Dispatch from Washington: December 2022

Time is running out for the 117th Congress to address a lengthy list of legislative items. The new Congress, which starts in January, will bring divided government back to Washington. The collapse of FTX, once one of the world’s largest crypto trading platforms, and the subsequent arrest of its founder has the industry bracing for even more scrutiny. There are signs that Republicans will target “woke” capitalism in the next Congress. Senior officials from Washington and Brussels gathered outside Washington for the third Transatlantic Trade and Technology Council (TTC) meeting. Inflation is at the lowest level since the end of last year; the Federal Reserve will continue to raise rates but at smaller increments. The White House released a framework for an AI bill of rights. The World Trade Organization (WTO) ruled that U.S. tariffs on steel and aluminum violate global trade rules. Former President Donald Trump’s legal difficulties continue to mount.

Lengthy Lame Duck Agenda Remains

The 117th Congress will wrap up in less than a month, and there are a number of priorities left on the table. The first order of required business is government funding. Current funding runs out on December 16, and both parties have been trying to cut an agreement for a yearlong omnibus senior lawmakers in funding package, yet they remain tens of billions of dollars apart—a short continuing resolution will be required to keep the government funded while negotiations continue. The National Defense Authorization Act, the annual Pentagon policy bill, which has passed every year for six decades, must also be addressed. The $858 billion measure cleared the House and is awaiting action in the Senate. Other items under consideration are Senator Joe Manchin’s (DWV) permitting reform bill, the SAFE Banking Act, and the Electoral Count Reform Act. Additionally, Senators Kyrsten Sinema (I-AZ) and Thom Tillis (R- NC) are pushing a potential deal on immigration reform, including providing legal status for 2 million Dreamers and $25 billion in increased funding for the Border Patrol and border security. They hope to strike a last-minute deal before Republicans take control of the House in January.

What to Expect in the 118th Congress

Divided government is returning. When the 118th Congress starts in early January, Republicans will have a slim 222 to 212 majority in the U.S. House of Representatives. Democrats will control the Senate with a slimmer majority than was initially expected due to Arizona Senator Krysten Sinema’s decision to leave the Democratic Party and register as an Independent. Sinema’s move will not change the power balance in the Senate, but it could complicate Senate Democrats’ agenda.

The narrow majorities in both the House and Senate suggest America remains divided, and compromise will be needed to overcome policy gridlock in Washington.

As the new Congress organizes and begins its work, both the individual party caucuses and the U.S. House as a whole will adopt rules packages that govern operations for the next two years. There are a number of potential changes under consideration, including term limits for committee chairs and ranking members (Republicans currently have a term-limit protocol, and a rules change could impose term limits on Democrats for their minority ranking members, changing the main players a range of legislative issues); “vacating the chair;” ending remote/proxy voting; replacing the select committees created by Democrats; returning to a version of the pay-as-you-go rule that prohibits increases in direct spending rather than increases in the deficit; reinstating the so-called “Holman Rule” that permits targeting the salaries of individual federal employees. Senate Democrats will largely keep their caucus rules intact for the next Congress, and the rules for the chamber are largely expected to be the same as they were for the 117th Congress.

The leadership of the House and Senate will determine committee assignments and committee leadership for the 118th Congress. Committee compositions depend on the majority parties in each chamber, the ratio of the majority to the minority, leadership negotiations, and House and Senate leadership elections.

Regarding policy, Congress and the Biden Administration will seek to address a range of issues in the coming two years, but compromise will be necessary to advance any policy agenda.

Agriculture Policy – One of the biggest ticket items lawmakers will have to address in the 118th Congress is the next Farm Bill, a multiyear bill that governs a broad range of agricultural and food programs—the current Farm Bill expires at the end of September. For its part, the Administration will want to focus on its National Strategy on Hunger, Nutrition, and Health, its roadmap of regulatory and legislative initiatives it released in conjunction with its Conference in September.

The Debt Limit – The debt ceiling, or debt limit, is another priority. The debt ceiling is the maximum amount of money that the federal government is authorized to borrow to meet its existing obligations. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit. Most recently, in December 2021, Congress increased the debt ceiling by $2.5 trillion, which means that Congress will have to raise the statutory debt limit sometime in 2023.

