GeoLegal Weekly #35: GeoLegal Shock and Awe
This week, I collect as many recent stories as I can on geolegal risk to show you just how much volatility there is right now. I then consider some strategies for mitigation.
Most weeks, this GeoLegal weekly covers one big idea at the intersection of politics, law and technology. But there are some weeks when the sheer volume of geopolitical signals is so high it is impossible to choose. Many of those stories present clear and defined risks to businesses of certain types. Others provide indicators that bigger trends - like a decline in global rule of law - are underway.
The level of news leaders have to digest on a weekly basis presents a dilemma not just for me but for legal and business teams trying to stay ahead of global affairs. As a bit of shock and awe, I roundup key geolegal stories of the week largely to demonstrate just how many different storylines and categories of risk are shifting every day. It’s not that each of these stories alone will have a specific, seismic impact on your company - it’s that so many things are moving at once, and some are moving in quite structural ways.
A week in the life of geolegal risk
National Security Creep
National Security Reviews: US President Joe Biden is planning to block Nippon Steel’s takeover of US Steel, as I wrote about previously. The US-Japan relationship will be rocked by this - and while most American companies aren’t directly affected by the move, those with operations in Japan could face retaliatory measures from the authorities. More importantly, it’s an indicator that politicization of the CFIUS national review process - which is intended to focus entirely on national security - can now be used to serve populist appeals to labor. (As one national security expert recently noted in Foreign Affairs, if everything is a matter of national security, then nothing is a national security priority.)
Biden Looking to Set-up a US Sovereign Wealth Fund: Both Biden and Trump have publicly called for a national sovereign wealth fund (SWF) to invest in next generation technology to secure the US both militarily but also from an energy and infrastructure perspective. US states have SWFs that are similar to most foreign SWFs in that they are primarily investing for financial returns, not national security or public policy returns. My quick take on this is that the concept that this is SWF-washing: it indicates a desire to increase government investment in the economy at a time when ramping up government spending is politically toxic. It also is very much in line with our thesis about the rise of national champions: companies that take money from the US government will be expected to act like patriots.
Toothless treaty? In a surprise breakthrough for international institutions, Europe, the UK and the US have negotiated the first AI treaty, designed to “ensure that activities within the lifecycle of artificial intelligence systems are fully consistent with human rights, democracy and the rule of law, while being conducive to technological progress and innovation.” In effect, the Framework Convention on Artificial Intelligence sets legally binding principles countries commit to implement on their own, and there’s no real sanction if they don’t. What the treaty does not do is create the political will for countries to actually pass these rules or the ability for countries to recruit top AI talent that can help them future-proof regulations. I could characterize this item in a few ways but I put it here because there are big national security loopholes in the treaty, that effectively give everyone an out. All told, it’s much less than meets the eye.
US Elections & Rule of Law Erosion
Election Manipulation: More concrete evidence Russia and China are interfering with the US election via social media influence strategies on a major cross-platform scale. Beyond the uncertainty that arises from voters being manipulated in a close election, the US approach to fighting back is to ratchet up sanctions, which risks catching businesses in the middle. Businesses may also be affected by the increased scrutiny on cybersecurity and social media strategies, as well as their relationships with entities with ties to those in Russia and China who are running these plays.
Weaponization of Law: Both former President Donald Trump and Hunter Biden were back in court for highly political cases. In Trump’s case, his hush money sentencing was delayed until after the election (which will seem like dialing down the political pressure to some and caving to political pressure to others). Charges against Trump for his role in the January 6 indictment have been refiled after the Supreme Court’s immunity decision. Hunter Biden pleaded guilty to tax charges, a move that saves him a trial - but will mean his father must decide, again, whether to do nothing, commute his son’s sentence or pardon him outright. These criminal cases so close to the levers of power are unusual in recent American history, and at least in Trump’s case seem likely to raise complicated questions of law for years to come. They also drive home the sense that the law is being weaponized and politicized.
