AMBASSADOR SEPULVEDA ON TRADE PROMOTION AND OPEN INTERNET FIGHT

FROM:  U.S. STATE DEPARTMENT
Trade Promotion and the Fight to Preserve the Open Internet
Remarks
Ambassador Daniel A. Sepulveda
Deputy Assistant Secretary and U.S. Coordinator for International Communications and Information Policy, Bureau of Economic and Business Affairs
U.S. Chamber of Commerce and Association of American Chambers of Commerce in Latin America
Los Angeles, CA

February 11, 2015

Three billion people are connected to the Internet today. And trillions of devices are set to join them in the Internet of Things. Together, the connectivity of people and machines is enabling economic and social development around the world on a revolutionary scale.

But it will take open markets, the cooperation of leaders around the world, the participation of a vibrant and diverse range of stakeholders, and strong trade agreements, with language preserving the free flow of information, to protect the Internet’s potential as the world’s engine for future growth, both at home and abroad.

As the number of Internet users worldwide has ballooned from 2 to 3 billion, the increase in Internet use creates significant economic potential. The Obama Administration is working to unlock the promise of e-commerce, keep the Internet free and open, promote competitive access for telecommunications suppliers, and set digital trade rules-of-the-road by negotiating new trade agreements. Trade Promotion Authority legislation and the pending trade agreements we expect Congress to consider over the coming months and years will provide that kind of protection. These agreements aim to ensure that the free flow of information and data are the default setting for nations. This will preserve the architecture that has empowered the Internet and global communications to fuel economic growth at home and abroad. It is in our interest, across parties and ideology, to ensure we move forward and approve TPA and the pending agreements for many reasons, but promoting the preservation and growth of global communications and the open Internet is one of the strongest.

Senator Ron Wyden, the ranking member on the Senate Finance Committee, has made the argument well, stating, "America’s trade negotiating objectives must reflect the fact that the Internet represents the shipping lane for 21st Century goods and services… Trade in digital goods and services is growing and driving economic growth and job creation all around the country. U.S digital exports are beating imports by large margins, but outdated trade rules threaten this growth by providing opportunities for protectionist policies overseas. The U.S. has the opportunity to establish new trade rules that preserve the Internet as a platform to share ideas and for expanding commerce..."

Senator Wyden is absolutely correct. Our pending agreements with nations in the Pacific community will establish rules for the preservation of those virtual shipping lanes as enablers of the transport of services and ideas, allowing startups and the voices of everyday people to challenge incumbent power in markets and ideas.

If we are successful, the partnership of nations across the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership regions coming behind agreements to preserve the free flow of information will serve as a powerful counterweight to authoritarian governments around the globe that have demonstrated a clear willingness to interfere with open markets and an open Internet. And make no mistake about it, if we do not seize every opportunity at our disposal to win commitments to an open, global Internet, we risk letting others set the rules of the road.

Authoritarian regimes view the Internet’s openness as a threatening and destabilizing influence. The Russian government, just last month, pressured social media companies to block access to pages used to organize peaceful political protests. In China, authorities have blocked Gmail and Google’s search engine. In addition to ongoing and systematic efforts to control content and punish Chinese citizens who run afoul of political sensitivities, such measures are an effort to further diminish the Chinese people’s access to information, while effectively favoring Chinese Internet companies by blocking other providers from accessing its market. And we know they are urging others to take similar action. These trade barriers harm commerce and slow economic growth, and they produce socially oppressive policies that inhibit freedom.

The rules of the road for commerce, and Internet-enabled trade and e-commerce, are up for grabs in Asia. We’re working harder than ever to bring home trade agreements that will unlock opportunities by eliminating barriers to U.S. exports, trade, and investment while raising labor, environment, and other important standards across the board. Right now, China and others are negotiating their own trade agreements and seeking to influence the rules of commerce in the region and beyond. These trade agreements fail to meet the high standards that we strive for in our free trade agreements, including protection for workers’ rights and the environment. And they don’t protect intellectual property rights or maintain a free and open Internet. This will put our workers and our businesses at a disadvantage.

We know that both old and new American businesses, small and large alike, are dependent on the global Internet as the enabler of access to previously unreachable consumers. In the U.S. alone, American Internet companies and their global community of users contribute over $141 billion in annual revenue to the overall U.S. GDP, simultaneously employing 6.6 million people. And the Internet is not simply about the World Wide Web, it is the communications platform for managing global supply chains, distributing services, and acquiring the market information necessary to succeed anywhere.

Many countries no longer primarily produce products. Rather, businesses produce product components and provide services, many of which are delivered digitally. In order to remain competitive globally and promote the capacity of businesses to innovate, the United States and our partners in the Western Hemisphere must build the Americas into a shared, digitally connected, integrated platform for global success. By working with our trade partners in Latin America and Asia to conclude the Trans-Pacific Partnership we are advancing this vision and making it a reality. We will set the standards with twenty-first century trade agreements.

