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Big questions behind TikTok's national security investigation
Less than two months after TikTok came under fire for appearing to censor videos related to the pro-democracy protests in Hong Kong, the app is facing a new challenge from the US government. The Committee on Foreign Investment in the United States (CFIUS) has contacted TikTok's Chinese parent company ByteDance with concerns that the app could pose a threat to US citizens.
Those concerns will most likely lead to a national security review â€" one that lawmakers on both sides of the aisle have been calling for since early October. In the end, ByteDance could be forced to sell off Musical.ly, the American company it acquired in 2017 that helped launch TikTok's viral success. If that happens, it could mark the end of TikTok in the US, and serve as a warning to any Chinese company looking to break into the American market.
CFIUS's focus on tech is still relatively new. For the last 30 years, the committee, chaired by the secretary of the treasury, has been charged with structuring mergers and acquisitions between US and foreign companies in such a way that protects US national security interests. CFIUS typically wants to see companies create US-based leadership teams and have US-based servers to ensure China's government won’t have free rein over data on American citizens.
Under the Trump administration, the committee's role has been expanding, particularly as it relates to Chinese investments in tech companies. "Recently, the scope of CFIUS' authority has broadened with respect to foreign investments in sensitive technologies,' said Robert Williams, executive director of the Paul Tsai China Center at Yale Law School.
In 2018, CFIUS began cracking down on Chinese tech mergers, a sign that it was increasingly concerned about giving foreign governments access to sensitive user data. On January 2nd, 2018 CFIUS rejected Chinese company Ant Financial’s plan to acquire the US financial organization MoneyGram, citing national security risks. "The MoneyGram episode is potentially instructive because it seems that concerns around a Chinese company having access to data on US citizens motivated the blocking of that transaction," said Williams.
The committee also started reversing deals that have already gone through. In March, CFIUS forced Beijing Kunlun Tech Co Ltd to sell the gay hookup app Grindr, after a probe revealed the user data posed a threat to American citizens. "The Chinese government has likely taken a significant interest in that data, which could be useful in targeting dissidents at home and for blackmail abroad. As a Chinese company, there is likely nothing Kunlun could do to prevent the government from accessing user data," wrote The Verge's Casey Newton.
Not every acquisition between a foreign and US company needs clearance from CFIUS. The approvals process is voluntary, and only required when the deal poses a potential threat to national security. TikTok didn't bother clearing the Musical.ly deal with CFIUS, which gives the committee grounds to investigate it now.
The outcome of their investigation will likely hinge on whether TikTok can prove its independence from ByteDance, something the company already appears to be working on. In a statement on October 24th, TikTok said, "Let us be very clear: TikTok does not remove content based on sensitivities related to China." Vanessa Pappas, the company's general manager, also tried to alleviate senators' concerns around data security, noting that, as of January, all TikTok's user data is stored in the US.
"There's the possibility of structuring a mitigation agreement that would allow the company to continue to own Musical.ly and to operate in the US subject to limiting conditions and reporting requirements," added Williams. If that fails, however, CFIUS could force ByteDance to sell the company. "There are still some open questions about the extent to which companies can appeal a CFIUS or presidential decision through the judicial system," Williams said.
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