Presidential Debate: I only list this here to acknowledge it, not to imply something has gone wrong. Actually the debate is a rare sign of a healthy democracy in an otherwise fraught election season. I suspect each candidate’s audience will think they won, underscoring for me the fact that the election will remain close until the end. This drives home the core risk that the election results in a court case and / or civil unrest - a risk that is starting to become familiar to US businesses. Preparing for how your company might position amid weeks of uncertainty and turmoil is worth some planning up front.
Global Rule of Law Erosion
Decline of ICC / International Law: The international Criminal Court has issued an arrest warrant for Russian President Vladimir Putin over the Ukraine war. Last week Putin visited ICC member Mongolia, which has 3.3m people, a 3,500 km land border with Russia, and an air force that consists of a dozen surplus Russian planes. Not surprisingly, Mongolia declined to arrest Putin; it cited complete dependence on Russia for energy. This sort of thing weakens institutions, and it raises the specter of sanctions against countries like Mongolia that join these bodies but don’t follow their rules. Doing business in Mongolia could get tricky … and Putin’s travel itinerary may determine who is next to play “pick your poison.”
Mexico’s judicial reform strains relations: The Mexican government paused relations with the US and Canadian embassies, who have called its plan for direct election of judges a threat to democracy. As scholars from Stanford’s Rule of Law lab note “A politically captured judiciary incapable of impartially protecting property rights would be a disaster for business confidence and private domestic and foreign investment. More ominously, it could open the door to organized crime’s control of the judiciary and undermine the very foundation of the rule of law in Mexico.”
EU may withhold Slovakian Funds: The EU, seeking to pressure Slovakia so it doesn’t become another Hungary, may withhold funds earmarked for the country after the government abolished the prosecutor’s office for corruption.
Election fraud: Venezuelan opposition candidate Gonzalez, who international observers believe won the election, fled the country after threat of arrest. This matters because further sanctions will follow from countries that want to punish Maduro for effectively rigging the election.
Ugandan opposition leader shot: Bobbi Wine was injured after shootout with police when visiting his party’s lawyer, raising further questions about domestic rule of law and elections.
Bangladesh-India Relations at “now at a low:” Bangladesh’s former leader has been accused by the new government of stirring up concerns about Hindus in Bangladesh, from India. Bilateral relations will remain strained so long as Sheikh Hasina has a platform to comment publicly on issues in Bangladesh. There’s also a sense among supporters of the Indian government that the US supported a revolution on India’s doorstep, which could further strain Indian-US relations.
Kingmaker party in Taiwan’s parliament under investigation: The Taiwan People’s Party, which ran on a platform of technocratic government, is under investigation for corruption. This poses an existential risk for the party. The pro-independence party, the DPP, controls the presidency but not the parliament; if for some reason the TPP were to collapse it could shift the balance of power and further intensify relations with China.
New Forms of Conflict
Transnational Repression: Evidence has emerged that China dispatched thugs to rough up anti-China protesters in San Francisco when Chinese President Xi Jinping was in town. This comes in the wake of news that a senior aide to New York governors Cuomo and Hochul was allegedly working for China over a long period of time. These stories each demonstrate that China’s foreign influence operations have wide reach and work through normal people - none of this is cloak-and-dagger. Companies can get hit in the crossfire between the two great powers, and companies will have employees, suppliers, customers and others who are affected by a growing and unruly global grudge match.
Human Pawns: Venezuela detains a US citizen on vacation. This obviously highlights the danger of traveling to certain countries - but it is hard not to notice that Venezuela made this move shortly after Russia traded a collection of western prisoners - including the Wall Street Journal’s Evan Gershkovich - for a gaggle of Russian criminals and assassins. In an era of prisoner swaps, it helps to have some prisoners. Now Venezuela has n+1.
