8 ★ FINANCIAL TIMES Tuesday28 January 2020

I N T E R N AT I O N A L

K A D H I M S H U B B E R —WASHINGTON

A group of influential US lawyers has

urged Congress to toughen insider trad-

ing laws by making insiders liable even

when they do not benefit from giving

non-public information to traders.

A task force led byPreet Bharara, the

former Manhattan US attorney who led

a crackdown on insider trading after the

financial crisis, issued a reportyester-

day calling on legislators to eliminate

the so-called “personal benefit” test in

US insider trading law.

“If you have a broad personal benefit

requirement, it lets off the hook a rich

insider who steals information from his

company and benefits a crony or a

family member to the tunes of tens of

millions of dollars,” Mr Bharara told the

Financial Times. “That’s classic unfair-

ness and it has to be clear that such a

thing violates the law.”

Thereport rom eight former enforce-f

ment officials, judges and professors

comes after the House of Representa-

tives last month passed a ban on insider

trading with overwhelming bipartisan

support. The bill has yet to pass the Sen-

ate but, if adopted, it would mark the

first time the US has passed specific leg-

islation criminalising insider trading.

While many countries have specific

statutes that outlaw insider trading, in

the US decades of law have been built

upon a more general 1934 law regulat-

ing American markets.

US courts have rejected the fairness

standard used in European insider trad-

ing law, instead basing the crime on the

idea that insiders owe a duty not to

share insider information.Republicans

in the House backed the bill, called the

Insider Trading Prohibition Act, after it

was amended to retain the personal

benefit requirement that has evolved

over the years in the US courts. At the

time, Patrick McHenry, the ranking

Republican on the House financial serv-

ices committee, said the test would help

protect “good-faith traders”.

The test is founded on a 1983 decision

by the Supreme Court inDirks v SEC,

where the justices cleared a securities

analyst because he had not been moti-

vated by a personal benefit when he dis-

cussed information obtained from a

whistleblower with his clients.

As a US attorney from 2009 to 2017,

Mr Bharara embarked on an aggressive

crackdown on insider trading, including

the high-profile prosecutions ofRajat

Gupta, Raj Rajaratnam, and SAC

Capital. The spree was derailed in 2014

when the 2nd Circuit Court of Appeals

found in two other cases involving

traders that the government had not

proven a personal benefit received by

the original insiders.

The Supreme Court declined to

review that decision, but in a separate

case later clarified that if insiders are

giving tips to riends and families, theyf

personally benefit because the action is

legally the same as trading on their own

account and gifting the profits instead.

The 2nd Circuit last month said prose-

cutors using certain statutes did not

have to prove a personal benefit. “The

personal benefit requirement [that] has

grown up over time has been very con-

fusing to people,” said Mr Bharara.

“There are times when you can provide

a very impressive material non-public

tip to somebody and the question about

whatever the benefit is is unclear.”

The group led by Mr Bharara included

Joon Kim, a partner at Cleary Gottlieb

Steen & Hamilton, who was the acting

Manhattan US attorney after Mr

Bharara, and Jed Rakoff, the Manhattan

federal judge who pushed for tougher

accountability against big banks after

the 2008 crash.

The others members of “The Bharara

Task Force on Insider Trading” were

Katherine Goldstein, a partner at Mill-

bank; Melinda Haag, a partner at

Orrick; Joan McKown, a partner at Jones

Day; John Coffee, the Columbia Law

School professor, and Joseph Grundfest,

the Stanford Law School professor.

The absence of a specific ban on

insider trading has not necessarily hin-

dered US prosecutors, who have led the

way in charging even global insider

trading rings. Most recently, prosecu-

tors in the US attorney’s office for the

Southern District of New York broke up

a scheme involving a Switzerland-based

trader and bankers in London.

“The insider trading laws in other

parts of the world are actually specific to

insider trading. In that way, US laws

have fallen behind. It’s just the US is the

only authority that actually enforces it

in a meaningful way,” said Mr Kim.

The task force’s recommendations

aligned in parts with the seven-page bill

passed last year by the House, which

largely codified existing practice while

expanding the law to cover insider trad-

ing that involves hacking.