Defense Policy – During the 117th Congress, House Republicans said the Biden administration underfunded the defense enterprise, specifically weapons systems. In the 118th Congress, there will be pressure to increase the Department of Defense budget above the rate of inflation. One can also expect greater scrutiny of the process for transferring arms to Ukraine, and there are some calls within the Republican Conference to limit support for their war effort.

Energy and Environment – House Republicans also look to boost fossil fuels and will offer legislation to address permitting in order to increase fossil fuel production and other low- to no-carbon sources, such as renewables, small nuclear reactors, and hydrogen. The House will perform oversight of the Biden Administration’s energy policy accomplishments, including how funding is spent on projects from the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA). Expect oversight of the Department of Energy Loan Guarantee Program, OPEC, and U.S. Securities and Exchange Commission requirements for public company disclosure of risks regarding climate change. Democrats and Republicans remain deeply polarized on environmental policy; therefore, the likelihood of any real progress is very limited.

Foreign Policy – Republican leaders announced the creation of a House Select Committee on China to coordinate a chamber-wide focus on China across committees of jurisdiction, under the leadership of Representative Mike Gallagher (R-WI). China will remain central, and a growing bipartisan chorus of lawmakers will be increasingly vocal in their support for Taiwan. Bipartisan sentiment exists to punish Saudi Arabia for its oil politics, as well as its pernicious role in the Yemen war. The 118th Congress will not likely see a change in U.S. policy towards Ukraine—prior to the midterms, some analysts predicted that a strong Republican victory with populist candidates would strengthen the hand of those who want to sharply decrease US assistance to Ukraine, that Republican wave never materialized.

Congress will also need to reauthorize the President’s Emergency Plan for AIDS Relief (PEPFAR), which is set to expire on September 30, 2023—the program was last reauthorized in 2018 with strong bipartisan support.

Government Funding – Funding the government is always a priority. Lawmakers are currently negotiating the fiscal 2023 appropriations and will have to start considering the fiscal 2024 budget and appropriations in the early spring. With divided government and lower discretionary spending levels expected, there is a high likelihood of starting FY 2024 with another continuing resolution in October 2023.

Health Policy – Several healthcare topics will be the subject of oversight hearings aimed at the administration, including health sector consolidation, health system not-for-profit status, the 340B drug discount program,and issues related to the COVID-19 pandemic, including its origins and federal relief programs. Inflation, healthcare costs, and workforce shortages will also be a focal point.

Tax Policy – When Republicans last controlled the House during the 115th Congress from 2017 to 2019, a key piece of their agenda was the passage of the Tax Cuts and Jobs Act (TCJA). During the 118th Congress, House Republicans will prioritize extending various pieces of the TCJA, including doubling the standard deduction, reducing the top tax rates, and codifying pass-through deductions.

Technology Policy – A rare point of alignment between Democrats and Republicans is related to “Big Tech.” Expect action on revisions to antitrust laws, privacy legislation, and potential amendments to section 230 of the Communications Decency Act of 1996, which generally shields internet platforms from legal liability for content posted by others. Crypto-related issues will also be an area to watch (see next section).

Finally, one can expect House Republicans to place heavy emphasis on oversight and investigatory activities and will target the administration on a range of policy-related and politically motivated issues such as Hunter Biden’s business dealings, the situation along the Southern border, and the Afghanistan withdrawal. House Republicans have also indicated that they may target corporate America and what they consider to be “woke” corporate executives and “woke” capitalism (see following section).

FTX Collapse Puts Crypto in Congress’ Crosshairs

In mid-November, FTX, once one of the world’s largest crypto trading platforms, filed for bankruptcy and announced that its CEO Sam Bankman- Fried, once the face of the crypto industry in Washington, had resigned. The filing dealt another blow to the crashing crypto market and further eroded the industry’s standing in Washington. FTX is the latest, and largest, in a line of crypto companies that have been felled by volatile markets and questionable internal controls over the last year and plunged us into what’s being characterized as a “crypto winter.”