We know that not everyone is convinced of the merits of open markets. And to win their hearts and minds, we have to demonstrate and communicate how these two values – open markets and the open Internet - are interconnected. And we have to show that Trade Promotion Authority and our agreements embrace the values that underpin the Internet today.

As Ambassador Froman has said, “Trade, done right, is part of the solution, not part of the problem.” And, because it is true, our progressive friends should recognize that the fight for open markets is the position most consistent with our progressive tradition and values.

It was Woodrow Wilson who said, “The program of the world's peace, therefore, is our program; and that program, the only possible program, as we see it, is this” and he listed his fourteen points. Among them was number three: “The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance.”

It was Franklin Roosevelt who asked the New Deal Congress for the first grant of trade negotiating authority.

In his remarks at the signing of the Trade Expansion Act of 1962, it was JFK who said, “Increased economic activity resulting from increased trade will provide more job opportunities for our workers. Our industry, our agriculture, our mining will benefit from increased export opportunities as other nations agree to lower their tariffs. Increased exports and imports will benefit our ports, steamship lines, and airlines as they handle an increased amount of trade. Lowering of our tariffs will provide an increased flow of goods for our American consumers. Our industries will be stimulated by increased export opportunities and by freer competition with the industries of other nations for an even greater effort to develop an efficient, economic, and productive system. The results can bring a dynamic new era of growth.”

And it is consistent with the sentiments of these giants in our tradition, our progressive tradition, that President Obama most recently stated, “Twenty-first century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world’s fastest-growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but are also fair. It’s the right thing to do.”

Friends, we have both a political and economic interest in promoting open markets and an open Internet. Preservation of these ideals is and should remain a bipartisan, and broadly held goal. It is critical to our future and contained within the language we are asking Congress to approve.

ASSISTANT AG CARLIN MAKES REMARKS AT U.S. CHAMBER OF COMMERCE CYBERSECURITY SUMMIT

FROM:  U.S. JUSTICE DEPARTMENT 

Remarks by Assistant Attorney General John Carlin at the U.S. Chamber of Commerce Third Annual Cybersecurity Summit

Washington, DCUnited States ~ Tuesday, October 28, 2014

Remarks as Prepared for Delivery

Thank you, Ann [Beauchesne], for your warm introduction and for inviting me to your annual Cybersecurity Summit.  We all benefit greatly from your leadership, especially in promoting the Chamber of Commerce’s role in national security.

In establishing an annual gathering focused on cybersecurity challenges, the Chamber of Commerce continues to demonstrate its commitment to keeping our nation secure, and to lowering barriers for American businesses to compete fairly in our global economy.  The fact that this is your third annual cybersecurity summit is a testament to the growing magnitude of these threats and your commitment to make cybersecurity central to your business plans.

This is an important issue, and one I know the Chamber has emphasized as part of its National Cybersecurity Awareness Campaign, which kicked off in May.  In the campaign roundtable events leading up to today’s summit, the Chamber stressed the importance of cyber risk management and reporting cyber incidents to law enforcement.  I couldn’t agree with these two recommendations more.  Today’s event is our opportunity to discuss how we can take these steps and others to best protect ourselves and our nation.

Cybersecurity threats affect us all – and they affect our privacy, our safety, and our economic vitality.  They present collective risk; disrupting them is our collective responsibility. The attackers we face range in sophistication.  And when it comes to nation states and terrorists, it is not fair to let the private sector face these threats alone.  The government ought to help, and we do.

At the National Security Division, we focus on tackling cyber threats to the national security – in other words, those posed by terrorists and state-sponsored actors.  As I will talk about a bit later, we have restructured our division to focus on bringing all tools to bear against these threats.      

Likewise, Chamber members have a particularly important role to play in our strategy.

You are living through these consequences with alarming frequency: according to Brookings, 97 percent of Fortune 500 companies have been hacked.  PwC released a report this week finding that the number of detected cyberattacks in 2014 increased 48 percent over 2013.  As FBI Director James Comey said, “there are two kinds of big companies in America: those who have been hacked . . . and those who don't know they've been hacked.”

We are on notice.  We are all targets.  I would venture to say everyone in this room has, in their professional or private life, been affected by a cybersecurity breach.  At best – a minor inconvenience.  A re-issued credit card.  At worst – devastation to your company’s reputation, loss of customer trust, and injury to your bottom line.

Without taking proper steps – it is a question of when, not if, a major public breach will happen to you.  And with that will come questions about whether you did enough to protect your company, your customers, and your information.

Have you thought ahead to the day when you will have to face your customers, your employees, your board, and your shareholders.  When you will have to notify them that someone has infiltrated your company and stolen your most valuable or private information?  If that day was today, could you tell them that you’ve done everything in your power to protect your company’s future?  Had you warned them of the risks?  Would you be able to say that you minimized the damage?

Do you have a plan?

It’s a pretty daunting scenario.  So it is no surprise that surveys of general counsels identify cybersecurity as the number one issue on their minds today.  But surveys show that over a quarter of Fortune 500 companies still don’t have an established response to cyber intrusions.

