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Goldman evaluates role in China's listing of Megvii following US blacklist

A participant uses his smartphone to record a facial recognition demonstration at himself at the Beijing Megvii booth at the MWC Shanghai Exhibition in Shanghai, China, June 27, 2019.

Qilai Shen | Bloomberg | Getty Images

Goldman Sachs said on Tuesday it was reviewing its involvement in Megvii Technology's planned initial public offering (IPO) after the US government placed the Chinese company for artificial intelligence on a human rights blacklist.

On Monday, the Trump administration said that Megvii and seven other Chinese companies were targeted because they were involved in Beijing's repression of Muslim minority populations in the Xinjiang Uighur autonomous region of the western country.

In a statement via email in response to a request for comment on the Alibaba-supported Megvii IPO, Goldman said it was "evaluated in light of recent developments." Sources had previously told Reuters that the listing was scheduled for Hong Kong in the fourth quarter and could be worth as much as a billion dollars.

Risk consultants and lawyers in Silicon Valley said that other US companies involved in the blacklisted Chinese companies, whether as an investor or as an insurer, are also likely to evaluate their relationships.

Goldman is a joint sponsor of the Megvii IPO, along with Citigroup and JPMorgan Chase, who both declined to comment.

Goldman had carefully evaluated the Megvii deal before initially signing it with his usual due diligence process, said a person familiar with the matter.

Megvii, who is known in the artificial intelligence industry for his face recognition platform Face ++, will be the first Chinese AI company to be released if the deal goes ahead. The company provides face recognition and other AI technologies to governments and companies including Alibaba, Ant Financial, Lenovo Group and Huawei.

Muslim treatment

On Monday, the US Department of Commerce blocked eight companies, as well as 20 Chinese authorities. , from purchasing US technology without the approval of the US government. It will include high-powered computer chips manufactured by US companies such as Nvidia, Intel and Qualcomm, which are considered crucial to building and operating many AI systems.

The government said that the 28 blacklisted companies and authorities were "involved in human rights violations and violations in the implementation of China's repression campaign, massive arbitrary deprivation and surveillance of high technology against Uighurs, Kazakhs and other members of Muslim minority groups2". The black list was announced a day after the US government imposed visa restrictions on the Chinese government and Communist Party officials, which it considers responsible for the detention or abuse of Muslims in Xinjiang.

U.N. experts and activists say that at least 1

million Uighurs and members of other largely Muslim minority groups have been detained in camps in the remote region.

Beijing denies all ill-treatment in the camps, which it says provide vocational training to help eradicate religious extremism and teach new work skills.

U.S. Senator Marco Rubio, who has sought to shed light on both the easy access Chinese companies have provided to US markets and human rights violations in Xinjiang, said the government's move had been too long. "We should continue to do more to hold the Chinese government and Communist Party officials accountable for any crimes against humanity committed in Xinjiang," he said in a statement.

"Putting themselves in the risk zone"

In recent years, Chinese and some foreign investors have poured money into startup technology companies that specialize in face and voice recognition software, as well as other monitoring equipment and software. They have become embroiled in China's plans to build a ubiquitous CCTV monitoring network.

Another company added to the US government's blacklist, SenseTime, is among the world's most esteemed artificial intelligence companies, counting US tech investors Tiger Global and Silver Lake Partners among its supporters. Fidelity, the US fund company, is also a SenseTime investor, together with Qualcomm.

Risk consultants say that investors and insurers have jumped into the sector without fully assessing the dangers of both their reputation and the values ​​of the companies concerned.

"There has been a lack of adequate due diligence performed on these companies from both a national security and a human rights perspective," said Roger Robinson, President and CEO of Washington DC-based risk consulting business RWR Advisory Group, and a former director for international financial issues at the National Security Council.

He said that investors and others involved in these Chinese companies "could very well put themselves in danger."

Silver Lake, Tiger Global and Qualcomm all declined to comment. Fidelity did not immediately return a call for comment.

"There will be a conversation about a verdict on whether any American investor would like to be associated with such companies," said Rocky Lee, executive partner of the Silicon Valley office of the King & Wood Mallesons law firm. "I think you will see some" silent "excitement from US funds and possibly LPs, at least those US investors who feel strongly that owning companies doing this business are either immoral or politically incorrect."

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