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The Trump Effect in Asia

Real time analysis of how the new US administration’s policies could affect your business

21 January 2017

Earlier today (Hong Kong time), President Donald J. Trump was inaugurated as the 45th President of the United States. Since President Trump’s election on 8 November 2016, the international business community has been foretelling of a new world order. Regulations will be banished. New deals will be struck. Everything is subject to change. 

As with any change of presidential administrations in the US, there will undoubtedly be policy changes and shifts in regulatory and investment objectives. Some of these may likely be focused on China and Asia, or the effects may be uniquely felt by companies operating in China or throughout Asia. To help you prepare and understand these changes, we will closely follow and analyse the Trump effect in Asia. Throughout the next year, we will provide you with short briefings to explain, in practical terms, what these changes mean for you.

To kick-off, we have prepared a briefing about what we believe are areas of regulation that are unlikely to change, in substance and priority.

How the world may not change – financial crime enforcement under the Trump administration

We anticipate that at least three areas that have been “hot beds” of US enforcement will not cool.

Foreign Corrupt Practices Act

President Trump and his nominee for chairman of the US Securities and Exchange Commission, Jay Clayton, have been critical of the FCPA. But we believe that anti-corruption enforcement, by the US and other countries, will remain a top priority and worthy of compliance spend. Why?

  • Anti-corruption enforcement, particularly in the US is an enforcement cash cow.  2016 is the largest year on record for FCPA penalties, coming in at US$2.48 billion. 
  • In the last five years, the largest FCPA penalties were increasingly imposed on non-US companies.  The concerns raised by President Trump and Clayton (the latter in a 2011 article produced by a New York City Bar committee Clayton chaired) derived in part from a concern that the FCPA burdened American companies.  This argument seems much less compelling now.   
  • President Trump campaigned on an platform of rooting out corruption, so there seems little incentive for him to back off from an anti-corruption statute.
  • Corruption enforcement has become internationalized.  More countries are passing anti-corruption laws and ramping up enforcement.  There is more information sharing and cooperation between authorities in different jurisdictions (see the Vimpelcom and Odebrecht/Braskem settlements for 2016 examples).  It would seem unlikely that the US would sit idly by while its foreign counterparts imposed and collected large penalties.
  • Lastly, FCPA and anti-corruption cases typically start through self-reporting and whistleblowing.  We do not see these two trends waning significantly in the near-term.  For self-reporting, the incentives are written into the US Sentencing Guidelines, overseen by the judicial branch and not by President Trump, and the product of prosecutorial discretion.  Prosecutors have significant latitude to reward self-reporting and little incentive to not do so since it saves them time and money.  There have been calls to dismantle the Dodd-Frank Act but little discussion of the SEC’s whistleblower program, which may remain in place.  In any event, while some awards have been large, at the end of fiscal year 2016, only 34 people have received rewards, a very low number compared to the thousands that blow the whistle to the SEC, other US and non-US regulators, or even internally.  Whistleblower culture seems here to stay. 

Sanctions & Export Controls

Sanctions and export controls have become a popular foreign policy tool. While President Trump may shift the targets of sanctions, we would anticipate that he would take advantage of this uniquely presidential coercive tool of foreign policy, including as a bargaining chip in trade and other foreign policy negotiations. Why?

  • Since 2010, the US has increasingly relied on sanctions imposed on non-US territories and entities by restricting their access to the US Dollar and/or US capital and debt markets (see Iran and Russia sanctions for examples).
  • Such extraterritorial sanctions can impose significant costs on companies doing business in certain places, with certain business partners, or in certain sectors.  This is particularly the case as multinational financial institutions have become much more cautious in their approach to sanctions, which can lead to restrictions on access to capital and/or increased transaction costs for higher risk deals. 
  • Economic sanctions can also (within certain limitations) be unilaterally imposed via executive order issued by the US President to achieve certain foreign policy goals that can be broadly defined by the President and his administration.  These orders can be issued and rescinded quickly, even overnight.

Anti-Money Laundering

For financial institutions, anti-money laundering (AML) has become a significant source of compliance spend and large enforcement penalties. While the era of the stripping cases may be ending, we believe AML will continue to be a hot bed of regulatory activity. Why?

  • AML enforcement has become internationalized in part given the significant influence of the Financial Action Task Force, an independent organization not influenced by President Trump, and its mutual evaluations of countries’ AML legal and enforcement regimes.  In preparation for FATF review or in response to a FATF report, many countries have passed or enhanced AML laws or increased AML enforcement (note Hong Kong is up for FATF review in 2018).
  • US AML inspections and enforcement are also unlikely to significantly change since numerous agencies oversee enforcement of the AML laws and many of these operate rather autonomously of  President Trump and political appointees.   
  • The US and other jurisdictions increasingly see AML compliance (and conversely AML enforcement)  as an important tool to fight terrorist financing – something we would not expect the Trump administration to ease up on.
  • US States also can have authority to enforce the AML laws – the most prominent example being New York State (note many non-US banks are licensed under New York State law and subject to NY jurisdiction).  The New York Department of Financial Services (NY DFS) has become a high profile enforcer of AML obligations, and as a State institution is not subject to President Trump’s oversight. 
  • Several of the largest AML settlements, the stripping cases, started as investigations initiated by the New York City District Attorney’s Office (NYC DA), another institution not overseen by President Trump. 
  • Both the NY DFS and the NYC DA are aggressive AML and sanctions law enforcers because they view AML compliance and stopping terrorist financing as critical tools to fight terrorism.  While President Trump may indirectly try to influence these agencies, he has no direct power over them and they will not be easily dissuaded.