This is risky business.  We know that we will never achieve impenetrable defenses.  That we will remain vulnerable.  But you can take steps to mitigate the risk, protect yourselves and your companies, and ultimately, the cybersecurity of the United States.

We have identified four essential components of corporate cyber risk management.

First – equip and educate yourself.  Make sure you have a comprehensive—and comprehensible— cyber incident response plan.

And review it.  I have spoken with many CEOs and general counsels who have said they have not reviewed, or cannot decipher, their company’s plan.  We must do better.  These are C-suite decisions.  You cannot manage your corporate risk if you do not understand it.

Make sure it addresses the “who,” the “what,” and the “when.”

Who is involved and who needs to be notified?

What will you disclose?

When will you notify clients, law enforcement, and the general public?

Second – know that your business contacts create risk.  Malicious actors can exploit your outside vendors—no matter how resilient you think your defenses may be.  Consider guidelines to govern third-party access to your network and ensure that your contracts require vendors to adopt appropriate cybersecurity practices.

Third – protect your bottom line.  Companies are increasingly considering cyber insurance, and you should consider how this may fit into your risk management strategy.  Cyber insurance may offer financial protection, and may also incentivize companies to audit their system’s defenses.

Finally – do not go it alone.  Some of our attackers are linked to deep state military budgets.  And when they are, it’s not a fair fight for you to take on alone. We must work together.

So working with us can be one more component of your risk-management strategy.  As more breaches are publicly acknowledged, the public will ask how quickly and effectively you responded.

As leaders, you will have to answer to your shareholders, board members, customers, the media and the public.  You will want to say you did everything you could to mitigate your financial loss.  Your company’s bottom line, and your financial reputation, will depend on it.  And we can help.  We can provide you with information to protect your networks, and we may be able to take actions to disrupt and deter the attackers that you cannot take by yourself.  So you are on the front lines of these battles, but we are with you.  We are committed to working with you to protect your networks, identify perpetrators, disrupt their efforts, and hold them accountable.  At the Department of Justice, this is among our top priorities.

At the National Security Division, we recently appointed new senior leadership to strengthen our capacity to protect national assets from cyberattacks and economic espionage. We created and trained the nation-wide National Security Cyber Specialists’ – or NSCS – Network to focus on combating cyber threats to the national security.

At DOJ, we follow the facts and evidence where they lead – whether to a disgruntled employee or lone hacker working in obscurity; to an organized crime syndicate in Russia; or even to a uniformed member of the Chinese military.

And indictments and prosecutions are a public and powerful way in which we the people, governed by the rule of law, legitimize and prove our allegations.  As Attorney General Holder said in May, “enough is enough.”  We are aware of no nation that publicly states that theft of information for commercial gain is acceptable.  And that’s because it’s not.  Nevertheless, in the shadows of their flags, some may encourage and support corporate theft for the profit of state-owned enterprises.  We will continue to denounce these actions, including by bringing criminal charges.  And we won’t stop until the crimes stop.  A core part of the government’s response must be disruption and deterrence, in order to raise the costs to people who commit these thefts and to deter others from emulating their actions.

Of course, we recognize that the criminal justice system is just one tool in our toolbox.  In addition to prosecutions, we are working in conjunction with key government partners to explore how to apply designations, sanctions, trade pressure, and other options, to confront new cyber challenges.

These changes will help us fulfill our collective responsibility.  And they will help us work with you.

Which is important because we rely on cooperation from the private sector to bring many of these cases, from identifying the malware and its functions, to pinpointing the location of servers commanding botnets, to assisting victims in removing the malicious software from their computers.

Take as one example the take-down of Gameover Zeus and disruption of the Cryptolocker ransomware – a big success for our colleagues in the Criminal Division’s Computer Crimes and Intellectual Property Section and the Western District of Pennsylvania.  This take-down would not have been possible without close cooperation.  The FBI’s Robert Anderson called it the “the largest fusion of law enforcement and industry partner cooperation ever undertaken in support of an FBI cyber operation.”

We recognize that one of the best ways to protect the nation is to support you in your own efforts.  In 2013, federal agents informed over 3,000 companies that their computer systems were hacked.  And every day, the FBI works with companies targeted by malicious activity, ranging from low-tech denial of service attacks to sophisticated intrusions by elite, state-supported military hacking units.

But, we’re not limited to helping you solely in the aftermath of an intrusion.

Nor do we see our role as only a collector of information.

We also share sensitive information with you so you can defend against attacks in real time, and engage in disruption efforts.  In the past year alone, the FBI presented over three dozen classified, sector-specific threat briefings to companies like yours.

The information we share with you may enhance your ability to deter future intrusions.  And your engagement with law enforcement can help us connect the dots between your breach and a broader threat.

We may be able to help identify what was stolen from you, locate the perpetrator of the attack, and in certain cases, be able to disrupt planned attacks or mitigate the effects of past intrusions.

Given the importance of this cooperation, the Department of Justice is committed to lowering the barriers to sharing information.  Through extensive one-on-one meetings with in-house legal teams, we learned what you perceive to be the legal hurdles to cooperation, and are addressing them.  

