U.S. sanctions against the BNP and the emergence of a tri-polar legal world. Part Three: Chinese response and financial deterrence

China has established a strategy of resistance against the U.S. legal and financial supremacy which took place in four major steps.

The first step was that of kindness, what might be called the Stage of Open Collaboration with the West where Chinese doors wide opened to foreign corporations, openness of course coupled with the lure of mutual gain. It has been free entry of Americans and Europeans in China for 20 years.

U.S. and European multinationals have been invited to come to China to produce at very low costs. As multinationals became accustomed to low cost of production, they decided to settle permanently in China, to produce and also to sale.

The second step is what we could call the Stage of the Law. In the years 2005 to 2009 a series of court cases in China caused problems for the European multinationals, including German ones producing and selling chemical products in China. The best known case is that of a Chinese worker who came to work in pajamas. He was turned back at the entrance, but two hours later the Chinese police came to incarcerate the two German directors. The legality of their arrest was their ticket to an old, but still in force, local Chinese law that allowed workers to come to work in pajamas. It took several days to German employers in Europe to realize the seriousness of the situation and the determination of the Chinese. Their two executives could only get out of jail two weeks later, after paying a fine of several million dollars. Chinese authorities have strengthened their stances on the European front to attack the Americans.

The third step was the Stage of Sanctions and can locate its peak in 2010-2011 with a series of cases involving the number one global distribution, the renowned giant Wal Mart, both accused of not respecting the legislation work in China and of selling in its stores merchandise which did not comply with Chinese health regulations. Wal Mart’s first response was to simply despise these attacks. But the immediate and abrupt closure of several of its hypermarkets and the arrest and imprisonment of several senior managers in China put the store chain on its knees and at the end of 2011 it was sufficient enough for Wall Mart to consider the full and final closure of all its operations in China.

However having weighed the pros and cons and under its best interests, Wall Mart decided to present its apologies to dismiss senior officials, or at least officially held responsible, pay steep fines and above all agree to abide by Chinese laws forever ...

The fourth step is the last step and it could be called the Chinese March for Legal and Financial Power.

American financial power has many faces, but it is best known through some particular faces. Among these faces is the face of the SEC and those of the Big Five.

The SEC or Securities and Exchange Commission is the supreme authority of the U.S. financial markets and by repercussion of all the companies that are listed on the New York Stock Exchanges, or who invest in the NYSE, specifically all banks and insurance of the planet as well as all multinational companies worldwide. In other words, the SEC controls everything, everywhere, all the time.

The Big Five are the giants of the accounting, auditing and certification of the balances sheets of all the large companies in the world. The Big Five validate and certify the financial statements of the corporations listed on the New York Stock Exchange, the NYSE companies.

The Big Five are the guarantors of the regular financial health reports of the listed companies.

These health bulletins determine the price of the shares of these corporations end therefore the course of actions of these companies.

To close the loop, since the SEC controls the BIG Five, this means that the great leading controllers of the SEC control the controllers.

One of the findings of the U.S. financial markets has been to double-list companies on Wall Street and in the stock exchanges in Hong Kong and Shanghai. Originally this meant more money, more investments, more shareholders, and more money again.

But this double-listing also proved to be the Achilles’ heel of the U.S. financial supremacy.

Between 2011 and 2013, one of the Big Five, a subsidiary of Accenture in China, and then others among the Big Five, have been the target of the SEC regarding the audit of listed Chinese companies in both the financial markets China and in Wall Street.

The SEC required Accenture delivers secret information on its Chinese corporate clients. If Accenture did not comply, then Accenture leaders could be imprisoned in the United States and Accenture would then be hit with huge fines.

However for the first time in the SEC history there was a complication, a complication of size.

This time, the China Securities Regulatory Commission (CSRC) and the Chinese Government showed teeth.

The CSRC is the equivalent of the Chinese SEC.

The argument of the CISC and Chinese Government is that the information required by the SEC from Accenture about corporate clients was Chinese about Chinese trade secrets protected by Chinese law on secrecy of business transactions. Their violation would have resulted in the imprisonment of the Accenture leaders in China this time.

In other words Accenture leaders had a choice between obeying the SEC and go to jail in China or disobey the SEC and go to jail in the United States.

After two years of struggle, the Accenture cases, and other similar cases, have resulted in a negotiated agreement. Chinese financial authorities have authorized that certain information be disclosed to the SEC and the SEC had to be content with only receiving a small portion of the information the SEC first requested.

And so, there was a clear and total victory of China who got what it wanted from the beginning: that the world recognizes the supremacy now shared by the United States and China's domination of international finance and international financial law.

Since 2013 there are two super-gendarmes of finance in the world: 1) The Securities and Exchange Commission and 2) the China Securities Regulatory Commission.

What could be called a new Financial Deterrence.

Prof. Olivier Chazoule

U.S. sanctions against the BNP and the emergence of a tripolar legal world. Part II: the European response

The European response to legal and financial penalties imposed on the BNP is imminent. One could even say that it has already arrived in 1957.

At the end of the Second World War the Allies realized that the Franco-German rivalry that had already resulted in three wars in less than a century should be permanently stopped.

A thorough study of different options to extinguish this wildfire, resulted in these different parties to create a European Economic Union (in addition to the ECSC Coal and Steel Community and Euratom) linking the protagonists of close economic means and manners in attempt to avoid any future conflict to spare their immediate economic interests.

In short: trade to prevent a new war.

This is the origin of the Treaty of Rome in 1957.

A central pillar of the Treaty of Rome and the economic and legal practice of the Union of European States is the Policy of the Concurrence, or Competition. In fact, it is a legal, political, financial and economic outcome of the antitrust laws of the United States, a body of legal doctrines and powerful laws to limit the adverse effects of large financial groups and dominant in the U.S. economy start at the time by the Rockefeller oil company: Sherman Act 1890, Clayton Act 1914, and the Federal Trade Commission Act 1914. This is by any means to avoid monopolies and market dominance, or oligopolies.

Over the years, the competition policy of the European Union has become independent of its American origins. And copy it became innovative and very strong. Today, the policy of the European competition is much more developed and efficient than the U.S. antitrust policy.

The favorite weapon of the European Commission in Brussels and the Court of Justice of the European Union in Luxembourg to enforce competition is the administration of huge fines to companies and particularly to U.S. multinational companies, such as Intel ($1.4 billion in 2009); Microsoft ($1.2 billion in 2008) or even Microsoft with ($757 million in 2013; in fact if Brussels had applied the rule to the end the penalty could rise to 10% of global turnover Microsoft and become a $7.9 billion fine.)

The new weapon of Brussels has evolved by the recent directive Barnier put under de facto control of the major credit ratings agencies which have greatly contributed to the huge scale of the subprime crisis of 2007-2008 by promoting uncontrolled creation of MBS the Mortgage Backed Securities and their subsequent explosion.

Now the rating agencies, primarily U.S. are accountable before the European Commission.

Americans, like the British in the famous phrase of Count Anterroche at the battle of Fontenoy, fired first. But the outcome of the battle was not in their favors.

Here it is fortunately only financial conflicts.

But should the U.S. financial control authorities have unsheathed first, facing European sanctions, which has the arsenal of financial and legal control that they themselves furnished?

As they say, time will tell and bets are open.

Prof. Olivier Chazoule

Professor of Law, City University of New York

Director of Studies, The New York Institute for Business and Finance

Telephone (646) 775 2812

Mobile: (347) 721 1331

Website: http://nyibf.com/

Email: olivierchazoule715@gmail.com

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