The beginning of the year is a good time to examine and prepare for business and legal risks companies will be facing this year. The past year brought a range of unexpected events: Hamas’s attack on Israel, the removal of the Speaker of the U.S. House of Representatives, the collapse of FTX and the conviction of its CEO, and the rise of generative artificial intelligence (“GenAI”). The year ahead promises a new slate of opportunities that come with a host of risks to companies that are known and unknown. Planning for these risks now can help mitigate risks by having a game plan to address likely scenarios before a crisis happens.
Below are the areas of risks with the potential to generate increased legal liability in 2024:
Increasing geopolitical instability will have direct legal impacts for companies, including the potential need to comply with increasing sanctions and anti-money laundering requirements, especially related to terrorist financing. The impact will also be felt through complicating trade restrictions and tariffs, as well as burdens on supply chains, driving up costs, and leading to uncertainty about projected deliveries. Ukraine and Russia, the Middle East, and the South China Sea are all known hot spots, but over 60 countries (an estimated one-half of the world’s population) will hold elections this year. As the biggest election year in history begins, there is a growing concern for what many of these elections will mean for democracies around the world, and in turn, growing global geopolitical instability.
An estimated four billion people will vote this year, and with elections come risks related to an increase in political disinformation, the security of polling locations both from physical and cyber-attacks, and allegations of voter fraud. Reports are growing over concern that these elections could lead to unrest in many of these countries, notably in India, Taiwan, Mexico, the United Kingdom, and the United States. In the United States, former President Trump is currently the Republican front-runner to challenge current President Biden in a rematch of 2020. On the campaign trail, former President Trump has continued his claims that the 2020 election was stolen from him and has suggested a desire for retribution for his opponents. It is certain that the November 2024 U.S. election will be highly charged and the result influential both domestically and globally.
While Americans do not head to the polls until November 2024, congressional partisanship is in full swing and will only increase over the course of the year. Funding for the federal government expires early in 2024, which could result in a government shutdown or standoffs over policy issues, mainly related to immigration. Companies should prepare to be impacted by uncertainty of both government funding and policy. It is also unlikely that the White House and Congress will be able to agree on any significant legislation with a House-led impeachment of President Joe Biden (and increasingly likely of the Secretary of Homeland Security, Alejandro Mayorkas) dominating the congressional calendar.
Congressional Oversight and Investigations
The private sector may seem immune from congressional dysfunction, but if a company is not careful, it could end up as collateral damage while both parties push their political agendas. Companies should prepare for the potential for congressional investigations of activities that can be used to score political points, including:
- DEI and ESG initiatives;
- Cryptocurrencies, especially with regard to terrorist financing, sanctions, and money laundering;
- Relationships and investments in China;
- Inflation, the cost of living, employee wages, and executive compensation; and
- The use of funds through programs established by COVID funding, the CHIPs Act, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act.
Private Sector Repositories of Information
The data companies possess will also likely be attractive to congressional investigators. This could include communications, bank records, due diligence, location data, or any other information that could be seen as useful to a congressional committee seeking to advance an investigative inquiry. Companies will increasingly be caught in the middle of a bigger political agenda as each party works to make its case to voters ahead of November 2024.
GenAI integrated itself into all facets of our lives at a breakneck speed in 2023. As governments around the world struggle to catch-up, it is likely the pendulum will swing dramatically to increased regulation and enforcement actions. At the end of last year, the EU reached a provisional agreement on its AI Act that included: prohibitions on the use of AI; exemptions for law enforcement; obligations for “high-risk” systems; and guardrails for the use of AI. The agreement also included penalties for violations up to 35 million euros or seven percent of global turnover. The text of the agreement will next be subject to a series of technical negotiations before it is finalized and can be adopted by the EU Parliament and Council.
In the United States, the Biden Administration issued a sweeping Executive Order requiring information regarding the use and testing of AI to be shared with the federal government, including a proposal for regulations requiring reporting of foreign users of AI tools. At the same time, several individual states have passed or enacted laws regarding the use of AI creating a patchwork of regulatory requirements. Any company that is developing platforms that are powered by GenAI will need to monitor this changing landscape and mitigate the inevitable regulatory, enforcement, and reputational risks associated with GenAI.
Global Increase in Regulatory Requirements
GenAI is not the only changing regulatory landscape to be mindful of in 2024. The balkanization of regulatory requirements across the globe has resulted in multiple countries and regions creating new and often conflicting legal requirements regarding sustainability, data privacy, cybersecurity, and competition, among other issues. Navigating these competing regulatory regimes and associated fines and penalties may require increased investments in compliance strategies. Further, as enforcement actions increase, companies will need to be cognizant of any conflicting requirements to ensure a response in one jurisdiction does not create liability in another.
Preparing for the Known, and Unknown
Understanding these risks, and having a plan to navigate them, will be essential tools for companies in 2024. The beginning of the year is an opportunity to be proactive in addressing these issues, and considering mitigations and remediations ahead of increased regulator and congressional interest through consideration of the following actions:
- Conducting internal reviews to analyze and assess risk exposures across these and other risk areas;
- Developing risk mitigation plans appropriate for the company given its size and reach for each enterprise-level risk, such as examining potential diversification of supply chains;
- Documenting risk mitigation strategies and regular reporting to the Board on the progress of these actions; and
- Developing playbooks for potential Black Swan events that document how the company will respond to crises to ensure operations continue, including maintaining the safety and protection of employees, protection of corporate assets and IP, and access to needed materials and supply chains.