The day before he was scheduled to testify in front of the House Financial Services Committee, Bankman-Fried was arrested in the Bahamas after U.S. prosecutors filed criminal charges accusing him of orchestrating a scheme to defraud investors.

The arrest was the latest stunning development in a dramatic series of events—the criminal charges against Bankman-Fried included wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering. John J. Ray III, the new Chief Executive Officer of FTX, still testified before the House Financial Services Committee on December 13. In his prepared remarks before the Committee, Ray blamed the collapse on “absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals,”and that over his distinguished career in legal and restructuring, such an utter failure of corporate controls at every level of an organization.”

Legislatively, there are two main bills currently pending before Congress dealing with the crypto industry, as well as a number of smaller bills. The Responsible Financial Innovation Act, introduced by Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), would delineate the jurisdiction over digital assets between the Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC), allow exchanges to register with the CFTC, and create new requirements for stablecoin providers, among other things. The Digital Commodities Consumer Protection Act (DCCPA), introduced by the chairs and ranking members of the House and Senate Agriculture Committees, which oversee the Commodity Futures Trading Commission (CFTC), the agency responsible for regulating commodity markets, would grant the CFTC exclusive jurisdiction over digital commodity trades, mandate that exchanges register with the CFTC and create new disclosure requirements for digital commodity brokers, among other things. With Congress winding down, it is unlikely that either of these bills will pass before the end of the year. Nevertheless, lawmakers have made clear their intent to revisit this issue next year, and the collapse of FTX has only increased the likelihood of legislative action on crypto. Incoming House Financial Services Committee Chairman Patrick McHenry (R-NC) recently stated, “Oversight is one of Congress’ most critical functions and we must get to the bottom of this for FTX’s customers and the American people. It’s essential that we hold bad actors accountable so responsible players can harness technology to build a more inclusive financial system.” Following the fall of FTX, Senator Sherrod Brown (D-OH), chairman of the Senate Committee on Banking, Housing, and Urban Affairs, said, “The cryptocurrency market’s continued turmoil is why we must think carefully about how to regulate cryptocurrencies and their role in our economy.” There will be a tremendous amount of attention directed at the crypto industry in the 118th Congress.

There is an increasingly skeptical regulatory climate in Washington. SEC Chair Gary Gensler, who has warned about the risks of crypto for years, has repeatedly called on exchanges to register with the SEC and has said the agency is in talks with the biggest players. Gensler suggested that rules that apply to traditional brokerages to protect investors in the event of a brokerage failure could also apply to crypto. The Federal Reserve has called for subjecting crypto to the same rules that apply to banks. In October, Michael Barr, Fed Vice Chair for Supervision, said in a speech that “Crypto-asset-related activity, both outside and inside supervised banks, requires oversight that includes safeguards to ensure that crypto service providers are subject to similar regulations as other financial services providers.” Federal regulators may need to use their existing authorities to step in because the legislative process will be too slow to address the current risks.

Targeting “Woke” Capitalism

A report released in early December from the Republican staff on the Senate Banking Committee may be the opening salvo in a concerted effort to scrutinize “woke” corporate executives. The report, entitled “The New Emperors: Responding to the Growing Influence of the Big Three Asset Managers”, takes aim at BlackRock, State Street, and Vanguard (the “Big Three” asset managers) and the alleged use of shareholder voting power to advance a liberal political agenda. The report contends that the Big Three leverage their ability to vote on behalf of passive index fund investors to promote liberal political priorities such as ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion) policies.Outgoing Senator Pat Toomey (R-PA), ranking member on the Senate Banking Committee, has long raised concerns about the influence of large asset managers over banks and other public companies. This will certainly be a conversation point in the 118th Congress and these concerns are broadly shared by the incoming House Financial Services Committee Chair Patrick McHenry (R-NC) as well as the Senate Banking Committee’s incoming Ranking Member, Senator Tim Scott (R-SC). This is a marked change for Republican lawmakers, who were traditionally seen as supporting big business.