We’ve clarified that certain laws - such as the Stored Communications Act and antitrust statutes – are not impediments to sharing information with the government in certain situations.

We understand that trust is an essential predicate to voluntary reporting.  And in our work with you, we strive to protect your sensitive data – including trade secrets, details of network architecture, and PII.

Bottom line, we can help you manage your risk, and you can help us keep our nation safe.

The 9/11 Commission recently concluded that “we are at September 10th levels in terms of cyber preparedness,” and warned that “history may be repeating itself in the cyber realm.”  We must band together to keep that from happening.

At the department, we want to arm ourselves for the threats of today, but prepare ourselves for those that are just over the horizon.

Think about the tools that cyber criminals use – intrusion software, ransomware, and botnets.  When used by cyber criminals, these tools are generally used for financial gain.  But these tools can also be used to disrupt and destroy.  Terrorists have stated they want to exploit cybersecurity vulnerabilities to harm our way of life.  Al Qaeda announced its intent to conduct cyberattacks against civilian targets such as the electric grid and financial system.

The Department of Homeland Security recently confirmed it is investigating two dozen cybersecurity flaws in medical devices and hospital equipment that could be exploited to injure or kill a patient with a few strokes on a keyboard.  The threats are real.

We must acknowledge that terrorists want to acquire these cyber capabilities and, if they succeed, will not hesitate to deploy them.  It is a race against time, and one with high-stakes consequences.

At the department, we are also looking at the gaps that may exist in our authorities.  Many of our laws – long on the books – were not written with cyberspace in mind.  They don’t necessarily contemplate remote access or extraterritorial crimes, they don’t facilitate multi-jurisdictional investigation, and they don’t always empower us to bring our authorities to bear swiftly and effectively.  But we are committed to working with the relevant law- and rule-makers who support modernizing these laws.  New cyber legislation, in several different areas, is needed.

I want to conclude my remarks by discussing the changing perceptions of being hacked.  Among consumers and industry, there is a growing understanding that companies are going to get breached.  But that doesn’t mean you should turn the other way.  There is an enormous downside to taking an “ostrich approach” to cyber threats.  Consumers expect that companies will adopt industry standards for cybersecurity.  And when intrusions happen, consumers expect companies to respond promptly, acknowledge the intrusion publicly, and cooperate with law enforcement to mitigate the damage.

The Chamber of Commerce and its members are uniquely positioned to drive corporate change; to ensure that your companies and your partners treat cyber breaches as more than mere technical problems; to recognize that security operations are not insulated from business operations; and to discuss with your boards, your employees, and your industries the importance of cybersecurity risk management.

As we face ever more threats in cyberspace, let’s incorporate public-private cooperation into our cyber tool kit.  The threats aren’t letting up, and neither will we.  Thank you very much for inviting me.

CFTC CHAIRMAN GENSLER ADDRESSES U.S. CHAMBER OF COMMERCE

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION,
Remarks of Chairman Gary Gensler Before the U.S. Chamber of Commerce Seventh Annual Capital Markets Summit
April 10, 2013

Good afternoon, thank you David for that kind introduction. I’d also like to thank the Chamber of Commerce for inviting me to speak at your annual Capital Markets Summit. I’m honored to be joining this summit for the fourth year in a row.

Your conference is about managing risk in a global economy so I want to start by addressing what may be one of the most significant risks you’re facing in the capital markets.

That is the risk to market integrity of the continued use of LIBOR, Euribor and similar benchmark interest rates.

Interest rate benchmarks – central to borrowing, lending and hedging in our economy – are of critical importance to members of the Chamber.

LIBOR, as you may know, purports to represent the rate at which unsecured borrowing occurs between large banks. The insufficient number of transactions in this market, though, undermines market integrity.

Given their fundamental role in the capital markets and our economy, benchmark rates must be based on facts, not fiction.

Prices and rates formed by the competitive forces of supply and demand in a robust, transparent marketplace are the best guarantee of a reliable price or rate. Yet hundreds of trillions of dollars of financial instruments and contracts rely upon a benchmark referencing a market where essentially no borrowing occurs.

Banks simply are not lending to each other as they once did. In 2008, Mervyn King, the governor of the Bank of England, said of LIBOR: "It is, in many ways, the rate at which banks do not lend to each other."

This is a result of many factors: the 2008 crisis, the continuing European debt crisis, the downgrading of large banks’ credit ratings, as well as central banks providing significant funding directly to banks. Recent changes to Basel capital rules, including the new liquidity coverage ratio, suggest that banks may not return to interbank lending on an unsecured basis.

The shift away from banks funding each other in the unsecured market (without posting collateral) has led to a scarcity or outright absence of actual transactions underpinning LIBOR and other benchmark rates.

This situation – having benchmark rates that are not anchored in actual transactions – undermines market integrity and leaves the financial system with benchmarks that are prone to misconduct.

Indeed, as law enforcement actions brought by the Commodity Futures Trading Commission (CFTC), the U.K. Financial Conduct Authority and the U.S. Justice Department have shown, LIBOR and other benchmark rates have been readily and pervasively rigged.

