In the October 2024 edition of The ICR D.C. Insider, we share our insights and analysis about developments in Washington including the upcoming election, SEC updates, DOJ whistle-blower program, closing a loophole on imports from China, and more news that could have an immediate and long-term impact on your business.
What’s Next In Washington
All eyes in Washington – and around the world – are focused on the November 2024 election for the presidency, one-third of the Senate, the entire House of Representatives, and key state races. How the power shifts will have a cascading impact on businesses, Wall Street and the critical political risk analysis framework of every organization. We will continue to analyze these developments, share our analysis of their impact and be available to you.
SEC
- House Republicans – And Some Democrats – Criticize Gensler – Securities and Exchange Commission (SEC) Chair Gary Gensler – along with the four other Commissioners – testified before the House Financial Services Committee. Republican members criticized Gensler across a range of issues, especially crypto-related matters. Committee Chairman and crypto supporter Patrick McHenry (R-N.C.) said at the outset that, “under Chair Gensler, the SEC has become a rogue agency.” The two Republican Commissioners echoed this criticism during the hearing, while some Democrats on the panel supported Gensler.
- Executive Compensation Rule – In his testimony on Capitol Hill, Chair Gensler said that the SEC is waiting on the Federal Reserve before moving forward with a rule on executive pay at financial firms. Gensler said he is supportive of the push to bar compensation plans that encourage inappropriate risk-taking on Wall Street.
- Climate & ESG Task Force Disbanded – The SEC disbanded its 22-member Climate and ESG Task Force within the past few months. Housed in the Enforcement Division, it was established in March 2021 for the purpose of identifying ESG-related misconduct, including material gaps or misstatements in issuers’ disclosure of climate risks, and assessing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. The SEC said that its strategy has been effective and the expertise developed by the task force now resides across the Enforcement Division.
- House Passes Anti-ESG Bills – The Republican-controlled House passed a wide-ranging set of bills that would restrict finance industry practices tied to climate and social goals. Lawmakers voted 215-203 to pass the measures, which included four bills that the House Financial Services Committee approved last summer. The pre-election messaging vote is part of a broader Republican effort to discourage investment practices seen as hostile to fossil fuels or aligned with progressive policies. This legislation is unlikely to become law this year.
- New PCAOB Standard Approved – The SEC approved the Public Company Accounting Oversight Board’s (PCAOB) new quality control (QC) standard. This standard established an integrated, risk-based quality control standard that will require all registered public accounting firms to identify specific risks to their practice and design a quality control system that includes appropriate responses to guard against those risks. In addition, firms that annually issue audit reports for more than 100 issuers will be required to establish an external quality control function (EQCF) composed of one or more persons who can exercise independent judgment related to the firm’s QC system.
Treasury Department
- Corporate Alternative Minimum Tax Rules Released – The Treasury Department released 603 pages of proposed rules for the Corporate Alternative Minimum Tax (CAMT) that outlines how large profitable companies must pay at least 15% in taxes. The CAMT, created as part of the Inflation Reduction Act in 2022, applies to companies that report more than $1 billion in income. Administration officials declined to specify when they expect to finalize the plan, saying they anticipate receiving a substantial amount of feedback from the business community, with a public hearing scheduled for January 16, 2025. The rules mark an attempt to determine, in granular and sometimes impenetrable terms, what counts as a tax toward the 15% total and what counts as income.
Justice Department
- Pilot Whistleblower & Rewards Program Update – The Department of Justice’s new three-year pilot whistleblower program has received more than 100 tips in the little more than a month since the program was launched. The highly anticipated cash-for-tips program, announced in March, was officially launched on August 1, 2024, and offers awards to individuals who bring original information or analysis relating to financial crimes, bribery, or healthcare fraud to the Justice Department.
- AI Concerns Added to Company Compliance Program Consideration – Compliance officers should now add artificial intelligence to the list of things they need to worry about, according to the Justice Department. This new guidance, known as the DOJ’s Evaluation of Corporate Compliance Programs, is an important document or lawyers and compliance officers. Officials say companies with good compliance programs – in accordance with the guidelines – are eligible for more lenient treatment even if a compliance breakdown occurs.
China
- White House Acts to Close Import Loophole – The Biden Administration will restrict the use of a trade provision that allows shipments valued at $800 or less to enter the U.S. without duty and with little scrutiny. The move comes amid a groundswell of bipartisan pressure to close what critics regard as a loophole. The White House announced that it will take executive action to try to reduce the number of parcels entering under the de minimis exemption. Under a new rule the Biden Administration intends to propose, parcels containing merchandise that would be subject to tariffs under various sections of trade law won’t be eligible for de minimis treatment. About 70% of Chinese textile and apparel shipments are covered by those tariffs and will now have to be imported through a more formal entry method, administration officials said.
- Action on Outbound Investment Screening Possible – Lawmakers who are hoping to stanch the flow of U.S. money into China’s technology sectors are turning to a time-tested method to improve their odds by appending the measure to a must-pass defense policy bill. A bipartisan amendment by Sens. John Cornyn (R-Texas), Bob Casey, (D-Penn.), and Dan Sullivan (R-Alaska), would require U.S. companies and individuals to notify the Treasury Department if their planned investment is directed toward certain critical technology sectors in China. Those sectors include semiconductors and microelectronics, artificial intelligence systems, quantum information science and technology, hypersonics, satellite-based communications, and networked laser scanning systems with civilian and military applications.
- Capital Gains Tax Curb on China Investments Proposed – Chairman John Moolenaar (R-Mich.) of the House Select Committee on the Chinese Communist Party, and Senator Marco Rubio (R-Fla.), Vice Chairman of the Senate Intelligence Committee, introduced the bicameral Patriotic Investment Act. The legislation encourages divestment from Chinese securities by removing the beneficial capital gains tax rate for these investments. Chinese investments would instead be taxed at the highest income rate. This increased rate would only apply to financial gains that accrue in the future, not gains that have already accrued. Companies and individuals would have six months to divest after passage of the Patriotic Investment Act, and they would be given the ability to spread tax payments over three years.
- Tariffs on Chinese EVs, Batteries & Solar Panels Go Into Effect – The Office of the U.S. Trade Representative (USTR) finalized its plan to raise tariffs on a slew of goods made in China, largely adopting hikes it first proposed in May. The heightened tariffs go after strategic product categories, including electric vehicles, batteries, critical minerals, semiconductors and solar cells with the final tariff structure including 14 product categories that cover thousands of items.
- House Passes 25 Bills Pushing Back on China – The House of Representatives approved a sweeping package of bills to counter China’s influence, shoring up a largely bipartisan push to keep the U.S. ahead of China across a range of issues and industries. The efforts would ban Chinese-made drones, limit China-linked biotech companies from access to the U.S. market, strengthen sanctions, and deepen ties with Asian countries, among other initiatives.
