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The Morning Risk Report: U.S. Warns Businesses Over Supply Chains Tied to Rights Violations in China
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Freight trains in China’s Xinjiang region, home to Turkic Muslims, whose treatment by Beijing has sparked controversy. PHOTO: XINHUA/ZUMA PRESS
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Good morning. The U.S. warned companies that have suppliers or customers in China of legal and reputational risks linked to human-rights violations there, part of the Trump administration’s broader effort to limit business ties with the country.
Companies face peril for involvement with entities blamed for human-rights abuses, including forced labor or the mass detention of Uighur Muslims in China’s Xinjiang region, according to a 19-page memo released Wednesday from the Commerce, Treasury, Homeland Security and State departments. The memo repeatedly cited technology companies whose products can be used for the surveillance of Uighurs.
“CEOs should read this notice closely and be aware of the reputation, economic and legal risks of supporting such assaults on human dignity,” Secretary of State Mike Pompeo told reporters on Wednesday.
[Continued below…]
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The Trump administration notice doesn’t have legal force and won’t add new rules for businesses. Still, the coordinated warning from four U.S. agencies is a signal the Trump administration will enforce the laws on the books in ways that could make many companies think twice about doing business in China.
“It’s intended to remind businesses that there are sanctions in place, that the situation in Xinjiang is dire, and, most important, that the U.S. government intends to enforce existing law and regulations, meaning more aggressively than they have been in the past,” said Bill Reinsch, a trade expert at the Center for Strategic and International Studies in Washington.
The U.S. Congress and the Trump administration also are pressuring Beijing over the new national security law it applied in Hong Kong, furthering an effort to quash dissent and reduce the island’s autonomy. Washington also has waged a trade war with China.
Note: We won't be publishing a newsletter tomorrow in observance of the Independence Day holiday in the U.S.
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From Risk & Compliance Journal
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Novartis Finalizes Settlement of Speaker Program Litigation in U.S.
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Novartis AG said it completed an agreement with the U.S. Attorney’s Office for the Southern District of New York, the New York State Attorney General and relator Oswald Bilotta, which will see it pay a $678 million settlement to resolve “a civil suit challenging speaker programs and other promotional events conducted from 2002 through 2011 by Novartis Pharmaceuticals Corp.” As part of the settlement, Novartis said, it “agreed to new corporate integrity obligations with the Office of Inspector General of the U.S. Department of Health & Human Services that will change how the company delivers peer-to-peer programs in the U.S.”
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Antitrust Enforcers Update Approach to Vertical Mergers
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The U.S. issued new guidance on how authorities assess whether mergers within a supply chain might affect competition, an update that could have implications for federal antitrust enforcers’ focus on the technology sector.
The guidance on vertical mergers, released Tuesday, is the first since 1984 on how such mergers will be approached by the U.S. Justice Department and the Federal Trade Commission, which coordinate enforcement of the nation’s federal antitrust laws. The guidance lays out the economic concepts and analytical techniques the two agencies will use in deciding whether vertical mergers decrease competition and harm consumers.
Meanwhile, the chief executives of Amazon, Apple, Facebook and Google have agreed to testify before the House Judiciary Committee as it investigates whether antitrust laws need to be updated to curb what some lawmakers perceive as excessive power wielded by tech giants over markets such as online advertising, online retail and smartphone apps.
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Wirecard’s corporate headquarters in Aschheim, Germany, are searched by investigators on July 1, after the company said $2 billion of cash had gone missing. PHOTO: LENNART PREISS/GETTY IMAGES
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Prosecutors searched five buildings as part of investigations into Wirecard, the scandal-hit German payments company. Three of the buildings were in Munich and two were in Vienna, where former chief executive Markus Braun—accused by prosecutors of falsely inflating the company’s sales with fake income—is from and where he flew back from to turn himself in to the police last week. Wirecard is under investigation in Germany and Singapore after it revealed $2 billion of cash had gone missing.
Meanwhile, the central bank of Mauritius and its financial regulator said they were jointly investigating a 2015 deal between Wirecard and a Mauritius-based fund. The probe was launched as a result of allegations that Wirecard could have been linked to a probable case of round-tripping, they said in a statement, where the money Wirecard paid the fund in the deal is alleged to have been paid back into Wirecard as revenue.
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The prosecution of a case against a German businessman could have profound consequences for the U.S. medical and recreational marijuana industries, which operate in a legal gray zone on the outskirts of the mainstream banking system.
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Ruben Weigand, arrested at Los Angeles International Airport in March, was charged with a single count of conspiracy to commit bank fraud, stemming from an alleged scheme to trick banks into processing more than $100 million in marijuana sales. Mr. Weigand has pleaded not guilty.
The case doesn’t appear to be focused on the drugs themselves—the underlying sales seem to have been legal under state laws. Prosecutors appear aimed at the alleged banking transactions and what they described in one court hearing as a multinational “criminal network” at work in the international financial system, according to court filings and people familiar with the case.
