Behind the American Trap: Economic War Turns into Legal War

Although the US ban on Huawei was political from the beginning, using the unconvincing name of "national security", in May this year, Huawei and its 70 branches were included in the so-called Entity List, and just five days later, Huawei was allowed to continue to purchase products from US manufacturers for 90 days, and the extension was extended for another 90 days at the beginning of the expiration on August 19, which repeatedly shows that the US's dependence on Huawei is objective and structural. The extension of the ban on Huawei also shows that US politics has made concessions to the economy.

However, the competition of national power is not only a contest of economic scale and strength. In the recently published book "The American Trap", Pierucci, a senior executive of French Alstom, disclosed the inside story of Alstom's "forced" acquisition by American companies and the use of the "Foreign Corrupt Practices Act" by the United States to crack down on American corporate competitors based on his personal experience in prison. He also revealed the truth about how the US judicial system and soft diplomacy directly and indirectly paved the way for the expansion and competition of American companies around the world.

This is a secret economic war and an all-encompassing legal war.

The incident

     As French energy giant Alstom grew stronger, the U.S. Department of Justice began investigating how Alstom obtained billions of dollars in contracts outside the United States in 2010, suspecting that it paid at least $75 million in bribes in Egypt, Saudi Arabia, the Bahamas, Taiwan and Indonesia to obtain contracts totaling more than $4 billion.

Alstom adopted a delaying tactic towards the US Department of Justice's investigation. Therefore, after Pierucci was suddenly arrested in April 2013, in order to continue to put pressure on Alstom, the US authorities arrested at least three of Pierucci's former colleagues and asked them to cooperate with the US Department of Justice's investigation.

Pierucci's arrest shocked the entire Alstom executive team and had a significant impact on CEO Patrick Kron's thinking about the future of Alstom. The trend of the incident was like a domino effect. After many negotiations and communications, on December 22, 2014, Alstom reached a plea agreement with the US Department of Justice and was fined $772 million. At the same time, it also forced Alstom to sell 70% of its power and grid business to its main US competitor, General Electric, for $12.7 billion.

"Unless there is an ulterior motive behind this deal, maybe Patelon thinks this is a way out of the US prosecutors' hands: sell GE all the power and grid businesses it covets in the hope of getting favorable treatment from the US Department of Justice," Pierucci said.

Since then, Alstom, a business giant that once spanned the global power energy and rail transportation industries, has been "dismembered" by the Americans. Pierucci has not only become a "chess piece" but also a discarded piece. Alstom not only did not mobilize its power to mediate, but also refused to pay the lawyer's fees and eventually fired Pierucci. Pierucci did not walk out of prison until September 2018 and regained his freedom.

The Power of the Foreign Corrupt Practices Act

The U.S. Foreign Corrupt Practices Act can be said to be the "imperial sword" for the above actions.

The Foreign Corrupt Practices Act was passed in 1977, prohibiting U.S. companies from bribing any foreign company, government, or political party. In 1998, the U.S. Congress amended the law to make it extraterritorial and applicable to foreign companies as well. The U.S. government determined that as long as a company signed a cooperation agreement denominated in U.S. dollars, payments occurred on U.S. territory, or emails were simply sent and stored through servers located in the United States, these were considered "international trade tools" and the United States believed it had the right to file a lawsuit. Subsequently, the United States enacted the Patriot Act in 2001. After being revised in 2005, the act allowed U.S. intelligence agencies to conduct economic espionage in the industrial field. Since then, the Foreign Corrupt Practices Act has been applied, and the "law" has become a weapon of economic warfare.

This extraterritorial jurisdiction has been widely implemented, and has intensified since the 2008 financial crisis. The United States has found that using the Foreign Corrupt Practices Act is a "real gold mine" that can not only earn huge fines, but also help American multinational companies acquire at low prices and gain competitive advantages. In order to maintain its economic "superpower" status, the United States "does not recognize relatives" when attacking competitors, and even ignores allies. Since 2010, French companies alone have paid nearly $14 billion in fines to the U.S. Treasury for violating U.S. extraterritorial laws.

But the high-sounding "Foreign Corruption Prevention Act" is actually "different for domestic and foreign countries", and there is often an "American exception" in its operation. According to statistics in "The American Trap", as of 2014, only 30% of the Justice Department's overseas anti-corruption investigations involved foreign (non-US) companies, but these companies contributed 67% of the total fines. Since 2008, there have been 26 companies that have paid fines of more than US$100 million, 14 of which are European companies.

Pierucci bluntly stated that the United States has brazenly launched a protracted economic war, a war that appears to have no casualties but is a matter of life and death. This is a war that concerns everyone, a war that is more complicated than a military war and more insidious than an industrial war. This is a legal war. If foreign governments remain indifferent to this, their domestic companies will sit and wait to be plundered and cannibalized.

A wake-up call for domestic enterprises

As Chinese companies grow into companies with global influence, they have reached the level of precision attack by the US "legal trap". It can be seen that the judicial process of the ZTE case and the judicial settlement model of "fines + compliance officers" are basically consistent with the logic of US judicial behavior revealed by Pierucci. The pending case of Huawei's Meng Wanzhou is exactly the same as the "legal trap" used by the US Department of Justice to deal with Alstom executives.

Obviously, under the dual pressure of politics and law, it is necessary to develop a response strategy as soon as possible to the high legal risks faced by Chinese companies and national interests in the "American trap".

For enterprises, they and their executives must be aware of the new risks that the United States' "extraterritorial jurisdiction" may bring. At the same time, they must strengthen "legal education", that is, training on U.S. legal risks and compliance, check the risk points in corporate operations, and protect their overseas interests to the greatest extent possible.

From a national perspective, on the one hand, we need to strengthen domestic legislation on overseas anti-corruption and interest protection, and strengthen the investigation, prosecution and international game capabilities of the Ministry of Justice and other judicial organs. Some experts said that China should establish and improve its own "Foreign Anti-Bribery Law", similar to the US "Foreign Corruption Act", so that when China encounters possible bribery cases overseas, it can rely on this legal framework to fight against the US extraterritorial jurisdiction or long-arm jurisdiction, reduce the legal risks of Chinese companies going global, and establish the law by law. On the other hand, we should strengthen cooperation in jointly balancing the long-arm jurisdiction of the United States, especially the construction of an independent cybersecurity regulatory system, a "non-US dollar settlement system" and a legal compliance system for the "Belt and Road".

No matter what means or chips are used, what is reflected behind them is the competition of national strength.

In the future, scientific and technological innovation capabilities will be the decisive factor in the competition for comprehensive national strength, especially at the strategic chip level. Subsequent patent lawsuits and legal battles will emerge in an endless stream. In addition to devoting all efforts to research and development and strengthening intellectual property protection, self-defense also requires efforts to "arm" with laws.