However, the group called for a

clearer distinction between the stand-

ards for civil and criminal cases and

pushed for the elimination of the

personal benefit test.

“It has generated a disproportionate

share of confusion and uncertainty,” the

report said.

Bharara report

Lawyers push to toughen US insider trading laws

Call for culprits to be

held liable even if they do

not personally benefit

D O N W E I N L A N D— BEIJING

China’s leaders arebraced for a blow to

first-quarter economic growth as the

deadly coronavirus weighs on consump-

tion, travel and manufacturing, with

some cities extending the lunar new

year break by nearly a week.

The virus, which originated in thecity

of Wuhan, has led authorities to cancel

events across the country for the nor-

mally week-long lunar new year period,

which started on Saturday.

The financial capital Shanghai has

ordered companies not to reopen until

February 9, while the manufacturing

hub of Suzhou, one of the world’s larg-

est, has postponed the return to work of

millions oflabourers for up to a week.

China’s banking and insurance regu-

lator announced moves to help busi-

nesses affected by the crisis, including a

lowering of loan interest rates.

The outbreak comes as the country is

reporting its lowest rate of economic

growth in nearly 30 years. For President

Xi Jinping the crisis represents another

major challenge on top of a popular

uprising in Hong Kong, a swine fever

outbreak that has wiped out millions of

pigs and fuelled inflation, and the trade

war with the US.

Travel restrictionsmeant railway

transportfell about 42 per cent on Sat-

urday compared with the same day last

year, according to the transportation

ministry. Passenger flights were also

down by roughly 42 per cent and overall

transportation across the country

declined about 29 per cent.

“The coronavirus makes a pro-

nounced slowdown even more likely

and if the disease is not brought under

control quickly, then even our down-

beat forecasts may turn out to be too

high,” said Julian Evans-Pritchard,

China economist at Capital Economics.

The Sars epidemicknocked quarterly

economic growth down by two percent-

age points, from 11.1 per cent in the first

quarter of 2003 to 9.1 per cent in the sec-

ond quarter. In 2019, the economy grew

by just 6.1 per cent.

“This could have a serious impact on

consumption,” said Michael Pettis, a

finance professor at Peking University

and senior fellow at Carnegie-Tsinghua

Center. “People are not going out to res-

taurants and bars.”

Airlines

Shares in carriers in Asia, Europe and

the US fell almost across the boardyes-

terday.Air France-KLM, one of a

number of European carriers with sig-

nificant Chinese exposure,shed 7 per

cent by mid-afternoon in Europe. BA-

ownerIAG ell 6 per cent, while Ger-f

many’sLufthansa as down 5 per cent.w

Even airlines with no exposure to

Chinacame under pressure on fears that

a drop-off in passengerscould reverber-

ate globally.EasyJet lipped 5 per cent,s

whileRyanair as down 3 per cent.w

Automobiles

Consumers are likely to delay car pur-

chases, analysts warnedyesterday,

while several auto executives said a reli-

ance on parts suppliers from the Hubei

region may prevent some plants reo-

pening following the new year holiday.

Wuhan s a major automotive hub,i

with plants fromNissan,PSA,Honda,

General Motors,Geely nda Renault, as

well as arange of auto parts suppliers.

Banking

Credit Suissesent its staff in Hong Kong

a memo instructing them to work from

home and not come into its headquar-

ters in the International Commerce

Center tower if they have visited the

mainland in thepast 14 days.

Fellow Swiss bankUBStold its 2,

Hong Kong workforce to stay at home if

they have travelled to China recently.

The lender, which also has 1,

employeesin Beijing, Shanghai and

Guangzhou, has set up an “internal pan-

demic website”, but all its offices remain

open, according to a spokesman.

HSBC taffs have been told not to come

into the office until February 3, the date

when the Chinese lunar new year has

been extended to by the government.

Consumer

Starbucks losed stores in Wuhan andc

McDonald’s as suspended its businessh

in Wuhan and surrounding cities where

public transport has been closed.

Heightened food safety measures were

being rolled out at the company’s opera-

tions across the country.

