The Future of TikTok hinges on proving its independence: TikTok’s looming national security investigation

In less than two months after TikTok came under fire for appearing to censor videos related to the pro-democracy protests in Hong Kong, the app is facing a new challenge from the US government. The Committee on Foreign Investment in the United States (CFIUS) has contacted TikTok’s Chinese parent company ByteDance with concerns that the app could pose a threat to US citizens.

Those concerns will most likely lead to a national security review — one that lawmakers on both sides of the aisle have been calling for since early October. In the end, ByteDance could be forced to sell off Musical.ly; the American company it acquired in 2017 that helped launch TikTok’s viral success. If that happens, it could mark the end of TikTok in the US, and serve as a warning to any Chinese company looking to break into the American market.

COULD THIS MARK THE END OF TIKTOK IN THE US?

CFIUS’s focus on tech is still relatively new. For the last 30 years, the committee, chaired by the secretary of the treasury, has been charged with structuring mergers and acquisitions between US and foreign companies in such a way that protects US national security interests. CFIUS typically wants to see companies create US-based leadership teams and have US-based servers to ensure China’s government won’t have free rein over data on American citizens.

Under the Trump administration, the committee’s role has been expanding, particularly as it relates to Chinese investments in tech companies. “Recently, the scope of CFIUS’ authority has broadened with respect to foreign investments in sensitive technologies,” said Robert Williams, executive director of the Paul Tsai China Center at Yale Law School.

In 2018, CFIUS began cracking down on Chinese tech mergers, a sign that it was increasingly concerned about giving foreign governments’ access to sensitive user data. On January 2nd, 2018 CFIUS rejected Chinese company Ant Financial’s plan to acquire the US financial organization MoneyGram, citing national security risks. “The MoneyGram episode is potentially instructive because it seems that concerns around a Chinese company having access to data on US citizens motivated the blocking of that transaction,” said Williams.

The committee also started reversing deals that have already gone through. In March, CFIUS forced Beijing Kunlun Tech Co Ltd to sell the gay hookup app Grindr, after a probe revealed the user data posed a threat to American citizens. The Chinese government has likely taken a significant interest in that data, which could be useful in targeting dissidents at home and for blackmail abroad. As a Chinese company, there is likely nothing Kunlun could do to prevent the government from accessing user data.

Not every acquisition between a foreign and a US company needs clearance from CFIUS. The approvals process is voluntary and only required when the deal poses a potential threat to national security. TikTok didn’t bother clearing the Musical.ly deal with CFIUS, which gives the committee grounds to investigate it now.

The outcome of their investigation will likely hinge on whether TikTok can prove its independence from ByteDance, something the company already appears to be working on. In a statement on October 24th, TikTok said, “Let us be very clear: TikTok does not remove content based on sensitivities related to China.” Vanessa Pappas, the company’s general manager, also tried to alleviate senators’ concerns around data security, noting that, as of January, all TikTok’s user data is stored in the US.

“There’s the possibility of structuring a mitigation agreement that would allow the company to continue to own Musical.ly and to operate in the US subject to limiting conditions and reporting requirements,” added Williams. If that fails, however, CFIUS could force ByteDance to sell the company. “There are still some open questions about the extent to which companies can appeal a CFIUS or presidential decision through the judicial system,” Williams said.

CFIUS COULD FORCE BYTEDANCE TO SELL THE COMPANY

Samantha Hoffman, an analyst at the Australian Strategic Policy Institute, said the committee’s concerns are well-founded. “The [Communist] Party of China collects bulk data overseas and then uses it to help with things that relate to state security like propaganda and identifying public sentiment to understand how people feel about a particular issue,” she said. “It’s about controlling the media environment globally. Once you have control, you can use it to influence and shape the conversation.”

“EVEN IF IT’S NOT HAPPENING THAT MUCH NOW IT’S REALLY ONLY A MATTER OF TIME BEFORE IT DOES”

Those surveillance concerns are much bigger than just TikTok. “The Chinese government has a history of gaining control over nodes in the information system,” said Sarah Cook, a senior research analyst for China, Hong Kong, and Taiwan at Freedom House. “They don’t always mobilize them right away to harm freedom of expression until something threatening happens and then they do. It seems clear TikTok is censoring information related to the Hong Kong protests, but at the same time, even if it’s not happening that much now it’s really only a matter of time before it does.”

CFIUS’s recent expansion is likely an attempt to counter China’s growing power. “What is interesting about this case is that the decision is clearly not solely based on the personal data that may be accessible,” noted Nevena Simidjiyska, a partner at Fox Rothschild LLP, who noted that questions of censorship haven’t historically been a focus for the committee. “This is a new space for CFIUS regulation that will bring a lot more social media companies into scrutiny.”

At the center of the debate is how far China’s control extends outside their national borders — a question US lawmakers are highly focused on. When TikTok appeared to be squashing content related to the pro-democracy protests in Hong Kong, Senators like Josh Hawley (R-MO) and Marco Rubio (R-FL) began calling for an investigation. More congressional leaders joined when former TikTok employees told The Washington Post they were instructed to take down political posts. “Ample & growing evidence exists that TikTok’s platform for western markets, including the U.S., are censoring content in line with #China’s communist government directives,” tweeted Rubio.

In a statement emailed to The Verge, he added, “I remain deeply concerned that any platform or application that has Chinese ownership or direct links to China, such as TikTok, can be used as a tool by the Chinese Communist Party.”

His concern was echoed in a letter Sen. Chuck Schumer (D-NY) and Sen. Tom Cotton (R-AR) wrote to acting National Intelligence Director Joseph Maguire late last month. “While ByteDance claims TikTok does not operate in China and stores U.S. user data in the U.S., ByteDance is still required to adhere to the laws of China,” the senators wrote.

The question is far from hypothetical. According to the 2019 Freedom on the Net report by Freedom House, China is the worst abuser of internet freedom in the world. “Censorship reached unprecedented extremes as the government enhanced its information controls in advance of the 30th anniversary of the Tiananmen Square massacre and in the face of widespread anti-government protests in Hong Kong,” the report reads.

CHINA IS THE WORST ABUSER OF INTERNET FREEDOM IN THE WORLD

But according to Hoffman, true independence will be difficult to come by — especially for TikTok’s parent company. “If we’re talking about a company based in the [People’s Republic of China], I would say it’s impossible for them not to be influenced by the Chinese government,” she said. “It doesn’t matter about the intent of the person setting up the company. It’s not about that. It’s about how the system operates.”