Compliance management, the Belt and Road initiative, and artificial intelligence (AI) are the topics most discussed among corporate counsel this year. On 7 March 2017, Zhongxing Telecommunication Equipment Corporation (ZTE) announced that it had entered into a settlement with the US government regarding its conduct under investigation relating to US export controls and sanctions.
According to the announcement, ZTE agreed to a criminal and civil penalty of about US$892 million (RMB6 billion). Payment of an additional penalty of US$300 million to the US Department of Commerce’s Bureau of Industry and Security (BIS), currently suspended, will depend on how ZTE complies with the settlement agreement and how results of the independent compliance regulation and audit on the company come out in the next seven years. On 29 March, ZTE was formally removed from the Department of Commerce’s trade blacklist.
As a landmark event concerning compliance management, the ZTE case is expected to have a profound impact on the compliance management policies of Chinese companies. With extraordinary consequences that include a hefty penalty, officer accountability, institutional adjustment, and reconstruction of the work system, the case makes Chinese companies realize, for the first time, the strategic importance of compliance management.
A corporate compliance framework of international standards, which ZTE builds as required by the settlement agreement, will set an example for Chinese companies. ZTE has taken seven corrective measures related to compliance, which include a new CEO and management, a new compliance management committee, reorganization of its legal and compliance department, appointment of a US lawyer as its chief export compliance officer, improvement of its export control compliance manual, new automated tools and processes, and global export control training. These efforts have caused widespread concern among corporate counsel.
As a national strategic programme, the Belt and Road initiative has made remarkable achievements. The trade volume between China and countries along the Belt and Road, in which China has invested more than US$50 billion in aggregate, reached more than US$3 trillion from 2014 to 2016, President Xi Jinping told an international Belt and Road forum in Beijing in May. Chinese companies have entered 56 economic and trade co-operation zones built in more than 20 of these countries. To date, there are about 50 national-level state-owned enterprises (SOEs) taking part in co-operation projects located in countries along the Belt and Road.
Sparing no effort to support and motivate central SOEs’ participation in the Belt and Road, the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council has drafted the Guidelines on Preventing Legal Risks Specific to Countries along the Belt and Road, and the Guidelines on Compliance Management of Central Enterprises, which provide additional legal bases for corporate counsel work relating to the Belt and Road, which is also seeing private enterprises playing an increasingly important role.
The rising number and size of businesses going global highlights the increasing importance of legal risk control. As corporate counsel services related to the Belt and Road is concerned, there are serval major issues worth paying close attention to. First, we must enhance legal risk prevention awareness and be fully informed about developments in foreign jurisdictions. Taking a “rule of law” approach, instead of the approach customarily used in the domestic environment, to legal issues is also important.
Second, for Chinese companies, the biggest difference between the Belt and Road and previous investment introduction initiatives is that the role they play changes from fundraiser to investor. Therefore, Chinese companies need to consider, among other things, how to structure transactions, review contracts and protect rights as investors.
Third, it is necessary to take a systematic approach to the growing number of risks. While looking at project specific risks, e.g., operational risks of projects, we must not ignore policy and other general risks in the local countries or regions. Risks relating to exit from projects are as important as those faced at the time of entry.
The rapid progression of AI technologies has become the focus of attention in the world today. On 20 July 2017, the State Council published the Development Plan for the New Generation of Artificial Intelligence, which regards development of AI as a national strategy. The application of AI in the field of legal services, examples of which include ROSS (the AI-based lawyer powered by IBM Watson) and Fagougou (an AI-based integrated solution provider in China), are receiving plenty of attention.
In his book titled Tomorrow’s Lawyers: An Introduction to Your Future, Richard Susskind says that AI has driven two revolutions in the legal sector. The first involves machines helping to draft various instruments and address a variety of problems. The second, relating to big data, sees machines making predictions and analyzing data and documents. So how will the work of corporate counsel be affected by AI? To answer this question, we have to address at least three others. First, what can AI do? It is shortsighted to assert that AI will replace the human race merely in auxiliary or routine legal jobs. Instead, AI applications have promising prospects in the field of corporate counsel services, and AI will take all jobs that involve the use of logic and rationality to analyze, infer and decide. Legal professionals whose employment is threatened by AI do not only include associates, but also legal counsel who serve as experts.
Second, what can’t AI do? Given technologies to date, it is difficult for AI to replace human beings in non-rational issues, such as emotional exchanges and values identification. Machines are nothing else but tools if they are not considered “personal”, or do not have the consciousness of “subjects”. Companies hire lawyers to provide services for business divisions not only out of consideration for their expertise, but also for emotional and value factors.
Finally, will human beings allow AI to do whatever it is able to? Even if the progression of AI enables replacement of human beings in all legal jobs technically, it is unimaginable that ultimate powers of mankind, e.g., legislative power, the power to derive life, the right to run for presidency and other powers with influence on public welfare, will be put in the hands of machines. When it comes to corporate counsel services, it is also hard to imagine that all legal supports for significant decisions will be provided by machines.
Ye Xiaozhong is the president of SENIOR, a think tank for corporate counsel, and the director of the China Enterprise Legal Management Research Centre at the China University of Political Science and Law