Third Transatlantic Trade and Technology Council Ministerial Convenes

Secretary of State Antony Blinken and European Commission Executive Vice President Margrethe Vestager led the latest gathering of the Transatlantic Trade and Technology Council outside Washington, DC, on December 5. Also present at the ministerial were U.S. Secretary of Commerce Gina Raimondo, U.S. Trade Representative Katherine Tai, and European Commission Executive Vice President Valdis Dombrovskis.
The TCC is “ a key mechanism to support stronger transatlantic relations and to deliver concrete outcomes.” Among the key outcomes of the third TTC Ministerial were agreements to expand U.S./EU coordination on financing digital infrastructure projects in third countries, announcing a plan to establish an expert task force to reduce barriers to research and development collaboration on quantum information science and technology, efforts to deepen cooperation on investment screening, and greater cooperation on export controls and sanction-related export restrictions. They also issued the first Joint Roadmap on Evaluation and Measurement Tools for Trustworthy AI and Risk Management (AI Roadmap)which will inform approaches to AI risk management and trustworthy AI on both sides of the Atlantic. Finally, officials announced that the U.S. Department of Commerce and the European Commission are entering into an administrative arrangement to implement an early warning mechanism to address and mitigate semiconductor supply chain disruptions. There is ongoing coordination and consultation occurring through the TTC’s ten working groups, and the co-chairs intend to meet again in mid-2023 in Europe to review their joint work and discuss new ways to expand the trans-Atlantic partnership.

Inflation Cools, Pace of Rate Increases Slows

The latest Consumer Price Index showed that inflation continued to cool—the CPI rose 7.1% in the year ending in November, down from 7.7% the prior month. The Federal Reserve has aggressively tried to get inflation under control, raising interest rates at a historic clip, tightening monetary policy more aggressively than it has in four decades, and putting interest rates at the highest level in 15 years. Raising rates too aggressively risks throwing the economy into recession as it can cool demand, making debt costlier and borrowing more difficult. There are divisions starting to appear among policymakers at the Federal Reserve according to the minutes from the November Federal Open Market Committee (FOMC) meeting.

While all 19 officials supported the rate increase, the discussion reveals that some were more anxious about the possibility of overdoing the increases, while others are concerned that they might not be making enough progress to warrant a downshift. Following the most recent FOMC meeting in mid-December, Federal Reserve Chairman Jerome Powel announced another rate hike of 50 basis points, marking a slowdown after four straight increases of three- quarters of a point, and bringing the benchmark rate to 4.25% to 4.50%.

Framework for AI Bill of Rights Released by White House

In October, the White House Office of Science and Technology Policy published The Blueprint for an AI Bill of Rights: Making Automated Systems Work for the American People for the design, development and deployment of AI and other automated systems. The document outlines what more than a dozen agencies will do to ensure AI tools deployed in and out of government align with privacy rights and civil liberties and marks the Biden administration’s first major effort to address the use of this technology across agencies. The intelligence community and Defense Department released their own AI policies last year. The Blueprint outlines a set of five principles to guide AI utilization: safe and effective systems algorithmic discrimination practices; data privacy; notice and explanation; and human alternatives, consideration, and fallback. AI.gov currently lists dozens of AI use cases across federal agencies.

WTO Rules U.S. Tariffs Violate Global Trade Rules

The World Trade Organization ruled that U.S. tariffs imposed on aluminum and steel imports in 2018 contravened global trade rules. Former President Donald Trump invoked national security concerns, and cited section 232 of the 1962 Trade Expansion Act, to justify his tariffs on steel and aluminum products from around the world. China, the European Union, Turkey, Canada, India, Mexico, Norway, Russia, and Switzerland, lodged concurrent disputes at the WTO that argued the measures violated international trade laws. At question was Article 21 of the General Agreement on Tariffs and Trade which allows members to take actions that violate WTO commitments if it is for purposes of protecting national security. The dispute with Canada and Mexico was resolved in 2020 as part of the U.S.-Mexico-Canada Agreement (USMCA), which succeed NAFTA. The Biden administration also negotiated a deal with the EU in 2021 to resolve the dispute and subsequently struck arrangements with the U.K. and Japan. The rulings in Geneva addressed the cases brought by China, Norway, Switzerland and Turkey; two other challenges brought by Russia and India are
still pending. The Biden administration issued a strong rebuke and said the rulings are further proof that the WTO dispute settlement system is in need of fundamental reform and that it would not remove the duties that Trump imposed. WTO appeals cannot currently be heard, because the Trump administration paralyzed the appellate body in 2019 by blocking the appointment of new judges.

