The TikTok logo is pictured outside the company's U.S. head office in Culver City, California, U.S., September 15, 2020. Picture: REUTERS/MIKE BLAKE
The TikTok logo is pictured outside the company's U.S. head office in Culver City, California, U.S., September 15, 2020. Picture: REUTERS/MIKE BLAKE

New York — China’s ByteDance faces an uphill struggle to convince the White House to allow it to keep majority ownership of its popular short video app TikTok in the US, according to former national security officials and regulatory lawyers.

President Donald Trump ordered ByteDance in August to divest TikTok amid US concerns that the personal data of as many as 100-million Americans that use the app could be passed on to China’s Communist Party government. He has threatened to ban TikTok in the US as early as September 20 if ByteDance does not comply.

ByteDance has submitted a plan to US officials for it to keep a majority stake in TikTok’s global business and create headquarters for TikTok in the US, Reuters reported on Tuesday. The proposal is being reviewed by the committee on foreign investment in the US, a US government panel chaired by the US treasury department.

“Conceptually I can tell you I don’t like that [ByteDance keeping a majority ownership of TikTok]. That has been reported, but it has not been told to me yet. If that is the case, I’m not going to be happy with that,” Trump told reporters at the White House on Wednesday. He said he would be briefed on the deal and consider it on Thursday.

Were Trump to approve the deal, he would have to amend an executive order he signed on August 14 directing ByteDance to divest TikTok in the US, something that no US president has done in the history of national security reviews, foreign investment committee experts said.

“After CFIUS [committee on foreign investment in the US] made a recommendation to the president and the president issued an executive order requiring divestment, it would be unprecedented for the parties to negotiate a solution short of a divestment, though it would clearly be within the authority of the president to modify his order” said Aimen Mir, who oversaw committee reviews between 2014 and 2018 as deputy assistant secretary for investment security at the US department of the treasury, and is now a partner at law firm Freshfields Bruckhaus Deringer.

ByteDance, the White House and the treasury did not respond to requests for comment.

To be sure, the committee on foreign investment has allowed foreign firms to keep sensitive US assets on several occasions, by imposing oversight and restrictions on how they are operated.

China’s Lenovo acquired IBM’s personal computer business in 2005 and Japan’s SoftBank Group acquired US wireless carrier Sprint in 2013 by agreeing to foreign investment committee conditions such as giving the US government a say on board directors and vendor relationships. ByteDance has proposed similar measures to the committee, sources have said.

“Even if a company’s affiliate is concerning to CFIUS, as long as that affiliate is isolated to CFIUS’s satisfaction, then the transaction can work. CFIUS has requested and has been satisfied with isolating mitigation measures in the past,” said Nevena Simidjiyska, a regulatory lawyer at Fox Rothschild.

US divestment 

ByteDance has also explored divesting a majority stake in the US business of TikTok, and in July it signed a letter of intent with Microsoft that contemplated the sale of that business to the Redmond, Washington-based company.

However, Microsoft said on Sunday that ByteDance had turned down its offer, and it remains unclear whether the Chinese firm would shed most of its ownership of TikTok to clinch a deal with the White House.

Another hurdle for ByteDance, committee experts said, is that it is discussing offering a minority stake in TikTok to Oracle, while also having the technology giant take over the management of its user data and ensuring it is ring-fenced from China.

The committee typically calls for parties responsible for security arrangements to be independent of the companies they oversee. For example, when it allowed China Oceanwide Holdings to acquire US insurer Genworth Financial two years ago, it negotiated installing a US-based, third-party service provider to manage Genworth’s US policyholder data. That provider had no stake in Genworth’s business.

“For CFIUS to get comfortable with a third party having both an ownership stake and a security responsibility, they would have to have a firm basis for trusting the US business partner, conclude that the security measures would be technically effective, and be convinced that it is possible for the business to be commercially successful even while strictly adhering to the security measures,” Mir said.

ByteDance is referring to Oracle as a “trusted technology partner”. The foreign investment committee previously rejected the use of trusted technology partners when considering whether ByteDance should divest TikTok, the video app disclosed in an August 24 lawsuit against the US challenging Trump’s order to ban it.

Oracle did not respond to a request for comment.

Reuters

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