These cases resulted in Barclays, UBS and RBS paying fines of approximately $2.5 billion for manipulative conduct relating to these rates. At each bank, the misconduct spanned many years.

At each bank it took place in offices in several cities around the globe.

At each bank it included numerous people – sometimes dozens, among them senior management.

Each case involved multiple benchmark rates and currencies. In one case, there were over 2,000 instances of misconduct over a six-year period.

And in each case, there was evidence of collusion.

In the UBS and RBS cases, one or more inter-dealer brokers painted false pictures to influence submissions of other banks, i.e., to spread the falsehoods more widely.

Barclays and UBS also were reporting falsely low borrowing rates in an effort to protect their reputations.

Beyond these cases, there is a significant amount of publicly available market data that further calls the integrity of LIBOR into question.

A comparison of LIBOR submissions to the volatilities of other short-term rates reflects that LIBOR is curiously more stable than any comparable rate. For instance, how is it that in 2012 – if we look at the 252 submission days for three-month U.S. dollar LIBOR – the banks didn’t change their rate 85 percent of the time?

When comparing LIBOR submissions to the same banks’ credit default swaps spreads or to the broader markets’ currency forward rates, why is there a continuing disconnect between LIBOR and what those other market rates tell us?

Whether we consider the broad structural shift away from unsecured, interbank lending; the recent enforcement actions; or questions about market data, confidence in the continued use of LIBOR and other similar interest rate benchmarks is undermined.

For capital and risk to be efficiently allocated within the economy – which is of vital importance to Chamber members – interest rate benchmarks should reflect actual price discovery anchored in observable transactions.

While ongoing international efforts targeting benchmarks, which I am pleased to be a part of, will focus on governance principles for benchmarks, these efforts cannot address a central vulnerability of LIBOR: the lack of transactions in the underlying market.

The time has come for U.S. regulators to work with our counterparts abroad, along with market participants, such as the people in this room, to promptly identify alternative benchmarks that are anchored in observable transactions and determine how to transition to such alternatives. The transition must be as smooth and orderly as possible, but given the vulnerabilities in the system, I believe that a transition is warranted.

The market has some experience with benchmark transitions, albeit for smaller contracts. When the euro was created, a number of interest rate benchmarks were discontinued. How many of you remember PIBOR, RIBOR, MIBOR and FIBOR? Transitions have also occurred for energy and shipping rate benchmarks.

I recognize that moving on from LIBOR and Euribor may be challenging. But continuing to support LIBOR and Euribor in the name of stability may have the opposite effect. Using benchmarks that threaten market integrity may create more instability in the long run.

The status quo leaves your members at risk that benchmarks that were rigged in the past may be exposed to rigging again in the future.

That risk is neither good for the capital markets nor for our economy.

Swaps Market Reform

Now, let me turn to swaps market reform.

Your members benefit from transparent and efficient derivatives markets. Both futures and swaps markets provide the opportunity to hedge a risk by locking in a future price or rate. Managing the price risk of energy or agriculture or the rate risk of interest rates or foreign currency allows your members to focus on what they do best – innovating and producing goods and services for the economy.

The derivatives markets work best for farmers, ranchers, producers and commercial companies when they are transparent; competitive; and free of fraud, manipulation and other abuses. The implementation of the common-sense reforms in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) brings these benefits to the once opaque and unregulated swaps market.

Transparency lowers costs for businesses and consumers, as it shifts information from dealers to the broader public. Post-trade transparency has come to the marketplace. The price and volume of transactions is available to the public on a website, like a modern-day ticker tape.

Seventy-five swap dealers and two major swaps participants are now provisionally registered. With this new oversight, they are subject to standards for sales practices, recordkeeping and business conduct to help lower risk to the economy and protect the public from fraud and manipulation.

As of last month, the public is benefiting from the greater access to the swaps market and risk reduction that comes with central clearing. Swap dealers and the largest hedge funds began clearing the vast majority of interest rate and credit default index swaps. Compliance will continue to be phased in throughout this year.

Swaps Reforms Benefit End-users

Each component of swaps market reform has been done with an eye toward ensuring they work for end-users, America’s job providers. It’s the end-users in the non-financial side of our economy that provide 94 percent of private sector jobs.

Congress provided in the Dodd-Frank Act that end-users should be able to choose whether or not to clear swaps that hedge or mitigate commercial risks. Last summer, the Commission finalized rules to implement this exception, including for small financial institutions.

As the Chamber calls for in your Financial Regulatory Reform 2013 Report Card, the Commission’s proposed rule on margin provides that end-users will not have to post margin for uncleared swaps. We also continue to advocate with global regulators for an approach consistent with that of the CFTC.

Non-financial companies, other than those genuinely making markets in swaps, will not have to register as swap dealers.

Further, the CFTC has ensured that when end-users are required to report their transactions, they are given more time to do so than other market participants.