Germany tightens borders and returns refugees to Afghanistan after terror attack: The German government has taken a host of measures in the wake of a stabbing attack by a Syrian refugee that killed three and also in light of a far-right victory in a regional election. This has resulted in returning more than two dozen refugees to Taliban-controlled Afghanistan, which it had stopped doing due to human rights concerns. The government has also tightened up its borders with European countries, which EU treaties strongly discourage and which may end up intensifying relations as migrants at the German border are turned away into neighbors.
Militants bomb businesses that followed government orders to install CCTV: In Somalia, Al Shabaab militants bombed traders that put cameras in place at the government’s urging. Unless you’re doing business in Somalia, this may not register but it continues to show the resolve of the terror group, which has conducted attacks in Kenya and Uganda as well.
Extraterritoriality
Chip war regulation: The Dutch government has reasserted its role as primary regulator of chip fabrication toolmaker ASML after US export controls and rules effectively took primacy. Granted ASML is particularly sensitive, the willingness and ability of the US to simply knock out entire markets for any company operating in a sensitive industry is worth contemplating for foreign businesses.
Extraterritorial Application of Sanctions: US officials used export sanctions authorities to seize Venezuelan president Nicolas Maduro's jet when it was being serviced in the Dominican Republic. Aggressive sanctions and export control enforcement against Venezuela will put third countries in challenging positions.
How to Thrive
Wow - that’s a lot in just on week. So what actually matters to you? To answer that, you have to know yourself. Below are some questions that should help you down that path and some strategic actions you can take right now.
Who are you at a company level?
Are you a big company with sprawling global operations? Paying attention to long-term risks is as crucial as firefighting.
Are you a small company with more narrowly defined exposures? Thinking through focused mitigation strategies - like lobbying on or building resilience to defined risks - might be more appropriate.
Are you in growth mode, so taking on more exposures? Consider the hidden tax of legal and political risk as you layer on complexity to your business.
Are you in M&A mode, so swallowing others’ exposures wholesale? Make sure you understand not just the traditional lawsuits the target has pending but also the risk of politically motivated cases.
Who are you at a functional level?
Do you lead a legal department tasked with overseeing government affairs or risk? If so, consider how much you have integrated analysis, operations and strategy across the department to feed back into your legal strategies and to make sure you have the right knowledge network.
Are you in a legal department that is siloed off but asked to opine on business-level risks as they emerge? Make sure you are prepared to take a whole business view through proactive planning; it’s too late once risks emerge.
Are you a law firm that advises companies of various exposures? If so, get a systemic handle of your client exposure - which is to say, not just at an account level but across all your accounts so you don’t take unnecessary revenue risk.
Are you an entrepreneur or alternative legal service provider attempting to build the next generation of services for innovation or productivity of your clients? If so, try to anticipate your own regulatory environment - what areas of law, for instance, you’ll be allowed to build for - as well that of your clients. Think about what problems will they have in 5 years from a geolegal POV.
What is your actual geolegal risk exposures?
Are you exposed to legal or political changes in many countries because you are everywhere? This merits a fully proactive posture with investments up front in developing strategic options to leave markets or mitigate risks as they emerge.
Are you primarily exposed to regulation in one or two domains because your business relies on one form of input for production (i.e. you are completely dependent on your ability to import a particular rare earth mineral or visa law is central because you rely on bringing overseas talent to your offices or factories to fuel growth)? Figure out all of the downstream impacts if you lost temporary supply up front from a geolegal trigger.
What do you do when risk manifests?
What threshold is required for you to need to brief upward to the board? If you don’t believe it is low enough to get airtime (such that the business is at risk for missing key information) speak up early.
Does risk information come to you from others? Make sure you have a process to integrate into your legal strategy.
Is Choosing Lawyers like Choosing Coffee?
Coming off my opening night keynote in Las Vegas for Running Legal Like a Business (hello to everyone I met there who is now signed up here!), I’m in London today speaking at the Financial Times Innovative Lawyers Summit, where Hence’s work with Zurich Insurance has been nominated for an award. You can read more about our work on attorney selection - and how I compare it to choosing a cup of coffee - in the FT here.
That’s it for this week.
-SW