The White House is moving forward with a major crackdown on the popular social media platform TikTok, looking possibly to ban the company from being used by U.S. consumers in the coming weeks, FOX Business has learned.
However, it remains unclear exactly how that ban, if enacted, will be accomplished or if the government will settle for tighter scrutiny on the company, according to people with direct knowledge of the matter.
One way the administration is eyeing to mount its crackdown and possible ban is through the government's Committee on Foreign Investment in the United States, also known as CFIUS, these people say. The agency reviews foreign purchases of U.S. companies or outfits that do significant business in the U.S. and maintain a presence there.
In November, Reuters reported that CFIUS had launched an investigation into a company called Musical.ly. TikTok's parent, Chinese tech firm ByteDance Technology, acquired Musical.ly in 2017 for $1 billion and merged it with its own platform in a move that created the current version of TikTok by allowing users to create short lip-syncing videos against the backdrop of music.
Since then, TikTok has become immensely popular with kids in middle school and high school, but also celebrities and social media influencers. The app has already been downloaded 165 million times just in the first quarter of 2020 and is now the largest short-form video platform operated out of China.
Lawmakers and the White House believe the company is using its technology to gather sensitive information on U.S. users for surveillance purposes on behalf of the Chinese government, which essentially owns companies domiciled in the mainland. China and ByteDance have denied the charge, but U.S. officials remain unconvinced.
The Federal Trade Commission, responsible for monitoring various business practices, fined TikTok $5.7 million in 2019 for illegally collecting personal information from children under the age of 13. In May, a coalition of 20 advocacy groups wrote a letter to the FTC saying TikTok continues to abuse children’s privacy.
Now it appears the Trump administration is looking to possibly shut down TikTok through a CFIUS ruling that targets the Musical.ly purchase. Musical.ly is located in China but has offices in the U.S. ByteDance – which counts big U.S. private equity firms as its backers – did not seek CFIUS approval for the Musical.ly deal, nor did the agency demand one because the company didn't appear at the time to be on the radar screen of U.S. regulators for national security concerns.
Because there was no review, CFIUS can seek one now and declare the purchase improper, a move that would make it potentially illegal, and prevent Apple or other companies from offering TikTok on its platform, according to people with direct knowledge of the matter.
A senior White House official involved in the TikTok review told FOX Business: “We are concerned about Beijing’s well-documented censorship within Chinese owned apps as well as Chinese laws, which grant access of user data to [government] intelligence and security services.”
A White House spokesman had no comment; a TikTok spokesman had no comment.
While CFIUS generally takes a more measured approach to enforcement – like issuing fines – the agency does have broad authority to upend deals that it believes threaten U.S. national security. Some analysts believe the Trump administration may back away from completely banning TikTok given its wide popularity and instead seek certain concessions that limit how much U.S. consumer data it can collect.
“CFIUS could force the company to undo the transaction if it is a national security threat but I think they’ll avoid unwinding it if they can,” says Kevin Arquit, co-chair of the antitrust group at law firm Kasowitz Benson Torres. “There are plenty of other things CFIUS can do—require TikTok to avoid certain practices and put up a firewall to make enforcement manageable,”
Arquit notes much of this could have been avoided if ByteDance had voluntarily filed for a review with CFIUS before the merger in 2018.
“It is prudent to file but companies think they can fly under the radar… But if they are wrong and CFIUS later investigates and finds there is an issue, the consequences can be harsher,” Arquit said. “Companies don’t always take a look around the corner and especially in tech,, they can fail to appreciate that a transaction can be viewed as more controversial at a later point in time.”
And while those guidelines are not uncommon in the tech world, the concern is that the Chinese government has access to all of this data and is storing it in Chinese databases for surveillance purposes.
In response to those concerns, TikTok has taken steps to assuage U.S. regulators. In March it opened a transparency center in Los Angeles to allow U.S. officials to monitor its security and data collection practices. In May, TikTok hired former Disney executive Kevin Mayer as CEO to ramp up its appeal to American audiences, and that same month the company released a statement that parent company ByteDance was now headquartered in the Cayman Islands, a move designed to show U.S. officials it is trying to distance itself from China.
According to a report in The Wall Street Journal, the company was even considering spinning off a portion of the platform to be headquartered in the U.S.
Still, legislators remain wary, pointing out that ByteDance is still regulated by the Chinese government, which plays a heavy hand in the corporate governance of such companies that are essentially owned by the Chinese Communist Party, even if those companies have outside shareholders. Sen. Josh Hawley, R-Mo., has repeatedly called for company executives to testify before Congress.
On Friday, numerous outlets reported Amazon was requiring employees to delete the TikTok app on any device they used to access their work email, but later that day, Amazon said the email circulated to employees was sent in error.