Business Updates: Ad Deal Between Google and Meta Draws Scrutiny in Europe
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A secret deal struck between Google and Meta, the parent company of Facebook, is being investigated by antitrust regulators in the European Union and Britain for potentially undermining competition in the multibillion-dollar digital advertising market.
The inquiry, which was announced on Friday by the European Commission and U.K. Competition and Markets Authority, is the latest effort to scrutinize the business practices of the world’s largest technology companies.
The regulators said the investigation centered on a 2018 deal first uncovered as part of a lawsuit against Google by 10 state attorneys general in the United States. The American investigation concluded that Google reached an agreement, referred to internally as “Jedi Blue,” to limit how much Facebook would compete for ad dollars with one of Google’s key services.
“If confirmed by our investigation, this would restrict and distort competition in the already concentrated ad tech market, to the detriment of rival ad serving technologies, publishers and ultimately consumers,” Margrethe Vestager, the European Commission’s executive vice president who oversees competition and digital policy, said in a statement.
Google and Meta said the agreement between the two companies was not exclusive and that a similar arrangement is used by dozens of other companies.
“The allegations made about this agreement are false,” Google said in a statement.
Meta said the agreement was similar to what the company had with other partners for digital advertising. “These business relationships enable Meta to deliver more value to advertisers and publishers, resulting in better outcomes for all,” the company said in a statement.
Announcing a formal investigation is one step in a process that can take years to conclude.
The inquiry illustrates how regulators around the world are ratcheting up pressure on tech companies that dominate the digital economy. The outcome of the investigations, along with new laws being drafted in the European Union and United States, could force major changes in how the companies conduct business with app stores, e-commerce and digital advertising.
The European Commission, the executive arm of the 27-nation bloc, has other investigations underway into Amazon, Apple and Google. British regulators are investigating Apple’s App Store policies, Meta’s use of data and mobile ecosystems controlled by Apple and Google.
The European Commission and British regulators pledged to cooperate on the investigations, in what is one of the first major competition cases in which the two government bodies have pledged to work together since Britain exited the European Union in 2020.
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Chinese stocks listed in the United States saw their worst day of trading since 2008 on Thursday, driven by fears of potential delisting in U.S. markets under a law that requires the companies to hand over audit information to American regulators. Reverberations were felt in Chinese markets on Friday, where many shares had sharp declines.
The Securities and Exchange Commission this week named five Chinese companies that could face delisting under a Trump-era law that aims to scrutinize firms with potential ties to foreign governments or the Chinese Communist Party. The companies have three years to comply and turn over the information.
Among the companies identified in the S.E.C.’s list released were fast food operator Yum China Holdings, which runs KFC and Taco Bell in China, and the drug developer BeiGene.
After the announcement, the Nasdaq Golden Dragon China Index, which tracks Chinese companies that are traded on Wall Street, fell by more than 10 percent.
The slide continued in Asian markets on Friday.
Tech stocks listed in Hong Kong led the slump, with the Hang Seng Tech Index down 4.28 percent at market close. JD.com and Alibaba also saw steep losses, dropping by 15.8 percent and 7.9 percent respectively.
“The clock is ticking, and some of the investors have lost patience, and they are leaving this space in the face of uncertainty,” said Bruce Pang, a Hong Kong-based analyst with China Renaissance Securities. He said the delisting threat was adding to general investor anxiety over the broader geopolitical fallout from the war in Ukraine and U.S.-China relations.
U.S. lawmakers said in passing the Holding Foreign Companies Accountable Act in 2020 that the new regulations would increase transparency and protect investors from fraud. Chinese regulators said this week they were working with their U.S. counterparts and making progress, but they have also complained that the U.S. was politicizing capital markets regulations and discriminating against Chinese companies.
Chinese law restricts the transmission of certain company financial information out of the country, complicating companies’ abilities to comply with the U.S. law.
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The Justice Department named Kevin Chambers on Thursday to lead its efforts to pursue cases of fraud and attempted fraud related to at least $8 billion in Covid-19 relief funds.
The decision to name a prosecutor to go after stimulus fraud comes on the heels of President Biden’s State of the Union address, where he pledged to go after “criminals who stole billions in relief money.”