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U.S. federal prosecutors filed suit late Wednesday to seize four tankers-worth of gasoline Iran is sailing to Venezuela, the latest salvo in the administration’s effort to stifle flows of goods and money helping to keep two of its top foes in power. Meanwhile, a British judge rejected a claim by Venezuelan President Nicolás Maduro seeking the release of $1 billion of the country’s gold reserves held in a Bank of England vault, a decision that sustains U.S.-led efforts to financially cut off the authoritarian leader’s regime.
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Companies increasingly are confronting a difficult question: If an employee tests positive for Covid-19, who should be told? Employers are prohibited by federal law from identifying the infected worker. Beyond that, there is no universal playbook for whether or how confirmed cases should be disclosed and to whom, resulting in a patchwork of approaches that can vary widely even within the same industry.
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Simon & Schuster can move forward with plans to release a tell-all book by President Trump’s niece after a New York appellate judge overturned a temporary restraining order against the publisher.
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The House of Representatives passed a bill extending the timeline for small businesses to apply for forgivable loans to Aug. 8. The application deadline for the Paycheck Protection Program, which was created by Congress in March in order for small businesses to get payroll and expense relief during the pandemic, ended on Tuesday, with about $130 billion in funds unclaimed.
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Safety fixes after the first Boeing 737 MAX crash became snarled in Federal Aviation Administration delays and repetitive analyses, wasting any chance U.S. regulators had to prevent the second fatal accident, according to an investigation by the Transportation Department’s internal watchdog.
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Seven Turkish defendants are due to stand trial in Istanbul Friday in what will be the first court examination of how one-time auto titan Carlos Ghosn used Turkey as a steppingstone late last year to reach Lebanon after fleeing Japan inside a musical equipment box.
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Fox News fired Ed Henry, the co-anchor of its weekday morning program “America’s Newsroom,” after receiving a sexual-misconduct complaint against him from a former employee, the network’s executives said.
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A restaurant employee in Brooklyn, N.Y., delivered cheesecakes on Monday. New York state extended quarantine requirements for out-of-state visitors to additional states. PHOTO: MARK LENNIHAN/ASSOCIATED PRESS
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Officials in New York, Michigan and California enacted new measures to contain the spread of novel coronavirus, zeroing in on bars and restaurants as a possible source of transmission as the number of cases rises among young people. New York City officials delayed the start of indoor dining, citing concerns about the spread of the virus. Meanwhile, companies reevaluated their own reopening plans.
McDonald’s paused plans to reopen dine-in service in the U.S., opting to wait three weeks before any new U.S. restaurants add dine-in service to its drive-through, takeout and delivery operations. Apple said it would temporarily close dozens of stores in states around the country as the Covid-19 pandemic has worsened in certain regions. Macy’s, which said nearly all its stores have reopened, could take other measures as states tally more infections.
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Saudi Arabia has threatened to ignite an oil-price war unless fellow OPEC members make up for their failure to abide by the cartel’s recent production cuts, delegates said. A hard-line stance from OPEC’s de facto leader risks a new flare-up within the Organization of the Petroleum Exporting Countries. It comes just months after Saudi Arabia waged a price war against longtime oil-market ally Russia following disagreements over how to supply global markets as the coronavirus spread.
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YRC employs about 30,000 workers and was the fifth-largest U.S. trucker by 2019 revenue. PHOTO: YRC WORLDWIDE INC.
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The U.S. government plans to lend $700 million in coronavirus stimulus funds to trucking firm YRC Worldwide Inc., in exchange for a 29.6% equity stake in the company. The Treasury Department said publicly traded YRC qualified for the loan under a provision of the $2.2 trillion law Congress enacted in late March that authorized $17 billion for companies deemed essential to national security. The loan is the biggest the government has extended to a U.S. business outside of the airline industry, and the first loan the government has awarded from a special fund for firms with ties to the Defense Department.
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After several challenging months on the job during the coronavirus pandemic, businesses want workers to use their paid time off to stave off burnout and avoid a year-end vacation crunch. But with travel disruptions scuttling many summer trips—not to mention employees’ stress about working from home for the first time—fewer workers appear to be claiming vacation time this year.
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United Airlines Chief Executive Scott Kirby makes no apologies for changing rules to deny customers refunds for canceled flights. PHOTO: COOPER NEILL FOR THE WALL STREET JOURNAL
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Scott Kirby took over as chief executive of United Airlines six weeks ago with coronavirus halting most travel. What he does next will help shape what fliers experience for years to come.
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ViacomCBS plans to replace its finance chief less than a year after closing a major merger, as the media company navigates a challenging business environment.
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A 2016 commencement ceremony in Boston for graduates of the Hult International Business School, EY’s partner in a new M.B.A. degree. PHOTO: JOSH REYNOLDS/ASSOCIATED PRESS
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Ernst & Young, one of the top employers of M.B.A. graduates each year, is now handing out its own degree. The Big Four accounting firm has formed a partnership with the Hult International Business School, with accredited programs in San Francisco, New York City, London and Shanghai, to create a part-time, technology-focused management degree for its employees that can be done fully online.
After observing that some of its new M.B.A. hires weren’t coming in with crucial technology and data-science skills, the firm decided to educate employees itself. EY’s new program mirrors a broader shift by business schools to try to revamp their programs with more teaching about analyzing and managing quantitative data to meet the needs of employers.
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