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21 August 2020
What does TikTok have to do with national security?
What does the TikTok EO do?
Why does this language sound familiar?
Other important points
On 6 August 2020 President Trump signed an executive order banning 'transactions' – which have yet to be identified by the US Department of Commerce (Commerce) – relating to TikTok and its parent, ByteDance Ltd (TikTok EO).
Specifically, the TikTok EO moves to prohibit "any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States with ByteDance" or its subsidiaries. The TikTok EO will take effect on 20 September 2020, but further action from Commerce at (or possibly before) that time will be required to clarify which transactions will be prohibited.
As is the norm when national security issues are at stake, the president invoked the International Emergency Economic Powers Act (IEEPA) and the National Emergencies Act, as well as the president's ability to delegate functions (in this case to Commerce), to issue the EO.
Interestingly, the president issued the EO under the national emergency declared in EO 13873 (Securing the Information and Communications Technology and Services Supply Chain) (Supply Chain EO) (for further details please see "Sanctions on steroids: Huawei is a prohibited entity and foreign adversaries lurk in tech services"). In November 2019 Commerce proposed regulations to flesh out the Supply Chain EO, and these are expected to be finalised by the end of Summer 2020 (for a summary of the proposed regulations, please see "Administration tests waters for unprecedented government review of international technology transactions").
The TikTok EO states that the spread of the Chinese mobile app "continues to threaten the national security, foreign policy, and economy of the United States". Specifically, the EO references the threat of allowing "the Chinese Communist Party access to Americans' personal and proprietary information" through TikTok's data collection capabilities, which the EO states could "potentially allow China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage". In addition to concerns relating to sensitive personal data, the EO points to concerns pertaining to influence operations, stating that the TikTok app may be "used for disinformation campaigns that benefit the Chinese Communist Party, such as when TikTok videos spread debunked conspiracy theories about the origins of the 2019 Novel Coronavirus".
It will not be clear what the EO does until Commerce explains which transactions are prohibited, which the EO strongly suggests will happen by 20 September 2020. The TikTok EO's language purportedly gives wide discretion to the Secretary of Commerce to limit involvement with ByteDance in the United States and by US persons everywhere. Specifically, it allows Commerce to identify and prohibit:
any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, with ByteDance Ltd. (a.k.a. Zìjié Tiàodòng), Beijing, China, or its subsidiaries, in which any such company has any interest.
However, due to the EO's authorisation under the IEEPA, IEEPA-based exemptions will apply. The exemption that is likely to be most relevant is that which concerns the import and export of information and informational materials, which the government has interpreted over the decades to exempt things such as 'picture-ready' ads from IEEPA restrictions. Thus, the placement of fully created ads – whether still pictures, audio, video or a combination thereof – may be beyond the EO's reach.
The delegation of this type of authority to Commerce is new, as such authority usually lives with the Department of the Treasury Office of Foreign Assets Control (OFAC). The TikTok EO contains language that is largely similar to the OFAC's blocking regulations.(1)
However, one important difference in the language compared with typical OFAC-administered EOs is the requirement that the prohibited transactions be "with" ByteDance or its subsidiaries. In a typical OFAC sanctions EO, all transactions in which the target has an interest, even those to which the target is not a party, can be prohibited – which leads to an OFAC 'blocking' of the target. Thus, the administration does not appear to have provided the same full IEEPA blocking authority to Commerce.
However, the Supply Chain EO, its proposed regulations and the implementation of the TikTok and other similar EOs will be driven by Commerce, which has not previously had the power to enact even these more limited bans against any entity.
On 29 July 2020 Secretary of the Treasury Steven Mnuchin confirmed that the Committee on Foreign Investment in the United States (CFIUS), which he chairs, has been conducting a national security review of TikTok. This was a rare official confirmation of the existence of an active CFIUS review, on which CFIUS officials rarely comment due to confidentiality guidelines in the statute that provides CFIUS with its authority (ie, the Defence Production Act). Two years ago, ByteDance acquired a US-based competitor called Musical.ly, securing a strong foothold in the US market, and then folded Musical.ly into TikTok.
On 3 August 2020, three days before the EO was issued, Trump indicated that the TikTok app will "cease operating in the US" unless a "secure" and "very American" company acquires it. "I set a date of around September 15, at which point it's going to be out of business," he said. In issuing the EO, the president has taken concrete action and increased the pressure on ByteDance to divest TikTok prior to the EO's effective date (which is five days later than the original 15 September 2020 deadline announced by Trump).
A few additional points to note about the EO are as follows:
The reach of the TikTok EO may be significant, although it remains to be seen how Commerce will identify relevant transactions.
For further information on this topic please contact David Hanke, Matthew Tuchband or Sylvia G Costelloe at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email (email@example.com). The Arent Fox LLP website can be accessed at www.arentfox.com.
(1) OFAC typically uses the following formulation: "All property and interests in property... that are in the United States or... within the possession of any US person of [the sanctions targets] are blocked and may not be... dealt in."
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