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The Morning Risk Report: U.S. Targets Russian Firms Amid Growing Concern Around Undersea Cables |
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An employee stands as he lays an undersea fiber optic cable at Arrietara beach near the Spanish Basque village of Sopelana on June 13, 2017. PHOTO: ANDER GILLENEA/AFP/GETTY IMAGES
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Good morning. Russian interest in undersea cables has become a growing security concern to governments and companies in recent years, and the U.S. Treasury Department took steps this week to thwart Moscow’s efforts to track the cables.
On Tuesday, the Treasury put two people and two companies on its sanctions list it alleged had aided an evasion effort by Russian firm Divetechnoservices. That company had helped improve Russia’s cyber and underwater capabilities by procuring undersea equipment and diving systems for Russian government agencies, Treasury said in June.
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Why it matters: Undersea cables carry nearly all global internet traffic and financial transactions. A significant disruption of the service carried by the cables could have a catastrophic effect on global business and markets.
“One of the long-standing concerns is [that] if there’s any more serious conflict with the Russians, they could just cut the cables,” said Brian O’Toole, a nonresident senior fellow at the Atlantic Council, in an interview.
Concerns about severing the cables entirely are somewhat overblown, experts said, but a U.K. military official said in December that even if the cables were merely disrupted, it would “immediately and potentially catastrophically” affect the global economy.
Companies could face an espionage threat if a malicious actor can monitor communications going across the cables, Anthony Rapa, a partner at the firm Kirkland & Ellis LLP whose practice focuses on sanctions and export controls, said in an email.
To see the most sensitive information flowing through the cables, Russia would have to break through the encryption that protects it, noted Peter Harrell, an adjunct senior fellow at the Center for a New American Security, in an email. There’s some debate about whether it has the technology to do so, he added.
Reduce risk: Although they may not be able to reduce the risk of a nation-state attack on undersea cables, companies can factor that risk into the decisions they make about how, whether and where they outsource their operations around the world, consultancy Booz Allen Hamilton said in a report in June.
“Operations in regions with less-redundant infrastructure or with facilities that depend on smaller [Internet Service Providers] could be more at risk of disruption,” the report said. “And given the rise of IT outsourcing in the global economy, this could have an outsized impact on companies that rely on IT services based out in isolated locations.”
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| Risk & Compliance Journal Exclusive |
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U.S. declines to prosecute U.K. engineering firm. American prosecutors told a U.K. engineering firm they wouldn’t prosecute the company for foreign bribery violations.
The U.S. Justice Department said in a letter to Reading, U.K.-based Guralp Systems Ltd., which makes seismology testing equipment, that the company wouldn’t face charges of violating the Foreign Corrupt Practices Act, which bars the use of bribes to foreign officials to get or keep business.
A spokeswoman for the company declined to comment.
Prosecutors said they made the decision “notwithstanding evidence of violations of the FCPA” arising from the company’s payments to a South Korean seismology official. The official, Heon-Chol Chi, is appealing his conviction and a 14-month prison sentence for laundering bribes he received from seismology companies, including Guralp.
Among the reasons prosecutors gave for their decision: The company voluntarily disclosed its conduct to U.S. authorities, undertook significant remedial efforts and cooperated with investigators, as well as the fact that the company is under investigation in the U.K. Authorities there have charged the company’s founder and a managing director. -- Samuel Rubenfeld
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President Trump speaks to reporters outside the White House on Friday. PHOTO: KEVIN LAMARQUE/REUTERS
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The Trump administration is likely pushing back its timetable for imposing tariffs on auto imports, easing concerns of many in the auto industry who have widely opposed the duties.
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U.K. regulators alleged in court that investors were lied to as part of a futures-trading scam, according to the Financial Times.
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Sen. Elizabeth Warren (D., Mass.) proposed sweeping new ethics restrictions for federal officials.
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India's government told WhatsApp to establish a presence in the country, including a grievance office, as part of the government’s crackdown on “fake news.”
