Commerce Department Identifies Prohibited Transactions Involving WeChat and TikTok

Orrick, Herrington & Sutcliffe LLP

Last week, the Department of Commerce took steps to implement sanctions targeting China’s mobile applications WeChat, owned by Tencent Holdings Ltd. (“WeChat Sanctions”), and TikTok, owned by ByteDance Ltd. (“ByteDance”) (“TikTok Sanctions”). These actions are in furtherance of Executive Orders 13943 and 13942, respectively, issued by the President on August 6, 2020, under the authority of the International Emergency Economic Powers Act. Among other things, starting tomorrow (September 20, 2020), U.S. online mobile application stores, and any U.S. online marketplace, will be prohibited from selling the WeChat and TikTok applications.

The Department of Commerce’s actions are scheduled to be officially published on September 22, but the prohibitions will become effective, in whole (in the case of the WeChat Sanctions), or in part (in the case of the TikTok Sanctions) on September 20, 2020.

Sanctions

The WeChat Sanctions and the TikTok Sanctions prohibit any of the following activity within the United States beginning on September 20, 2020:

  • Any provision of services to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or mobile application updates through an online mobile application store, or any online marketplace where mobile users may download or update applications for use on their mobile devices. 

Beginning on September 20, 2020, with respect to WeChat, and November 12, 2020, with respect to TikTok, the following transactions within the United States are prohibited:

  • Any provision of Internet hosting services (meaning services through which storage and computing resources are provided for the accommodation and maintenance of a website or Internet service) enabling the functioning or optimization of the WeChat or TikTok mobile application;
  • Any provision of content delivery services (meaning services that copy, save or deliver content, for a fee, to end users in order to enable faster content delivery) enabling the functioning or optimization of the WeChat or TikTok mobile application;
  • Any provision of directly contracted or arranged internet transit or peering services enabling the functioning or optimization of the WeChat or TikTok mobile application;
  • Any utilization of the mobile application’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the United States;
  • Any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments to or from parties; or
  • Any other transaction as may be identified at a future date under the relevant Executive Orders by any person, or with respect to any property, subject to U.S. jurisdiction, related to WeChat with Tencent Holdings Ltd. or of its subsidiaries, or ByteDance or any of its subsidiaries (including TikTok).

Specifically excluded from the WeChat Sanctions and the TikTok Sanctions are exchanges between or among users of personal or business information (including for WeChat, fund transfers), and the storing of WeChat or TikTok mobile application data in the United States. U.S. persons can still use these mobile applications—the prohibitions apply only to the parties to business-to-business transactions and not to users of the mobile applications—but the applications may begin to become obsolete on U.S. persons’ phones.

Secretary of Commerce Ross said yesterday regarding WeChat that “for all practical purposes it will be shut down in the U.S., but only in the U.S., as of midnight Monday” and that “as to TikTok, the only real change as of Sunday night will be users won’t have access to improved updated apps, upgraded apps or maintenance.”

Whether the second phase of the TikTok Sanctions will in fact enter into force on November 12, 2020, will depend on whether ByteDance can convince the Committee on Foreign Investment in the United States and President Trump that national security concerns related to user data and privacy have been alleviated by any deal concerning TikTok that is reached between ByteDance and a U.S. company.[1] 

Conclusion

The WeChat Sanctions and the TikTok Sanctions highlight the Trump Administration’s stated intent to target and punish what it perceives to be malign behavior by China concerning the personal data of millions of Americans.

Traditionally, economic sanctions of this type have been administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). OFAC sanctions that target parties typically result in blocking (freezing) of a sanctions target’s assets in the United States or within the possession or control of a U.S. person. In contrast, these new sanctions, once in effect, will prohibit only activity performed within the United States, although that could change in the future. In a significant divergence from typical OFAC sanctions, under the new restrictions, U.S. persons are not prohibited from engaging in activities related to the intended distribution, installation or use of these applications outside the United States.  

We continue to closely monitor the evolving situation and how the Department of Commerce may further refine and enforce these restrictions, particularly given that the Department of Commerce does not have experience administering these types of sanctions.


[1] In late 2019, CFIUS launched a review of ByteDance’s two-year-old $1B acquisition of U.S. social media app Musical.ly, which it merged into TikTok. On August 14, 2020, the Trump Administration issued an order giving ByteDance 90 days to divest the U.S. operations of TikTok (i.e., by November 12, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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