MoneyGram and Ant Financial Call Off Merger, Citing Regulatory Concerns

MoneyGram and Ant Financial Call Off Merger, Citing Regulatory Concerns

2018-01-03 01:39:34

For now, the collapse of the MoneyGram deal could spell trouble for other Chinese companies considering major acquisitions. The effort by Ant Financial, the payments affiliate of the internet giant Alibaba, was seen as a test of the Trump administration’s political and regulatory approach to China.

Other deals under review include the sale of SkyBridge Capital — an investment firm founded by Anthony Scaramucci, an ally of Mr. Trump — to an arm of HNA Group, a Chinese conglomerate.

The collapse of the deal offers the latest sign of a shift — one that began during the end of the Obama administration — over how Washington treats Chinese acquisitions of American assets.

Mr. Trump and other politicians have long criticized Chinese trade practices and their impact on traditional, heavy industries in the United States, such as steel. But officials and lawmakers of both parties have grown increasingly concerned with Chinese purchases in high-tech areas, like semiconductors and artificial intelligence. China — a country that has grown by leaps and bounds in expertise in recent years — has aggressively funded development of next-generation technology in ways that have alarmed some foreign governments and businesses.

That has led to calls to tighten reviews of Chinese purchases of American assets. Chinese investment surged to more than $130 billion in 2017 from just $21.5 billion in 2012, according to Rhodium Group, a research firm. In 2018, bankers say they expect another big year of investment, targeted more at sectors considered important to future economic growth like high technology and renewable energy.

Lawmakers from both parties have introduced legislation calling for greater scrutiny of Chinese investments in the United States. They are pushing for an expansion of the Committee on Foreign Investment in the United States, or Cfius, the multiagency panel that reviews foreign deals for potential threats to national security and that rejected the MoneyGram-Ant Financial plan.

In 2016, American concerns over China’s interest in microchips scotched some Chinese purchases, and last year Mr. Trump blocked the purchase of Lattice Semiconductors by a group with links to China.

The deal’s demise also illustrates rising concerns in both the United States and China over sensitive personal data. In buying a large-scale money-transfer company like MoneyGram, Ant Financial would have had access to a large number of records of financial flows within the United States. That fact, combined with close ties to China’s government, could have created security problems. For example, the flow of funds could point to possible espionage targets in the United States military who face financial difficulties.

Ant Financial has disputed such claims, saying that consumer data would continue to be stored in the United States.

Critics of the deal also asked whether Ant Financial would be able to properly police transactions linked to money laundering or terrorism. Ant Financial had said the deal would give MoneyGram greater resources to toughen its efforts to prevent money laundering.

China, as well, has taken steps to stanch American company access to data. A new cybersecurity law there forces American companies to keep data on Chinese citizens stored within China, while Chinese state-media have run public service announcements warning about private data collected by Apple’s iPhones.

“Data flows out of and into China are an increasing source of suspicion in the bilateral relationship,” said Adam Segal, a senior fellow at the Council on Foreign Relations in New York. He said Washington was in the “paradoxical position” of criticizing the new Chinese law while opposing deals like MoneyGram because of national security concerns.

For Ant Financial, the decision is a setback to its efforts to extend its strong position in online payments abroad. Ant Financial, which grew out of the Chinese payment service Alipay, wanted to buy MoneyGram to accelerate its global expansion. In the past several years, the company has pushed into India, South Korea and Thailand.

Mr. Ma, the Chinese internet tycoon, has worked hard to put a positive face on his companies in the United States. He also controls the Alibaba Group, China’s largest internet company, and last year he hosted a conference in Detroit aimed at helping American businesses sell on Alibaba’s e-commerce sites.

Amid the heightened sensitivity to overseas purchases, MoneyGram and Ant Financial said it was clear that Cfius would not approve the deal, despite their efforts to quell concerns.

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