President Trump Issues Executive Orders Prohibiting Transactions with TikTok and WeChat

The increasing tensions between China and the United States have taken a dramatic turn, with President Trump’s issuance of two broad Executive Orders prohibiting transactions involving popular Chinese-owned mobile applications TikTok and WeChat by any person or involving any property subject to U.S. jurisdiction — “Executive Order on Addressing the Threat Posed by TikTok” and “Executive Order on Addressing the Threat Posed by WeChat.”  Claiming threats to U.S. national security, foreign policy, and the U.S. economy posed by TikTok’s and WeChat’s data collection of Americans’ personal and proprietary information, and censorship and disinformation campaigns by the Chinese Communist Party, the Executive Orders authorize the Secretary of Commerce to identify the types of transactions that will be prohibited.  Importantly, unlike blocking sanctions, which are administered by the Treasury Department’s Office of Foreign Assets Control and take immediate effect, the prohibitions in the two Executive Orders will be administered by the Commerce Department and are not effective until September 20th (45 days from the date of the order).  In the interim, all transactions with TikTok and WeChat are permitted.  If the Executive Orders are implemented to their full extent, both TikTok and WeChat will be effectively barred from the U.S. market.

The actions against TikTok and WeChat follow weeks of reported efforts by the Trump Administration to force the sale of TikTok and are the latest steps in a line of actions using existing national security authorities to target China and Chinese technology companies.  See our prior alerts: U.S. Government Imposes National Security-Driven Procurement Restrictions on Federal Government Contractors that Will Impact Their Supply Chain; United States Expands Export Controls Targeting Huawei’s Access to US Technology; President Trump Orders Chinese Company to Divest Acquisition of US Hotel Software Company.

Findings Regarding TikTok and WeChat

The parallel Executive Orders are both cast as dealing with the “national emergency with respect to the information and communications technology and services supply chain declared in Executive Order 13873 of May 15, 2019 (Securing the Information and Communications Technology and Services Supply Chain)” and state “the United States must take aggressive action” against the owners of the two apps to protect U.S. national security.

Regarding TikTok, a video-sharing mobile application owned by ByteDance Ltd., a Chinese company, the TikTok Executive Order finds:

Further, the TikTok Executive Order cites reported censorship of content deemed politically sensitive by the Chinese Communist Party, such as protests in Hong Kong, as well as the potential use of TikTok for disinformation campaigns benefitting the Chinese Communist Party, such as “debunked conspiracy theories” about coronavirus.

The TikTok Executive Order also notes that federal agencies and U.S. companies have begun banning TikTok on government and company devices.  Members of Congress have introduced legislation similarly to prohibit downloads of TikTok on U.S. government-owned devices.¹

Regarding WeChat, a messaging, social media and e-payment application owned by Tencent Holdings Ltd., a Chinese company, the EO finds:

As with the TikTok Executive Order, the WeChat Executive Order calls out reported censorship of content deemed politically sensitive by the Chinese Communist Party, as well as the potential use of WeChat for disinformation campaigns benefitting the Chinese Communist Party.

These orders are singular in many respects.  First, the TikTok order marks the first use of authority under the International Emergency Economic Powers Act (“IEEPA”) explicitly to pressure a foreign company to divest U.S. assets.  Separately, under the Defense Production Act, the President may order TikTok to divest Musical.ly, the platform it acquired in 2017 and upon which it has built the TikTok business.  Apparently, the Committee on Foreign Investment in the United States has recommended that action to the President.  The order effectively sets a deadline for the sale, effectively depriving TikTok of any bargaining power.²  Second, in both cases IEEPA power is being exercised to prevent millions of persons in the United States from communicating with others through online platforms.  Typically, IEEPA is invoked instead to block transactions involving specific foreign-owned assets subject to U.S. jurisdiction and to prohibit or regulate trade with targeted foreign countries or persons.

Potential Prohibited Transactions

Both Executive Orders authorize the Secretary of Commerce to identify the transactions that fall within the scope of the prohibitions and to adopt rules and regulations to implement the orders.  In addition to the transaction prohibitions, the Executive Orders, once implemented, could also prohibit transactions by U.S. persons (defined broadly to include U.S. citizens or permanent residents anywhere in the world) or transactions within the United States intended to evade or avoid the prohibitions, or attempts to violate the prohibition.

Importantly, the Commerce Department is accorded discretion in its implementation of the Executive Orders, and the orders by their terms contemplate that licenses or other government measures might be issued, for example, to exclude individual users of the applications from liability, or to forestall the prohibitions going into effect pending the outcome of negotiations with Bytedance and Tencent over other measures to address U.S. national security concerns.  The full scope of the prohibitions will not be known until the Commerce Department publishes rules implementing the Executive Orders.  In the interim, the use of TikTok and WeChat and transactions with their parent companies remain permitted.

With the TikTok and WeChat orders, the Trump Administration has taken another far-reaching step to force “decoupling” of the United States and China, in this case extending beyond economic ties to means of engaging in personal expressions and communications.  In a broader sense, the motivating factor for taking protective action may be the same driver of regulatory measures taken around the world to impose tighter limits on collection and dissemination of personal data, without regard to source of the data.  The specific targeting of TikTok and WeChat, however, takes these general measures in a new direction, one that seems certain to be reciprocated by China against U.S.-owned applications and that in turn may precipitate a spiraling series of further prohibitions in each country.

¹ On August 6, 2020, the Senate passed S. 3455, the “No TikTok on Government Devices Act”.  See 166 Cong. Rec. S. S5236-37 (2020) available at https://www.congress.gov/116/crec/2020/08/06/CREC-2020-08-06-pt1-PgS5236.pdf.  The House passed similar legislation on July 20, 2020, as part of an amendment to the 2021 National Defense Authorization Act.  See Amendment to Rules Committee Print 116-57 “Prohibition on Downloading or Using TikTok by Federal Employees” available at https://amendments-rules.house.gov/amendments/BUCK_062_xml713201217411741.pdf.

² Microsoft Corp., Microsoft to continue discussions on potential TikTok purchase in the United States, (Aug. 2, 2020) available at https://blogs.microsoft.com/blog/2020/08/02/microsoft-to-continue-discussions-on-potential-tiktok-purchase-in-the-united-states/.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, Theodore W. Kassinger, an O’Melveny of counsel licensed to practice law in the District of Columbia and Georgia, Mary Pat Dwyer, an O’Melveny counsel licensed to practice law in the District of Columbia and Pennsylvania, David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, and Paras Shah, an O’Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2020 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.