Matthew DiFrisco, analyst at Guggen-

heim Securities, estimated China

accounted for about a tenth of Star-

bucks’ sales.

Leisure

Therewas no official fireworks to mark

Chinese new year in Macauyesterday as

the world’s largest gambling hub can-

celled all its celebrations.

Figures fromthe tourist office show

that the number of tourists from main-

land China fell by 80 per cent on Sunday

compared to the same day last year.

The $5.5bn Disneyland park in Shang-

hai as closed, as wasw its heme park int

Hong Kong. The National Museum of

China, Forbidden City, Beijing’s Olym-

pic Stadium and parts of the Great Wall

of China were also closed.

Luxury

Chinese customers now account for

over a third of the value of luxury goods

purchases, according to Bain & Co. con-

sultants, leavinggroups such as LVMH,

Kering, Hermès and Burberry xposede

to a health crisis ikely to weigh on Chi-l

nese demand and curtail travel.

So far brands have managed to

weather the sales drop from the Hong

Kong protests because many of the pur-

chases were repatriated from the island

to mainland China, or elsewhere in Asia.

The coronavirus could change all that.

“Not only will Chinese people buy less

domestically during the key new year

shopping season, they will also have to

cancel trips abroad, during which they

often buy luxury goods,” said Joëlle de

Montgolfier, director of Bain’s luxury

practice. “Recently announced restric-

tions on travel could have real conse-

quences for the sector.”

Additional reporting by George Hammond,

Hudson Lockett, Leila Abboud, Alice Han-

cock, Myles McCormick, Stephen Morris,

Owen Walker, Peter Campbell

Gideon Rachman age 13p

Lex age 14p

Business. ownturnD

Coronavirus set to weaken China’s ailing economy

Deadly outbreak forces banks,

shops and factories to shut as

growth rate hits 30-year low

G I D E O N LO N G— LIMA

President Martín Vizcarra’s anti-cor-

ruption campaign was given a potential

boost after Peru’s main opposition

party suffered a heavy defeat in Sun-

day's congressional election.

Mr Vizcarrashut down congressin Sep-

tember after lawmakers repeatedly

obstructed his campaign to curb parlia-

mentary privilege and clean up public

office.

Opposition lawmakers decried the

move as “a coup” and branded the presi-

dent a dictator. But polls suggested the

vast majority of Peruvians — fed up with

congress’s bickering, corruption and

intransigence — welcomed the decision.

For the four months since the shut-

down, Mr Vizcarra has ruled by decree.

According to provisional results, 10

parties won seats in the 130-seat cham-

ber with no one party getting more than

11 per cent of the vote. The big loser was

the rightwing Popular Force (FP) party

led by former presidential candidate

Keiko Fujimori. It took less than 7 per

cent of the vote and looked set to win

about 12 seats, down from 73 at the last

congressional election in 2016.

Ms Fujimori’s party used its parlia-

mentary clout to bring down the previ-

ous president in 2018 and make life dif-

ficult for Mr Vizcarra. With its power

now curbed, the president may be able

to press ahead with his reform pro-

gramme, although — with no political

party of his own — he will still need to

forge alliances.

Part of the president’s mooted

reforms include scrapping parliamen-

tary immunity for lawmakers so that

they can be brought before judges more

easily if accused of crimes.

“It’s an even more fragmented con-

gress than we expected,” said Arturo

Maldonado, a political analyst at the

Pontifical Catholic University in Lima.

“There is a clear loser — Fujimori’s

movement — but there are no clear win-

ners.

“Perhaps the biggest winner is not a

party but an idea: the idea that shutting

down the previous congress was good

for the country.”

Peru goes to the polls n April 2021 toi

choose a new parliament andpresident,

meaning neither Mr Vizcarra nor the

lawmakers elected on Sunday will aveh

much time to achieve their goals.

Congressional election

Peru’s anti-graft drive boosted

by heavy opposition defeat

‘[The personal benefit

test] has generated a

disproportionate share of

confusion and uncertainty’

T

he US Senate’s ratification

of the USMCA trade deal

this month lifted four years

of nerve-racking uncer-

tainty for Mexico. A beam-

ing President Andrés Manuel López

Obrador told Mexicans to look forward

to better pay and more investment.

