complexity of that conflict, between the world’s largest and second-largest economies (with the latter deeply integrated into Western markets and supply chains) presents a delicate dance for today’s Western corporations.

Uncle Sam Wants You!

In the US, for instance, those looking for official backing to protect them from measures like the EU’s “regulatory superpowers”, Chinese export subsidies, SOE competition, and the like are being asked to act like they deserve it. At the same time, many of those companies are also trying hard to avoid being drafted into full-fledged inter-state competition that could cause them to lose key markets or suppliers, or subject them to retaliation. 

Matters are being compounded as the scope of rivalry goes beyond a delimited arena of military (or even dual-use) technologies. Governments have gotten wise to the idea that the logical corollary to supporting their own national champions is hobbling the other side’s national champions.  The US government’s reported pressure on the Microsoft - G42 deal, which required the latter to give up Chinese equipment and software, is a great example (for a good breakdown of this check out

Inferences by Minerva Technology Policy Advisors

’ piece here.

Another recent instance  is the report of a freeze on formerly permitted sales by US chip manufacturers to Chinese champion Huawei, in the wake of reports that the company had unveiled a surprisingly sophisticated phone last year. It is likely that this reflects a broader realization that revenues and profits from purely civilian uses can be ploughed into military technology. After all, access to fungible cash-flow in a diversified enterprise that is then pushed back into R&D may be yet another very powerful “dual-use technology.” 

This seems like an instance of National Security Creep, a phenomenon studied by Kristen Eichensehr and Cathy Hwang of the University of Virginia. The “creep” refers not just to the extension of strictures on foreign investment into the US (under CFIUS rules) to potential restrictions on outbound flows of capital. But beyond this, the authors suggest that the strategy conflates “economic and national security interests.” The goal is not just to bar trade in specific products and technologies but to ensure an adversary is incapable of  capacity even developing them.

The authors make the point that National Security Creep might affect not just the scope of executive restrictions on corporate conduct but also the ability to contest them.  This is because the judiciary has been historically deferential to to the executive (particularly when backed by bipartisan legislative approval) on national security issues. When combined with lower visibility (and often even secrecy) of the inputs into such executive decisions, corporations could encounter much more uncertainty in “national security” jurisprudence and regulation than in more settled areas like anti-trust law.

Looking Ahead

National Security Creep is likely to increase, regardless of who is in the next administration. The conflation of economic and national security interests hints at a world where multinational corporations are increasingly required legally (or expected politically and reputationally) to apply KYC standards not just to their customers, but to their customers’ customers, their workers, their suppliers, and their investors to comply with criss-crossing, conflict-driven strictures from each of their jurisdictions.

A recent essay in Bloomberg Law suggests that “Companies are—as the DOJ has warned them—on the front lines of this economic war. Taking lessons from successful warfighting strategies are necessary to anticipate and block the next steps of the highly sophisticated, complex evasion networks [companies] face today.” In effect, you can’t run and hide - you need to decide your position and get ready for battle.

Some companies will be both eager and able to embrace the designation as patriotic “national champions.” Oddly enough, this may prove more complicated for the producers of goods in the old-school military-industrial complex. In a recent essay, Karthik divided America’s public and private trade factions into Openers (who want more opportunities around the world); Repatriators (of jobs to the US); Decouplers (from Chinese markets and sources); and Derailers (of China’s rise in toto).

The globalization of both value chains and markets means parts are sourced around the world, and that military aerospace manufacturers also need to sell airliners or engines elsewhere, something that has made them de facto openers. But the great Chinese firewall, and the rise of a parallel internet ecosystem behind it, means many of America’s software and cloud megacaps have been “decoupled” almost since the creation. With several of these also in the forefront of the AI revolution, a pivot to "patriotic capital" might be easier for some giants.

But even an internet firewall did not preclude financial flows across the Pacific between these parallel technological ecosystems, a situation that has aroused the anger of China hawks, and their ire is likely to intensify. The accusation is that capital inflows have fueled the rise of an authoritarian near-peer competitor. Such complaints have been levied against investment banks and index providers, but have gained a particular edge when aimed against the venture capital community. The fear is that those particular flows are about more than just about capital—they also carry with them information about advanced processes like AI and quantum computing, pushing China closer to the technological frontier. A famed Silicon Valley VC partnership, Sequoia Capital, split its US and China businesses in the face of such concerns, but this did not mollify the House Committee on the Chinese Communist Party. The Committee sent a scathing letter last year, noting that “[a]lthough Sequoia’s split appears to resolve some of the concerns detailed above by curtailing the flow in some cases of U.S. managerial and technological expertise to problematic PRC companies, significant questions remain – and should be answered by Sequoia.”

The incident also underscores that corporate leaders and their counsel can expect to fight more battles about their patriotism before one of America’s toughest courts — a Congressional Committee hearing. An interesting piece in PR Daily goes deep on the history of Congress dragging CEOs in for a beating and techniques to manage it. The upshot is that companies need to integrate their legal, government affairs and communications approach to have any chance of satisfying the legal, political and public relations imperatives of a “good” (or at least not terrible) congressional hearing. Such cooperation is likely to become increasingly important as firms come under closer scrutiny on grounds of national security. It is important to recognize that what is at issue is not just the letter of the law, but perceptions in Congress as well as in wider public opinion, and the ability to anticipate (and perhaps shape) legislation coming down the pike.

The challenges to corporate cross-border behavior are likely to mount, but there may be one partial offset here. As the pressure on firms to behave as national champions rises, so might the official inclination to create and foster them. Under the Biden administration, this will likely come with subsides coupled with efforts to improve both the standing of labor and labor-management relations (a somewhat more European model). But it is possible that pressures in the US to create more robust national champions in the global marketplace leads to a relaxation of anti-trust concerns about inter-firm collaboration, mergers, and domestic market concentration (also a somewhat more classically European model). This would also be in line with a broader drift away from a strict “consumer-welfare” regulatory standard at the FTC, a topic covered in our recent weekly.

In Other (Hence) News

Join me in London on 12 June: I am hosting an exclusive keynote-plus-roundtable with former Global Managing Partner of Clifford Chance Matthew Layton on GeoLegal risk. More info and registration here.

Law.com covers Hence’s forthcoming GeoLegal AI suite: Brilliant piece by Jessica Seah covering Hence’s development of software to manage geolegal risk - put in the context of challenges law firms are facing in Asia. Worth a read (of course I’d think that!) Sign-up for the waitlist for our new geolegal product here.

Thanks for reading!

-SW and KS