Exceptions for Inter-affiliate swaps

Also of importance to your members, last week the CFTC finalized a rule to exempt swaps between certain affiliated entities within a corporate group from the clearing requirement.

In addition, CFTC staff issued a letter last week exempting swaps between affiliated counterparties that are not swap dealers or major swap participants from certain swap reporting requirements. This "no-action" letter extends to swaps between almost all non-financial affiliates.

Treasury Affiliates

We’ve received many comments and had many meetings with non-financial end-users that about required clearing if they use a treasury affiliate when entering into their market facing swaps. Though I don’t have any announcements today, let me assure you that the staff and Commission are taking a close look at how to appropriately address these issues in the context of the Dodd-Frank Act.

Further Implementation of Swaps Market Reform

Pre-trade Transparency

Looking forward, it’s a priority that the Commission finishes rules to promote pre-trade transparency, including those for swap execution facilities (SEFs) and the block rule for swaps.

Pre-trade transparency will allow buyers and sellers to meet and compete in the marketplace, just as they do in the securities and futures marketplaces. Market participants will be able to view the prices of available bids and offers prior to making their decision on a transaction.

End-users will get to see the pricing and volume of swap transactions on these platforms, but get to choose whether or not to use them. Furthermore, companies will continue to be able to rely on customized transactions to meet their particular needs, as well as to enter into large block trades.

Cross-border

Looking forward, it’s also a priority that the Commission ensures the cross-border application of swaps market reform appropriately covers the risk of U.S. affiliates operating offshore. During a default, risk knows no geographic border.

If a run starts in one part of a modern financial institution, whether it's here or offshore, the risk comes back to our shores. That was true with AIG, which ran most of its swaps business out of the London neighborhood Mayfair. It was also true at Lehman Brothers, Citigroup, Bear Stearns and Long-Term Capital Management.

Thus, as the CFTC completes the cross-border guidance, I believe it’s critical that Dodd-Frank swaps reform applies to transactions entered into by branches of U.S. institutions offshore, between guaranteed affiliates offshore, and for hedge funds that are incorporated offshore but operate in the U.S. Where there are comparable and comprehensive home country rules abroad, we can look to substituted compliance, but the transactions would still be covered.

If we fail to provide common-sense oversight to offshore affiliates of U.S. entities, American jobs and markets may move offshore, but, particularly in times of crisis, risk would come crashing back to our economy and could affect your businesses all over again. As I’m standing here speaking with the American Chamber of Commerce, which has the words "JOBS" in giant letters on the front of your building, I would imagine we would agree that this would not be a good result for the American public.

Ensuring we get the cross-border application of swaps reforms right is critical to protecting you members from the risk of another foreign-affiliate failure.

Conclusion

I was flattered to see that this year, the CFTC got a slightly better grade in your annual report card than last year – you moved us up to a C+ from a C.

I also noticed that derivatives reform was graded higher than all the other issues you covered, except "Preserving the Integrity of Accounting and Auditing."

More seriously, I was pleased to see that we agree on your overall statement on derivatives reform: moving the vast majority of swaps into central clearing and onto transparent exchanges increases transparency and lowers risk.

As I’ve said in past speeches to you, why aren’t we more aligned? We both want more transparency, openness and competition in these markets, which lowers costs for companies and their customers.

And we cannot forget the real scorecard for so many Americans that resulted in eight million jobs lost.

NSA AND U.S. CYBERSECURITY

From:  U.S. Department of Defense

FROM: U.S. DEPARTMENT OF DEFENSE
U.S. Should Lead Cybersecurity Efforts, NSA Director Says
By Amaani Lyle
American Forces Press Service

WASHINGTON, Oct. 4, 2012 - Analyzing and solving the challenge of cybersecurity is critical to the global economy, the National Security Agency director said during the U.S. Chamber of Commerce Cybersecurity Summit here today.

U.S. Army Gen. Keith Alexander, who also heads U.S. Cyber Command and the Central Security Service, discussed the costs and consequences of cybersecurity issues on commerce during his keynote address at the summit.

Well-known, seemingly invulnerable companies such as Symantec, L3, Sony, Google, Visa and even the U.S. Chamber of Commerce itself have been hacked, Alexander said, noting that even the military and government agencies have fallen prey to hackers.

"Either you know you've been hacked, or you've been hacked and you don't know you've been hacked," Alexander said. The greatest threats stem from theft of intellectual property, and disruptive attacks, Alexander said, citing examples since May 2007 that include attacks against Estonia, Georgia, Latvia and Lithuania.
"Distributed denial of service attacks ... are gaining in momentum, intensity and frequency," he said, emphasizing the urgency of defending the United States from attacks and exploitation.

Industry partnership with government agencies such as the Defense Department, Department of Homeland Security, and Federal Bureau of Investigation to counter threats will be a critical component of fortifying cybersecurity, Alexander said, noting that U.S. should develop the solution.

"Our country ... built this Internet and all the stuff that goes with it, and it is absolutely superb," Alexander said. "We're the nation that developed the Internet; we ought to be the first to secure it."

