Kroll Institute Newsletter – August Edition

The Kroll Institute Outlook opens the lens on topics related risk mitigation, good governance and transparency. Here’s what our Kroll Institute Fellows think you should be paying attention to this month.

The 20th Anniversary of 9/11 – What Has Changed?

Jordan Strauss, Kroll Institute Fellow, Managing Director, Forensic Investigations and Intelligence

• Spend on counterterrorism has grown exponentially since 9/11. While some true up was needed after terrorism’s long turn as a “backwater” in the intelligence and law enforcement community, many have wondered if the billions spent by the U.S. have grown out of step with the truest threats the country faces: cyber, internal security, climate change and aging critical infrastructure.
• The intelligence community and FBI have publicly stated what many experts have been saying privately for years: that the greatest (non-cyber) threat the U.S. faces is from extremist violence by U.S. groups. Many of the country’s international efforts have succeeded in drawing the terrorist fight away from the homeland, but the tools and methods used–foreign aid/soft power/diplomacy, military action, strategic communications and targeted actions–may not work domestically for a variety of legal and operational reasons.
• Terrorism financing has always been a key tool and with the advent of cryptocurrencies, understanding and interrupting the movement of money that could fund terror is even harder.

The Israeli Economic Outlook

Efraim Chalamish, Kroll Institute Fellow, Senior Advisor and Leader of the Firm’s Israel Practice

• Although Israel is experiencing a significant fourth wave of COVID-19, several key developments support a strong economic forecast. The new Israeli coalition’s cabinet approved a two-year budget for the first time after several years of political-economic deadlock. The budget deficit is continuing to decline.  In 2020, it was 11.6% of GDP and is projected to be 6.8% of GDP in 2021 and 3.9% in 2022.
• According to the government, the budget is based on a growth forecast of 5.1% for 2021 and 4.7% for 2022. Israeli companies and startups continue to be the main economic drivers, raising a record $11.9 billion (bn) in the first half of 2021. This trend is expected to continue in the second half of the year.
• Recent news about the state of U.S.-Israel-China trade relations should be analyzed in the broader context of China’s rising role in the Israeli economy. Chinese investments in Israeli tech were up in 2018 and then began to decline due to growing security concerns and pressure from senior U.S. officials who warned Israel to reduce commercial exposure to the Chinese market, particularly among Israeli companies that target U.S. investments or those involving American exchanges or U.S. strategic buyers. This vacuum has been filled by a growing interest from Japanese investors in the region.
• Significant Chinese companies are involved in and/or are bidding on key Israeli infrastructure projects, including the construction and management of Israel’s ports in Ashdod and Haifa as well as tunnel construction for the center’s light rail project. Several tenders, such as the Red Line rail project, include Chinese bidders, with the winners scheduled to be announced in the coming weeks. The Israeli government has established a committee to review certain strategic investments from a security and deal certainty perspective following internal and external requests, but this process has been perceived overall as soft and ineffective.

The Situation in Afghanistan and the Latest on the U.S. Infrastructure Bill

Chris Campbell, Chief Strategist

• With the House and Senate adjourned for August recess, the biggest story in Washington is the situation in Afghanistan. In addition to the foreign policy and military issues being confronted, as well as the efforts to evacuate Americans who are still in the country, the U.S. withdrawal from Afghanistan will present Congress with a number of policy issues to resolve. For example, there is now an ongoing public debate about what the U.S. can and should do to assist Afghan refugees and those who worked with U.S. personnel–interpreters in particular–to advance the mission.
• Prior to departing for August recess, the Senate advanced two major pieces of legislation: 1) the $1.2 trillion ($550 billion in new spending) bipartisan infrastructure plan and 2) an FY 2022 budget resolution, which will be a vehicle for moving a proposed $3.5 trillion domestic spending plan.
• The New York Times has a useful summary of the bipartisan infrastructure bill and how it has changed over time. The budget resolution is the first step in a reconciliation process that, if all goes to plan, will allow Democrats to move the spending legislation without any Republican support. It includes instructions to House and Senate committees to produce legislation that will address policy priorities under their different jurisdictions by September 15. The House and Senate will consider a final reconciliation package once the committees finish their work and any disagreements between the two chambers are resolved.
• There is some uncertainty about how the House will proceed with these two items. A group of moderate House Democrats have indicated that they will not vote for the budget resolution unless the House first passes the infrastructure bill and sends it to the president’s desk. At the same time, House progressives continue to insist on completing the budget reconciliation process for the larger spending measure–a process that will not be completed until mid-September at the earliest–before voting on the infrastructure bill. The House is set to return from recess next week to vote on the budget resolution, so the path forward will likely become much clearer over the next several days.