- President Trump's attack on TikTok has highlighted the extensive, but not-well-understood powers the president has to regulate or block foreign investment in the US.
- The president's order came as a result of a process initiated by the Committee on Foreign Investment in the US, or CFIUS, a group of cabinet officials and presidential advisors empowered to review deals for national security concerns.
- The committee can force companies to modify deals or recommend that the president block them.
- CFIUS has broad authority, all of which can be seen in the TikTok deal — it can review deals involving any company that engages in interstate commerce in the US, no matter where they're actually based.
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President Trump's order that China's Bytedance unload its TikTok business in the US has put a spotlight on a government committee with remarkably broad powers to regulate corporate acquisitions — even when none of the businesses involved are American companies.
The Committee on Foreign Investment in the US, or CFIUS, the multi-agency group that recommended Trump's TikTok order, is a 45-year-old panel comprised of cabinet-level officials and presidential advisors authorized to vet foreign investment in the US for national security concerns.
For years, CFIUS was primarily focused on deals with clear relevance to traditional national security, such as companies involved in weapons production or industries important to military readiness.
But the committee has taken an increasingly broad view of national security over the years and recent changes to the laws underlying CFIUS have broadened its power further. And with the "tech cold war" between China and the US escalating, CFIUS is now flexing its muscles in ways that may seem surprising to many in Silicon Valley.
"I feel that a lot of businesses are not understanding this," said Doreen Edelman, a partner at Lowenstein Sandler and the chair of the law firm's global trade and policy group.
The TikTok situation provides a case in point.
Many past press reports have erroneously suggested that Musical.ly — the lip-synching app that would become TikTok after getting acquired by China's ByteDance in 2017 — was an American company. Under that assumption, CFIUS's involvement, even years after the deal closed, might not seem overly surprising.
But in reality, Musical.ly was not a US company. Although it had a small office in California and was popular with US teens, but it was headquartered in Shanghai. So Trump is ordering, following a CFIUS review, the undoing of a merger between 2 two Chinese internet companies.
What makes a business American?
The reason he can do that is because in the eyes of CFIUS, Musical.ly actually was a US company.
Under the laws undergirding CFIUS, any individual, group, or organization that is "engaged in interstate commerce in the US" is considered to be a US business. So an entity could have only a small office in the US or — at least in theory — could have no physical presence at all and still be considered a US company as long as it engaged in interstate transactions.
Not only did Musical.ly have a US office in Santa Monica, Calif, it obviously was engaged in interstate commerce — its video sharing services had millions of US customers. Those factors were enough to place it under CFIUS's jurisdiction.
Once a deal falls within CFIUS's jurisdiction, the committee a lot of power. It can rubber stamp a transaction, demand that the parties make changes to address its concerns, or recommend that the president block the deal. And it can do so pretty much any time it wants, no matter how long after the fact.
In the case of Musical.ly, the committee didn't start investigating the acquisition until last fall, some two years after the parties announced it. CFIUS has full authority to retroactively review deals, particularly those it didn't scrutinize in the first place, such as the ByteDance-Musical.ly deal.
When ByteDance announced the acquisition, the companies had no obligation under the rules in place at the time to notify CFIUS of the deal, which is the precursor to any formal review. The flip side of that freedom to ignore CFIUS was that the committee could at any time — months, years, potentially even more than a decade later — decide that the deal had a bearing on national security and undertake a review of it. There's no statute of limitations on CFIUS's retrospective review power. It can even go back and review or force modifications to deals to which it's previously given a green light, legal experts told Business Insider.
OK, but so how did a deal involving a video-sharing service popular with teens fall under the rubric of "national security?"
In years past, security issues that would be reviewed by CFIUS were fairly narrowly construed, dealing primarily with things like weapons production, military equipment or facilities.
However, what constitutes "national security" has always been left open for each administration to define. Over the years, the definition has gradually widened to include infrastructure such as ports and, increasingly, deals that might threaten economic security, rather than military security.
More pertinently for the ByteDance-Musical.ly acquisition, Congress updated the laws underlying CFIUS in 2018 to spell out three types of deals that would now be considered to have obvious national security implications and would be subject to mandatory review by the committee. Those deals are ones in which foreign entities are investing in or acquiring one of three things — critical infrastructure; critical technologies, including cutting-edge software and hardware; or the personal data of 1 million or more US citizens. By acquiring Musical.ly, ByteDance got access to just that — the personal data of millions of Americans.
And as a result, the deal is a national security concern.
Business Insider reporter Max Jungreis contributed to this story.
Got a tip about startups, venture investing or TikTok? Contact Troy Wolverton via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.
- Read more about the TikTok dispute:
- Trump's attack on TikTok is setting off alarm bells in Silicon Valley
- SCOTT GALLOWAY: Why TikTok is unlikely to be banned in the US, despite plenty of US apps being banned in China
- TikTok reportedly has 18 million users who are 14 or younger, renewing concerns for children's safety
- TikTok's US employees are scared they won't get paid if the app is banned, and now they're planning to sue the Trump administration
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