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A federal grand jury indicted Rep. Duncan Hunter (R., Calif.) and his wife on Tuesday on charges that they had used campaign funds to pay for personal expenses and filed false campaign records, according to prosecutors.
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Facebook Inc. dismantled a new set of influence campaigns originating in Iran and Russia designed to sow division in global politics, part of the social-media company’s broader purge of bad actors on its site. The Iranian influence campaign also utilized Twitter Inc. and Alphabet Inc.’s Google to spread its message, Reuters reports. New research suggests that Facebook fomented anti-refugee violence in Germany, The New York Times reports. Users will have to wait until the end of the Cambridge Analytica bankruptcy trial to wring more information from the data-analysis company about how their accounts were used, Bloomberg reports.
Linde AG said getting a merger with Praxair Inc. approved by U.S. antitrust authorities will require the industrial-gas giants to sell more assets than planned, Bloomberg reports, potentially putting the $45 billion deal in jeopardy. Talks continue, Reuters reports.
PepsiCo Inc.’s Frito-Lay division, which makes Cheetos, has accused a new competitor called Peatos of trademark violations. Peatos is a skinny orange-colored snack made from peas and lentils. Like other big food makers, Pepsi is losing market share to upstart brands that resonate with demand for more healthful or natural products.
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Verizon Wireless' throttling of a fire department that uses its data services was submitted as evidence in a lawsuit that seeks to reinstate federal net neutrality rules, Ars Technica reports. The county fire department said the throttling affected its ability to fight a wildfire in California. In a statement three hours after the report was published, Verizon Inc. acknowledged that it shouldn't have continued throttling the fire department's data service after the department asked the company to lift the restrictions.
Atlantia SpA’s Autostrade per l’Italia unit approved $577 million in initial funding to help the victims of the Genoa bridge disaster, Bloomberg reports, the first official company repsonse as the government begins the process of revoking its right to operate the roadway.
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Starting Sept. 4, Bank of America Corp.’s Merrill Lynch brokerage unit will no longer sweep its customers’ cash into money-market mutual funds, moving it instead into deposits at affiliated banks.
American Airlines Group Inc. is cutting some unprofitable international flights as U.S. carriers adjust their business plans to reflect higher fuel prices.
In an era when venture-capital firms are raising megafunds in the billions of dollars, Benchmark Capital, one of the best-performing investors, is resisting the temptation to go big.
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Uber Technologies Inc. named Nelson Chai as its first chief financial officer in more than three years, tapping a veteran banking and insurance executive as next year’s planned initial public offering looms. Mr. Chai is well-versed in the IPO process and his presence should help ease concerns about leadership succession at Uber. Separately, the company is set to resolve a sexual harassment scandal, agreeing to pay 56 current and former employees a total of $1.9 million, or roughly $34,000 each, Bloomberg reports.
Ad holding company Engine has hired Interpublic Group of Cos.’s Kasha Cacy as global chief executive, tapping an industry veteran who will be charged with simplifying the company’s offering to marketers.
Coty Inc. announced the resignation of its finance chief, as weak sales in the beauty business it bought two years ago from Procter & Gamble Co. weighed on results.
Farmers Insurance Group Inc. has hired Paul Wilson as its new chief information officer.
U.K. department store Debenhams said it had appointed a new chief financial officer, FT reports, after the retailer announced in April that its former CFO would leave to join rival Selfridges. Rachel Osborne, formerly CFO at Domino’s Pizza and a John Lewis executive, will join Debenhams from September 17, the company said.
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Readers can subscribe to The Morning Risk Report here: http://on.wsj.com/MorningRiskReportSignup. Follow us on Twitter at @WSJRisk.
Follow the WSJ Risk & Compliance Team on Twitter: @WSJRisk, @srubenfeld and @LikelyMara.
Send complaints, comments and kudos to Samuel Rubenfeld at samuel.rubenfeld@wsj.com.
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