Jul 9, 2020 - World

China's extraterritorial threat

An illustration of traps.

Illustration: Aïda Amer/Axios

All multinational companies and executives need to worry about breaking U.S. law, no matter where they're based or doing business. Now, they need to worry about Chinese law, too.

Why it matters: The projection of U.S. norms and laws around the world has been an integral (and much resented) part of America's "soft power" since 1945. As China positions itself to replace the USA as global hegemon, expect it to become increasingly assertive along similar lines.

Background: China's leaders believe they are in a "generational fight" to make China the "world's only superpower by any means necessary." That's the verdict of FBI director Christopher Wray, who used a recent speech to outline various ways in which China seeks to influence and control American companies and elected officials.

Driving the news: As Axios' Bethany Allen-Ebrahimian has reported, the draconian security law that Beijing forced upon Hong Kong last week contains an article making it illegal for anyone in the world to promote democratic reform for Hong Kong.

  • The law applies to everyone outside of Hong Kong. That includes you, dear reader, and it very much includes every individual seeking to do business in China.
  • You won't get arrested so long as you remain outside China and Hong Kong. But for many businesses, that's not an option.

The big picture: There's an almost endless list of foreigners who have fallen afoul of U.S. laws for actions they took outside U.S. borders.

  • Those charged include many banks, including UBS (facilitating tax evasion) and Barclays (Libor manipulation). HSBC, Lloyd's, Credit Suisse, Barclays, ING, Standard Chartered, Royal Bank of Scotland, Commerzbank, Crédit Agricole, and BNP Paribas have all been prosecuted for money laundering, while Deutsche Bank has faced prosecution for pretty much all of the above.
  • Any crime committed using dollars touches the U.S. somehow, which is how it becomes illegal for someone in France to send dollars to Sudan, Iran or Cuba.
  • All of those banks are active in China, too, but the financial services industry is clearly not the target of the new law. Something like a tweet from the manager of a basketball team, on the other hand, would clearly fall under its scope.

I described U.S. prosecutions in 2014 as "unapologetic American exceptionalism, manifesting as extraterritorial powermongering."

  • Even then, China was exerting a chilling effect on corporate speech well outside its borders. (For a prime example, look to how your company characterizes the status of Taiwan.)
  • Today, Chinese exceptionalism is manifesting itself in extraterritorial threats.

What they're saying: "Washington is increasingly abusive of its so-called exorbitant privilege," writes the South China Morning Post's Alex Lo in an opinion piece. "Beijing must be thinking: if the U.S. can do it on such an egregious scale, why can't we?"

The bottom line: It's sometimes impossible to obey both domestic and U.S. law. Credit Suisse, for instance, was found guilty in the U.S. of failing to hand over the names of its American private-banking clients — despite the fact that it would have been clearly illegal, under Swiss law, for it to do such a thing.

  • Trying to simultaneously obey domestic, U.S., and Chinese law is going to be trickier still.
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