US Administration Takes on Chinese Social Media

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 takes effect on September 20, 2020, but will require further action from Commerce at (or possibly before) that time to clarify what transactions will be prohibited.

Relevant Authorities

As usual, when national security issues are at stake, the President invoked the International Emergency Economic Powers Act (IEEPA), the National Emergencies Act, as well as the President’s ability to delegate functions, in this case to Commerce.

Interestingly, the President issued the new EO under the national emergency declared in EO 13873 (Securing the Information and Communications Technology and Services Supply Chain) (Supply Chain EO), on which we have previously reported. In November 2019, Commerce proposed regulations to flesh out the Supply Chain EO, and we expect the Commerce regulations will be final by the end of the summer. Our December 2019 alert provides a summary of the proposed regulations.

What Does TikTok Have to do With National Security?

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 related 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.”

What Does the EO Against TikTok do?

It will not be clear what the EO does until Commerce explains what transactions are prohibited, which the EO strongly suggests will happen by September 20, 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.”

Due to the EO’s authorization under IEEPA, however, there are IEEPA-based exemptions that will apply. One that is likely to be most relevant is an exemption for the importation and exportation of information and informational materials, which the US Government has interpreted over the decades to exempt things like “picture-ready” advertisements from IEEPA restrictions. Thus the placement of fully-created ads, whether still pictures, audio, video, or a combination, may be beyond the reach of the EO.

Why Does this Language Sound Familiar?

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), and the TikTok EO contains language that is largely similar to the OFAC’s blocking regulations.[1]

One important difference in the language from typical OFAC-administered EOs, however, is the requirement that the prohibited transactions have to 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 apparently did not provide 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.

CFIUS Implications of the EO

Secretary of the Treasury Steven Mnuchin confirmed on July 29, 2020, 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, which CFIUS officials rarely comment on due to confidentiality guidelines in the statute that provides CFIUS its authority, the Defense Production Act. Two years ago, ByteDance acquired a US-based competitor called Musical.ly, securing a strong foothold in the US market, and then it folded Musical.ly into TikTok.

On August 3, 2020, three days before the EO was issued, President Trump indicated that the TikTok app would “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. With the issuance of 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 September 15 deadline that he announced).

Other Important Points

A few additional things to note about the EO:

• The EO applies “notwithstanding any contract entered into or any license or permit granted before the date of this order [August 6, 2020].”
• The EO prohibits any transaction by a US person or within the United States that evades or avoids, seeks to evade or avoid, causes, or attempts a violation of the prohibition, or any conspiracy formed to violate the prohibition.
• The EO authorizes Commerce to take action, including adopting rules and regulations as may be necessary to implement the EO.

Conclusion

In sum, the reach of the TikTok EO may be significant, although it remains to be seen how Commerce will identify relevant “transactions.” We will be monitoring Commerce and the White House for any announcements regarding the EO or its implementation.

[1] Typically, OFAC 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.”