Mr. Chambers, who has served as an associate deputy attorney general over the past year, will steer the department’s criminal and civil enforcement efforts and oversee investigation and prosecution of fraud allegations.
Since the health crisis began, the federal government has sent roughly $5 trillion to American households, small businesses, schools and other institutions to help the U.S. economy recover from the pandemic. While the money has accelerated vaccination campaigns across the country, provided relief to unemployed workers and helped schools hire educators to address learning loss, the funds have also led to a series of high-profile fraud cases.
In Florida, the authorities said, a woman paid a hit man using part of a $15,000 loan intended to aid struggling small businesses. In Georgia, a man spent $57,000 in coronavirus relief money to buy a rare Pokémon trading card that federal authorities later seized. And others across the country have spent the relief money on Ferraris, Lamborghinis and luxury jewelry, officials have said.
Mr. Chambers will focus on “large-scale criminal enterprises and foreign actors” who have abused the money. Those efforts will include establishing “strike teams” ahead of the department’s next phase of tackling pandemic fraud.
“Our strike teams will enhance the department’s existing efforts and will include analysts and data scientists to review data, agents to investigate the cases, and prosecutors and trial attorneys to bring charges and try the cases,” Mr. Chambers said in a statement.
The department’s efforts have so far resulted in criminal charges against more than 1,000 defendants and the seizure of more than $1 billion in proceeds from the Economic Injury Disaster Loan program, which gave loans to small businesses during the pandemic.
Early investigations have also indicated that “international organized criminal groups” have targeted federal programs that distributed unemployment benefits. Both international and domestic criminals have used stolen identities to file for the benefits, the department said. Since the start of the pandemic, more than 430 individuals have been arrested and charged with federal offenses related to unemployment insurance fraud, according to the department.
Attorney General Merrick B. Garland established the Covid-19 fraud enforcement task force last May. It works with other government agencies to prosecute “the most culpable” criminals.
“We will continue to hold accountable those who seek to exploit the pandemic for personal gain, to protect vulnerable populations, and to safeguard the integrity of taxpayer-funded programs,” Mr. Garland said in a statement Thursday.
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The Internal Revenue Service said on Thursday that it planned a hiring spree this tax season as it tries to clear a backlog of more than 20 million unprocessed tax returns from previous years.
The agency said it intended to hire 10,000 new employees in the next year and hoped to bring on about half of those workers in the next few months. The I.R.S. described the blueprint as an “all hands on deck” approach to emerge from longstanding staffing shortages that were compounded by the pandemic.
“To ensure inventory is back to a healthy level for next filing season, we are leaving no stone unturned — taking an all-hands-on-deck approach to ensure as many employees as possible are dedicating time to return processing,” Charles P. Rettig, the I.R.S. commissioner, said in a statement.
This tax season has been the most challenging in the history of the I.R.S., current and former employees say. Longstanding budget cuts and staff shortages collided with the pandemic, as the agency became the main distributor of stimulus relief, including direct checks and tax credits.
The I.R.S. has suffered from tight budgets for decades, as Republicans sought to starve the agency. It received more than $1 billion in additional funding through the American Rescue Plan last year, though, to improve taxpayer services. A 2022 House spending bill that passed this week would give $12.6 billion to the I.R.S., the largest annual budget increase since 2001.
The hiring goals will not necessarily be easy to accomplish, as the nation has been experiencing a labor shortage and many of the I.R.S. jobs pay $15 an hour, making them less competitive than many private sector jobs.
The I.R.S. expects to hold job fairs in Kansas City, Mo.; Austin, Texas; and Ogden, Utah, to beef up its processing centers in those cities. It is also shifting 700 employees to those locations to create “surge teams” to process backlogged returns.
Officials from the Treasury Department, which oversees the I.R.S., said on Thursday that the goal was to have the inventory of old tax returns cleared by next year’s tax season. There are no plans, they said, to delay Tax Day this year beyond April 18.
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The war in Ukraine and the associated sanctions that countries around the world have imposed on Russia are likely to cause a downgrade of the International Monetary Fund’s global economic growth forecast, Kristalina Georgieva, the I.M.F.’s managing director, said on Thursday.
