On August 6, 2020, President Trump signed executive orders imposing new economic sanctions under the International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.) and the National Emergencies Act (50 U.S.C. § 1601 et seq.) against TikTok, a video-sharing mobile application, and WeChat, a messaging, social media and mobile payments application. The orders potentially affect tens of millions of U.S. users of these applications and billions of users worldwide.
TikTok is owned by ByteDance Ltd. (“ByteDance”), a Chinese company that acquired the application Musical.ly from its U.S. parent in 2017 and later merged it with ByteDance’s preexisting (but less well-known) app TikTok. WeChat is owned by Tencent Holdings Ltd. (“Tencent”), also a Chinese-owned company. In both executive orders, the President cited the need to take “aggressive action” to address the national security risks to the United States posed by the “vast” amounts of personal data collected by these applications that are – or could conceivably end up – in the possession of the applications’ Chinese owners.
The precise scope of these actions is not yet clear. Each of the TikTok and WeChat executive orders provides that the main prohibitions do not become effective until 45 days after the date of such orders – in other words, on September 20, 2020. Each also contemplates that the Secretary of Commerce, within such 45-day period, will identify the specific transactions and subsidiaries covered. The scope of the orders, after action by the Secretary of Commerce, could be as broad as banning any transaction by any U.S. citizen, U.S. permanent resident alien, entity organized under the laws of any jurisdiction within the United States (including foreign branches) and any person physically present in the United States (collectively, “U.S. Persons”) from all dealings of any kind with ByteDance and Tencent or any of their subsidiaries or business they partially own, anywhere in the world. What is not yet known is whether the Secretary of Commerce will focus on a narrow set of covered transactions or a broad one.
Although the orders are quite similar, there is at least one notable substantive difference. The TikTok order prohibits all transactions “with ByteDance” and its subsidiaries regardless of whether the transaction is related in any way to TikTok. However, only transactions “related to WeChat…with Tencent” and its subsidiaries are prohibited by the WeChat order. Given this, the Secretary of Commerce likely will not bar transactions between U.S. Persons and different Tencent subsidiaries – or companies in which Tencent has investments (such as Spotify and Snapchat) – assuming there is no connection to WeChat.
The orders also prohibit with immediate effect all transactions intended to avoid or evade the prohibitions they outline. However, as discussed above, until the Secretary of Commerce takes further action, it is impossible to know what will or will not be prohibited. U.S. Persons contemplating entering into transactions with or involving TikTok, ByteDance, WeChat, Tencent or their subsidiaries prior to September 20, 2020, should consider the compliance risks of these transactions, particularly if they might not be considered ordinary course commercial transactions. U.S. Persons entering into routine transactions with such entities prior to September 20, 2020, but with performance continuing after that date should also consider including specific provisions addressing how (and if) the transactions will be conducted after September 20 if prohibited by executive order. Finally, U.S. Persons who have long-term arrangements with ByteDance, Tencent or any of their subsidiaries and believe that there are good U.S. national security reasons for maintaining those relationships may want to consider engaging counsel to reach out to the Department of Commerce and seek an exemption from any designations that may be issued by the Secretary.
As to TikTok, the Committee on Foreign Investment in the United States has been investigating the 2017 acquisition of Musical.ly by ByteDance for nearly nine months and there have been various public reports that the government plans to order ByteDance to divest its interest in TikTok under Section 721 of the Defense Production Act of 1950; such action would require a further executive order. There has also been extensive public reporting that Microsoft, Twitter and others may be in discussions to acquire the U.S. operations of TikTok and perhaps the assets in certain other countries. Should the sale of these operations be completed before September 20, 2020, without ByteDance retaining any interest, it appears that the subsidiaries or assets disposed of would automatically be excluded from the scope of the TikTok order.