The leftwing leader has argued that

the revamped United States-Mexico-

Canada Agreement will help revive an

economy where investment and job cre-

ation are at their lowest in a decade,

growth has plummeted to zero and con-

sumer and business confidence are

under strain.

But eliminating Donald Trump’s

threats to slap tariffs on Mexico or scrap

the 25-year-old North American Free

Trade Agreement, while necessary, are

unlikely to be enough to reignite invest-

ment. The lacklustre economy is also

largely due to Mr López Obrador him-

self, business leaders and analysts say.

“We have seen with profound concern

how the perception of uncertainty and

hostility to private investment has

increased,”Claudia Jañez, president of

the Executive Council of Global Compa-

nies, told journalists on the eve of the

Senate vote. “It is taking a great deal of

work to convince our headquarters to

invest in Mexico,” added the Latin

American chief ofDuPont, the US chem-

icals group.

Ms Jañez’s remarks were notable

because business leaders have generally

bent over backwards to placate a politi-

cian many of them openly distrusted

before his landslide win in 2018.

“USMCA isn’t the only thing Mexico

has to do to recover investment,” said

Beatriz Leycegui, a former foreign trade

under-secretary. “The government

needs to send other types of messages —

certainty over public policies, respect

for the rule of law and contracts.”

Ms Leycegui added: “USMCA is with-

out a doubt very important but what

could have more impact is creating a

more propitious environment for

investment to flow.”

Mr López Obrador, a nationalist, has

clashed repeatedly with businesses —

despite his insistence that he respects

and needs private investment.

He scrapped the $13bn Norman

Foster-designed Mexico City airport

project, one-third built, shortly before

taking office — a move analysts said was

designed to send the unequivocal signal

that “I’m the boss now”.

He has reversed some of his predeces-

sor’s signature reforms, including halt-

ing energy auctions, and last year forced

a renegotiation of contracts with inter-

national gas pipeline companies, the

costs of which he deemed exorbitant.

CFE, the struggling state-run power

utility, is now preparing steps that could

dismantle private participation in the

electricity market and curb renewable

energy projects.

To the delight of the business commu-

nity, Arturo Herrera, finance minister,

told the Financial Times in March that a

lack of cash would delay the president’s

pet project, an $8bn refinery in his

home state of Tabasco. But the Mexican

president publicly contradicted him the

next day.

Stop-and-start decisions and contra-

dictions abound in a government in

which market-friendly personalities

such as Mr Herrera and Alfonso Romo,

chief of staff, are often overruled by rad-

ical ideologues such as Rocío Nahle, the

energy minister, orManuel Bartlett,

CFE chief executive, who styles himself

as an “ultra-nationalist”.

“The problem right now is, what are

the rules?” said the head of one Cana-

dian company investing in Mexico. “A

few years ago, with the reforms, there

was some kind of path for opportunities.

Now we’re not sure what the opportuni-

ties are.”

With some analysts forecasting the

economy may not even grow 1 per cent

this year despite growth in the US —

which, thanks to Nafta, is its partner in

supply chains in cars and electronics —

Mr López Obrador should be changing

tack. But he appears unlikely to.

With approval ratings of more than

70 per cent, he sees nothing broken that

needs fixing.

“I don’t see how we can move forward

under this model,” the Canadian chief

executive said. “We need a cri-

sis... This government isn’t doing any-

thing to entice investment. All they’re

good at is cancelling stuff.”

[email protected]

GLOBAL INSIGHT

MEXICO

udeJ

Webber

Trade pact is not enough for López Obrador to revive economy

‘A few years ago there

was some kind of path

for opportunities. Now

we’re not sure what

the opportunities are’

Chinese Premier

Li Keqiang,

centre left, talks

to shoppers

yesterday at a

supermarket in

Wuhan, where

the virus is

thought to have

originated

Chinatopix Via AP

‘This could

have a

serious

impact.

People are

not going

out to

restaurants

and bars’

JANUARY 28 2020 Section:World Time: 1/202027/ - 19:35 User:sanjay.gohil Page Name:WORLD3, Part,Page,Edition:LON, 8, 1