According to Alexander, last year, the average number of emails sent per day was 419,000 billion, or about 70 emails per person. Additionally, there were 4.7 billion Google searches per day and still billions of steadily increasing bytes of global traffic, the general explained.

From a commerce perspective, the growth of new major companies in less than a decade demonstrates the importance of protecting intellectual property and proprietary information, Alexander said. The general offered compelling examples of growth and how quickly it could have been stymied if privileged information had been compromised.

In 2002, he said, Amazon was worth $851 million, compared to $12.83 billion today. Apple, worth $5.7 billion in 2002, is now worth a staggering $148 billion today. Google, worth $3.1 billion in 2004, is now valued at $43 billion in 2012, he said. "The value ... is extraordinary," Alexander said, adding that the government depends on similar networks to defend the country.

"If we've all been hacked, that means that we can all be attacked, and if we can be attacked, we have a vulnerability that ... is critical to the operation of this country," the general said.

Education, training and a defensible architecture such as cloud computing, however, can help steel government networks from such vulnerabilities, Alexander explained. "The cloud ... has tremendous opportunities for a more defensible architecture," Alexander said. "So ... the Defense Department and the [intelligence] community moving to a thin, virtual client approach makes a lot of sense."

Alexander also noted the importance of military, government and industry developing a common view of cyberspace issues and their solutions. "We have to have that understanding, especially when you talk to your [chief executive officers] and others about the solutions that you're trying to put in there," he said.

EXTENDING PERMANENT NORMAL TRADE RELATIONS TO RUSSIA

Photo:  Cargo Ship.  Credit:  Wikimedia.

FROM: U.S. DEPARTMENT OF STATE

The Economic and Strategic Case for Extending PNTR to Russia

Remarks
William J. Burns
Deputy Secretary
U.S. Chamber of Commerce
Washington, DC
September 6, 2012
Thank you. It’s an honor to be here with Under Secretary Sanchez at the U.S. Chamber of Commerce. It’s an honor to be introduced by Susan Schwab, for whose service as U.S. Trade Representative I have great admiration, and who did so much during her tenure to advance American economic interests in Russia. And it’s an honor to speak to you briefly today about an issue that matters to all of us -- the economic and strategic argument for extending Permanent Normal Trade Relations (PNTR) to Russia.

I have spent a good deal of my checkered diplomatic career helping Administrations of both parties navigate the complexities of the U.S.-Russia relationship. I’ve seen moments of great promise in that relationship, as well as periods of sharp and sometimes abiding differences. Through it all, I’ve tried my best to keep focused on what’s at stake for America’s own interests, as well as for Russia’s long-term evolution. That sense of focus is not always easy to sustain amidst the push and pull of events in both our countries, and in the world around us, but it’s essential to understanding the importance of extending PNTR to Russia today.

This afternoon’s meeting is well-timed. Tomorrow night, Secretary Clinton will touch down in Vladivostok for the 2012 Asia-Pacific Economic Cooperation Summit where liberalizing trade is expected to be high on the agenda. This is the first time Russia has hosted APEC. But more importantly, Russia is convening this gathering as the newest member of another group: the World Trade Organization (WTO).

Russia’s membership in the WTO is a major milestone, reflecting the strong, persistent support of the last three U.S. Administrations. However, until Congress acts to extend PNTR to Russia, our businesses will be deprived of an unprecedented opportunity to boost trade with one of the largest and fastest growing markets in the world.

A vote to extend PNTR is not a favor to Russia. It is a vote to create and sustain jobs in the United States. PNTR legislation has attracted bipartisan support in both chambers of Congress and from leaders of states across the country. They have lined up to make clear that PNTR is a vital opportunity to keep our companies competitive and help create new, high-quality American jobs. Continuing to deny PNTR for Russia at this stage only hurts American companies and workers, who are facing fierce economic competition—in more sectors and from more places than ever before.

At a time when our leadership in the world depends on shoring up our economy at home, the potential upside to opening the Russian market to U.S. goods and services is considerable. Russia today is the 7th largest economy in the world, but only our 20th largest trading partner. Yet, for many U.S. states, exports to Russia are growing faster than exports to the rest of the world; in April alone, U.S. goods exports to Russia reached $1 billion, a new record level. The U.S. Department of Commerce estimates that at least 5,000 American jobs are supported for every $1 billion of U.S. exports.

But until the WTO Agreement applies between the United States and Russia, America’s competitors will enjoy more liberal treatment for exports of goods and services and stronger commitments on protection of intellectual property rights--American companies will not. Until the WTO Agreement applies between us, Russia will be under no obligation to apply science based food safety standards to U.S. agricultural exports, leaving poultry and beef producers in Delaware, Arkansas, and Montana vulnerable. And until the WTO Agreement applies between us, we will not have the same recourse as our competitors to the WTO’s binding dispute resolution mechanism to ensure that Russia complies with its WTO commitments.

Failing to lift Jackson-Vanik and extend PNTR will not penalize Russia, nor will it provide an effective lever to change the Russian Government’s behavior. However, extending PNTR is a smart strategic investment that over the long term can help create a better, more predictable partner for the United States and contribute to Russian efforts to build a more transparent and accountable political and economic system.