Trump’s Legal Woes Mount

Former President Donald Trump’s legal troubles continue to grow. Days after Trump launched his third run for the White House, U.S. Attorney General Merrick Garland tapped longtime federal prosecutor Jack Smith as special counsel to head up investigations involving former President. Smith will oversee the Justice Department’s criminal investigations into the retention of national defense information at Trump’s resort and parts of the January 6, 2021, insurrection. He most recently subpoenaed local election officials in Arizona, Michigan, and Wisconsin for communication with the former President and his allies during the lead up to the 2020 election and its aftermath. The House Ways and Means Committee was finally granted access to Trump’s tax returns. House Ways and Means Committee Chairman Richard Neal (D-MA) first sought the tax returns from the IRS in 2019, the matter was litigated, and the Supreme Court finally ruled that the IRS was obligated to comply with the committee’s request. The House select committee investigating the January 6 insurrection at the U.S. attack has uncovered dramatic evidence of Trump’s actions before and on January 6, and is expected to make criminal referrals to the Justice Department later this month. In Georgia, Fulton County District Attorney Fani Willis is overseeing a special grand jury investigating what Trump or his allies may have done in their efforts to overturn President Joe Biden’s victory in the state. On December 6, Trump’s namesake business, the Trump Organization, was convicted by a New York jury of tax fraud, grand larceny, and falsifying business records in what prosecutors allege was a 15- year scheme to defraud authorities by failing to report and pay taxes on compensation provided to employees. Also in New York, in September, Attorney General Letitia James has sued Trump, three of his adult children, and the Trump Organization, alleging they were involved in an expansive fraud lasting over a decade that the former president used to enrich himself.

“Who’s Who” – Personnel Updates from the Biden Administration

Department of Agriculture – Steffanie Bezruki is now Chief of Staff to the Secretary.

Department of Commerce – Sahar J. Hafeez is now a Senior Advisor in the Bureau of Industry and Security.

Department of Defense – Leah Socha is now Special Assistant for AUKUS in the Office of the Secretary. Rheanne E. Wirkkala was confirmed as Assistant Secretary for Legislative Affairs. Tressa Steffen Guenov is now the acting Principal Deputy Assistant Secretary in the Office of the Assistant Secretary for International Security Affairs. Gordon Trowbridge is the Director, Strategic Communications in the Office of the Under Secretary for Research and Engineering.

Department of Health and Human Services – Karen T. Comfort is Deputy Assistant Secretary and Chief Diversity Officer.

Department of State – Hady A. Amr was appointed Special Representative for Palestinian Affairs at the Bureau of Near Eastern Affairs. Kelly M. Fay Rodríguez is now Special Representative for International Labor Affairs.

Department of the Treasury – Dr. Jay Curtis Shambaugh was confirmed as Undersecretary for International Affairs. Jenna Valle-Riestra is the new Spokesperson in the Office of Public Affairs. Ronald “Ron” Storhaug is now Deputy Assistant Secretary at Deputy Assistant Secretary for Tax and Budget.

White House – Judd B. Devermont is now a Special Assistant to the President and Senior Director at Africa on the National Security Council (NSC) staff. Julian C. Simcock joined the NSC staff as Director for Global Criminal Justice & Multilateral Affairs. Anthony E. Wilson is now the Senior Intelligence Advisor on the NSC staff. Devin J. Lynch is now the Director for Supply Chain and Technology Security in the Office of the National Cyber Director (ONCD). Cherylene G. “Cheri” Caddy is now Deputy Assistant National Cyber Director for Cyber Technology, Research, and Development in the ONCD. Lisa Barr is the Director for Federal Cybersecurity in the ONDC. Elizabeth R. Irwin is now Director for Cyber Policy and Programs at the ONCD. Minal “Millie” Bhatia joined the White House COVID-19 Response Team as a policy advisor. David Lyman “Dave” Noble is now Assistant to the President and Director at the Office of Management and Administration.



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© 2022 Created by ABCPRODUCTION.digital