The Ukraine crisis is another shock to a world economy that was just emerging from the coronavirus pandemic, and it has been compounding global supply chain disruptions and inflation headwinds that have been cause for concern. The full impact on the world economy remains uncertain, I.M.F. officials said, and will depend on the outcome of the war and how long sanctions remain.
“We just got through a crisis like no other with the pandemic, and we are now in an even more shocking territory,” Ms. Georgieva told reporters. “The unthinkable happened — we have a war in Europe.”
In January, the I.M.F. reduced its estimated global growth rate for 2022 to 4.4 percent, from the 4.9 percent it had projected last year, as a result of slowdowns in the United States and China.
Ms. Georgieva said the most significant threat to the world economy was greater inflation coming from higher commodity prices as countries shifted consumption away from Russian oil and gas. This, in turn, could eat into consumer spending. Worsening financial conditions and business confidence also have the potential to weigh on growth.
“The surging prices for energy and other commodities — corn, metals, inputs for fertilizers, semiconductors — they are coming, in many countries, on top of already high inflation and are causing grave concern in so many places around the world,” Ms. Georgieva said.
The I.M.F. is working to develop a plan to provide more assistance for Ukraine’s eventual rebuilding effort, but said it was too soon to know the extent of the country’s needs. This week, the fund’s executive board approved $1.4 billion in emergency financing.
Ukraine’s top economic adviser said earlier on Thursday that Russia had already destroyed $100 billion worth of the country’s assets.
The fund is also assessing the impact of the sanctions on the economy of Russia. Much of its financial sector and its central bank has been blacklisted.
“The Russian economy is contracting, and the recession in Russia is going to be deep,” Ms. Georgieva said. “That is already clear.”
She said Russia was unlikely to have access to its emergency currency reserves because of sanctions.
The I.M.F. has halted operations and programs in Russia. Ms. Georgieva said there had been no discussions about ending Russia’s membership in the fund.
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After the Russian president, Vladimir V. Putin, ordered the invasion of Ukraine on Feb. 24, multinational companies have been forced to re-examine their ties with Russia. Some, like McDonald’s, PepsiCo and Shell, had built relationships with the country over decades and were faced with untangling complicated deals.
Under pressure from investors and consumers, many Western companies have started to unwind their investments, close stores and pause sales in Russia.
On Thursday, Goldman Sachs became the first big American bank to say that it would exit the country. The Japanese clothing company that operates Uniqlo has said it will suspend operations, as has the construction equipment-maker Caterpillar. Burger King will end corporate support locations in Russia. And the maker of Jeep, Fiat and Peugeot vehicles suspended imports and exports.
Here are some of the actions businesses have announced:
Consumer goods and retail
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Fast Retailing, the Japanese clothing company that operates Uniqlo, said it would suspend its operations in Russia. The company came under criticism after its chief executive, Tadashi Yanai, told an interviewer that its stores would continue selling clothes in Russia.
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Philip Morris, the cigarette maker, suspended planned investments and will reduce manufacturing in Russia.
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Unilever, which owns brands like Dove and Sunsilk, suspended imports and exports.
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So did Ikea, though it will continue to operate its major chain of shopping centers, Mega, in Russia to ensure that customers have access to essentials.
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TJX, the owner of T.J. Maxx and Marshalls, promised to divest its equity ownership in Familia, an off-price retailer with more than 400 stores in Russia.
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H&M, which had about 170 stores in Russia, paused sales, as did Nike, with about 116 stores.
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Canada Goose, which is based in Toronto, will cease wholesale and e-commerce sales to Russia.
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Adidas said it would suspend sales in Russia, cutting 1 percent from its expected revenue growth this year. The company has about 500 stores in Russia and the former Soviet states.
Energy
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Shell will exit its joint ventures with Gazprom, the Russian natural gas giant.
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BP will sell its nearly 20 percent stake in Rosneft, the Russian state-controlled oil company.
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Exxon Mobil will end its involvement in a large oil and natural gas project.
