The Morning Risk Report

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Good morning. The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, arming Washington’s top envoy with diplomatic leverage that officials hope will stop Beijing’s commercial support of Russia’s military production, according to people familiar with the matter.

But as Secretary of State Antony Blinken heads to Beijing on Tuesday, the question is whether even the threat of the U.S. using one of its most potent tools of financial coercion can put a dent in complex and burgeoning trade between Beijing and Moscow that has allowed the Kremlin to rebuild a military badly mauled by more than two years of fighting in Ukraine.

• Crux of the problem: China has heeded Western warnings not to send arms to Russia since the beginning of the war, but since Blinken’s trip to Beijing last year, China’s exports of commercial goods that also have military uses have surged. With China now the primary supplier of circuitry, aircraft parts, machines and machine tools, U.S. officials say Beijing’s aid has allowed Moscow to rebuild its military industrial capacity.
  
   
• What the U.S. is doing: Officials are counting on the threat of Chinese banks losing access to the dollar and the risk of roiling trade ties with Europe persuading Beijing to change tack. The banks serve as key intermediaries for the commercial exports to Russia, handling payments and providing client companies credit for trade transactions.

Israel’s Military Spy Chief Resigns Over Oct. 7 Hamas Attack

Israel’s military spy chief resigned Monday, becoming the first senior official to step down over intelligence failures that enabled the Hamas-led attacks on Oct. 7 that sparked the war in Gaza.

Meanwhile, Israeli officials worked to head off potential U.S. sanctions against a military unit accused of human-rights abuses. Secretary of State Antony Blinken last week said the U.S. was deliberating whether to apply to Israel a law that prohibits U.S. aid to foreign security forces that have committed human-rights violations, and planned to announce results soon.

Social media is overwhelming the nonprofit fighting child exploitation.

Every few days, a pile of thumb drives and compact discs filled with videos and pictures of sex crimes against children arrives at a nondescript office building in Alexandria, Va., via the U.S. mail.

The evidence goes into a secure room full of red folders where it is manually uploaded into a database that acts as the nation’s central system for detecting child sexual exploitation online.

The use of snail mail for this patchwork system—maintained by the National Center for Missing and Exploited Children, or NCMEC—means that a fraction of the images seized by U.S. law-enforcement agencies is processed.

• Salesforce is pushing for more environmental regulation of artificial intelligence, highlighting concerns about energy use and a lack of emissions disclosure within the technology sector.
  
   
• Donald Trump’s first criminal trial started with competing narratives of whether the former president’s payment to a porn star was part of a conspiracy to influence the 2016 election or a legal way of swaying voters.
  
   
• Kroger and Albertsons have agreed to sell more than 160 additional stores in a divestiture package, a bid to appease competition regulators and close their long-pending merger.
  
   
• A new rule from the Biden administration will strengthen privacy protections for people who obtain legal abortions, banning the release of their health records when they or their doctors are subject to investigation or prosecution.

Giant funds are the new rulers of Wall Street.

Move aside, big banks. The largest investment companies now control sums rivaling the economies of many large countries. They are pushing into new business areas, blurring the lines that define who does what on Wall Street and nudging once-dominant banks toward the sidelines.

Today, traditional and alternative asset managers control twice as many assets as U.S. banks, giving them increasing control over the purse strings of the U.S. economy.

The firms—such as Blackstone, Franklin Templeton, BlackRock—are becoming more complex and more similar to one another all at once. Investors say this creates risks that markets have never encountered before.

Turning a Vault Into a Bomb Shelter: How Citigroup Has Kept Its Bank Running Inside Ukraine

A piece of shrapnel from a Russian missile hangs on the wall of Citigroup banker Alexander McWhorter’s office in Kyiv. He got it from a client whose factory was struck early in the war, a token of their long relationship and their plans to rebuild.

Two years into the Ukrainian war, Citigroup is the only U.S. bank around, navigating a sometimes treacherous landscape. McWhorter, the bank’s top executive in the country, juggles keeping Citi’s staff alive with the role of helping giant companies such as McDonald’s and Unilever stay open.

Hackers broke into Change Healthcare’s systems days before cyberattack.

The hackers who attacked UnitedHealth Group’s Change Healthcare unit were in the company’s networks for more than a week before they launched a ransomware strike that has crippled vital parts of the U.S. healthcare system since February.

The attackers, who represented themselves as the ALPHV ransomware gang or one of its affiliates, gained entry into Change’s network on Feb. 12, a person familiar with the cyber investigation said. They used compromised credentials on an application that allows staff to remotely access systems, the person said.

• Columbia University moved classes online Monday as confrontations over the Israel-Hamas war intensified and schools across the country braced for a graduation season marked by heated protests and escalating security concerns.
  
   
• Germany has detained three people suspected of spying for China on sensitive military technology, underlining the limits of Berlin’s efforts to re-engage with Beijing to boost its stagnating economy.
  
   
• Meet the Tesla diehards: Individual investors have poured a net $5.9 billion into Tesla shares this year, more than any of the other big tech stocks in the Magnificent Seven.
  
   
• The Supreme Court appears ready to let cities crack down on homeless encampments, after conservative justices on Monday questioned lower-court findings that ordinances restricting sleeping in public amounted to cruel and unusual punishment.