Russia today is very much at a crossroads. As demonstrations across Russia over the last nine months have reminded us, a growing number of Russians both in and out of government want to see their country develop into a modern state with a diverse and competitive economy. But those determined Russians, many from the emerging middle class, are not only driven by a thirst for economic prosperity, but for a voice in how decisions are made in their society—for the predictability and accountability that come with rule of law.

While we do not expect change to occur overnight, this is a trend-line that is increasing in pace--and one we should support. Extending PNTR and thereby increasing U.S. trade with Russia can strengthen the hand of Russians who want an outward-looking society and an economy that depends more on the innovativeness and resourcefulness of its people, rather than on resources pulled out of the ground. It can also provide positive reinforcement to those working to create a level playing field, with transparent, predictable rules to serve as a hedge against corruption and further Russia’s political modernization. These are not just my own views. They are the arguments of some of the Kremlin’s harshest critics who have called on the United States to terminate Jackson-Vanik. That does not diminish their deep concerns about human rights and the Magnitskiy case–concerns which we strongly share.

Neither WTO membership nor extending PNTR to Russia can instantly create the kind of change the Russian people are seeking. PNTR should be one part of a stronger and fuller rule of law framework that we pursue with Russia, combined with the investment protections that would come with a new Bilateral Investment Treaty and implementation of the OECD Anti-Bribery Convention, which Russia joined earlier this year. These steps will not transform Russia’s economy overnight. But they will help integrate Russia into the global economy and send strong signals to investors about Russia’s commitment to strengthening rule of law.

As I said earlier, I’ve learned in many years of helping to navigate U.S.-Russian relations that we have to be realistic about the challenges which lie ahead.

We have serious and enduring differences with Russia that PNTR will not change. We continue to disagree fundamentally about Georgia, whose sovereignty, territorial integrity, and independence we firmly support. We also disagree fundamentally about Syria, where no stable outcome is possible as long as Bashar al-Asad remains in power, shedding the blood of his own people and risking a spillover of sectarian violence in a region that already has more than its share of troubles. Russia must make a choice here in determining where its interests lie. In the meantime—with Russia’s help or without it—we will continue to work with others in the international community to seek an end to the violence and to develop concrete steps to support a real political transition that advances the processes of reform, reconciliation, and reconstruction.

We also have profound differences with Russia over human rights. We want to see Russia emerge as both a global power and a vibrant democracy with strong rule of law. And we are seeing a new generation of Russians asking important questions of their own leaders. Without an active and independent media, how will Russia succeed in rooting out corruption and its debilitating effects on the economy? How will Russia build a modern political system responsive to modern challenges unless its citizens and activists can freely express dissenting views, without fear of political prosecution? How can Russia strengthen accountability in governance when whistleblowers like Sergey Magnitsky are arrested or killed for pointing out fraud and abuse? What will Russia do to develop a strong, capable civil society when NGOs receiving foreign funds are stigmatized with misleading labels?

While we cannot and should not impose American solutions, we can and do support those Russians who are seeking answers to these tough questions about their nation’s future. We are already taking concrete steps, using existing restrictions on human rights abusers, to ensure that no one implicated in the death of Sergey Magnitsky can travel to the U.S. We will also continue to support programs that bolster Russia’s civil society and strengthen the hand of those seeking a freer and more open and democratic future for Russia.

By now it should be clear, this is not a simple or easy relationship. Given the complexities and hard work involved, it may be tempting to downplay Russia’s importance. We do not have that luxury. Russia is a permanent member of the UN Security Council and one of the world’s largest nuclear powers, and it will remain profoundly in America’s interest to work with Russia where our interests overlap. Already over the last three years we have shown that we can achieve significant results, including on reductions of strategic nuclear weapons and on Afghanistan, where Russia has proven itself a valued partner in ensuring the safe transit of our personnel and equipment to the region. With PNTR, we hope to add expanded trade to this list.

We are encouraged that committees in the Senate and the House have passed PNTR legislation with broad bipartisan support. We also understand that it is likely that a PNTR bill will be considered by both chambers of Congress along with legislation addressing the tragic case of Sergey Magnitskiy. We continue to believe that the case for extending PNTR to Russia stands on its own merits. And, in close consultation with Congress, we will continue to seek out the most effective avenues to address the Magnitskiy case and human rights more broadly.

The economic and strategic stakes are clear. And so is the choice before Congress. Either give Americans the chance to compete on a level playing field in an important market—or we can ensure that the opportunities we worked so hard to create are seized not by Americans, but by workers and businesses beyond our shores. We urge Congress to take action as soon as possible.

Thank you again for the opportunity to meet with you today. Thank you for all your efforts on this important issue. And thank you for everything that the U.S. Chamber does to help ensure that Americans understand the growing connection between economic renewal at home and opening up new markets and new possibilities overseas. I look forward very much to continuing to work with you in that enormously important mission. Thank you.