Finance
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Goldman Sachs “is winding down its business in Russia in compliance with regulatory and licensing requirements.” It was the first big American bank to exit the country. Its announcement was followed hours later by JPMorgan Chase, the largest bank in the United States.
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Western Union will suspend its operations in Russia and Belarus.
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The consulting firm Bain said it would not work with any Russian business and had put a policy in place in 2020 “to not work for the Russian government at any level — central, state or departmental.” McKinsey & Company said it would not take on any new work in Russia, would stop work for state-owned entities and “will no longer serve any government entity in Russia.” Boston Consulting Group will not take on any new clients in Russia and has “started to wind down work where possible and will not take on any new work,” it said. McKinsey and Boston Consulting Group said they did not have any contracts with “the central government.”
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American Express, Mastercard and Visa cards issued by Russian banks will not work in other countries, and cards issued elsewhere will not work for purchases in Russia.
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Citigroup, which has about 3,000 employees in Russia, said it would “assess our operations in the country.” Citi’s consumer division in Russia is running limited operations, and the business is for sale as part of a broader exit from overseas markets announced last year.
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The Big Four accounting firms — Deloitte, EY, KPMG and PwC — are pulling out of the country.
Food
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Restaurant Brands International, which owns Burger King, is ending corporate support for the roughly 800 locations operated by local franchisees in Russia, and will not approve any additional investment or expansion.
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Mars, the maker of M&M’s and Snickers, has suspended new investments in Russia.
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Little Caesars is suspending all operations at Russian stores, which are owned by franchisees.
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Carlsberg, the world’s third-largest brewer, said it had halted investments and would stop selling its flagship beer brand in Russia. The Carlsberg Group’s Baltika Breweries, based in St. Petersburg, will be run as a separate business.
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Heineken said it would stop producing, advertising and selling beer in Russia.
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McDonald’s said it was temporarily closing its nearly 850 locations in Russia and halting operations there.
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Starbucks said it was closing all of its locations in Russia, where they are owned and operated by the Kuwaiti conglomerate Alshaya Group.
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PepsiCo said it would stop selling soda in Russia but would continue to produce dairy and baby food products there, calling it a “humanitarian” effort.
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Yum Brands is closing 70 company-owned KFC restaurants and all 50 franchise-owned Pizza Hut restaurants.
Media
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Netflix suspended its service and halted future projects in the country.
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The Walt Disney Company, Sony and Warner Bros. paused the release of movies in Russia. Disney also paused all of its business operations in the country.
Tech
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Sony, which makes the PlayStation video game console, said it had “suspended all software and hardware shipments” to Russia, as well as operation of the PlayStation Store in the country.
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Amazon Web Services has stopped accepting new customers for its cloud computing services.
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Google suspended advertising, including on its search and YouTube products.
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Microsoft and Apple paused sales. IBM suspended business.
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Cogent and Lumen, which provide so-called backbone internet services, cut off access.
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Uber said it was trying to “accelerate” its divestment from the Russian internet company Yandex, which operates a ride-hailing service.
Travel and logistics
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Hyatt and Hilton, the hotel chains, suspended development work in the country, and Hilton closed its corporate office in Moscow.
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Amadeus and Sabre, which provide ticket sales technology to airlines, cut ties with Aeroflot, the national flag carrier and the largest airline in Russia.
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UPS, FedEx and DHL have suspended shipments to and operations within Russia and Belarus.
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Airbus and Boeing have suspended the supply of parts, maintenance and technical support services to Russian airlines. Boeing also said it had stopped buying titanium from Russia, a key source of the metal for the aerospace industry.
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American Airlines, Delta Air Lines and United Airlines cut ticket sales partnerships with Russian airlines. All three airlines also stopped flying over Russia.
Manufacturing
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Stellantis, the maker of Jeep, Fiat and Peugeot vehicles, has suspended imports and exports.
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Caterpillar, which makes construction and earth-moving equipment, is pausing manufacturing in Russia.
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Hitachi, the Japanese industrial company, said it was suspending exports to Russia and pausing manufacturing.
Source: https://www.nytimes.com/live/2022/03/11/business/stocks-economy-inflation-ukraine
