Last night, President Trump issued two Executive Orders establishing a framework for prohibiting transactions involving popular Chinese-owned communications apps WeChat and TikTok.1 Contrary to some press reports, the Executive Orders do not prohibit all transactions with their respective parent companies; they do not in fact set out the scope of the restrictions. Rather, they give the Commerce Department authority to prohibit any transaction involving a U.S. person or within the jurisdiction of the United States involving the two services; each of the Executive Orders clearly states "45 days after the date of this order, the Secretary shall identify the transactions subject to subsection (a) of this section [which contains the broad authority to prohibit]."2 Furthermore, the scope of Commerce's authority is subtly (and no doubt intentionally) different in the two Executive Orders: with respect to TikTok, the authority covers any transaction with ByteDance, TikTok's parent; with respect to WeChat, the authority covers any transaction relating to WeChat involving its parent, Tencent Holding. Commerce will, within 45 days, take further action specifying exactly which transactions will be prohibited; it is even possible, particularly with respect to TikTok if the mooted divestiture of U.S. operations occurs, that no restrictions will be imposed.3 Unless and until Commerce implements the Executive Orders, no restrictions are in place and their precise future scope is unknown.
To speculate on the possible shape of the ultimate restrictions, it appears unlikely that they will be quite as broad as the authorizing language suggests. The language identifying the transactions that may be prohibited is familiar from U.S. economic sanctions. Furthermore, as with the previous Executive Order relating to the information technology and communications supply chain permitting Commerce to review transactions with foreign suppliers on a case-by-case basis (to which the new Executive Orders refer),4 the Executive Orders rely upon the framework statute underlying most sanctions programs administered by the Treasury Department's Office of Foreign Assets Control (OFAC).5 If taken to its maximum extent, this language would permit Commerce to prohibit any U.S. person or U.S. company anywhere in the world, and any person physically within the United States, from engaging in any transaction directly or indirectly involving or benefiting Tencent, if the transaction related to WeChat, or ByteDance—including processing any U.S. dollar payment clearing through the U.S. financial system (as the vast majority of global interbank U.S. dollar payments do).
However, the sanctions analogy is likely misleading. If the Administration intended to prohibit all transactions with ByteDance and TikTok, it would have been far simpler and more usual to designate them under an executive order administered by OFAC, as the United States has done in the past with parties considered malicious cyber-actors.6 The Administration's public statements hint at a narrower scope. The prefatory language of the Executive Orders emphasizes "the spread in the United States of mobile applications developed and owned by companies in the People's Republic of China" and "access to Americans' personal and proprietary information." Furthermore, two days ago Secretary of State Michael Pompeo announced the "Clean Network" policy initiative, which includes the "Clean Store" effort to "remove untrusted applications from U.S. mobile app stores."7 While there is no guarantee, it appears that the primary focus of the initiative may be blocking the use and availability of the apps within the United States, rather than prohibiting ordinary-course commercial transactions with ByteDance or (to the extent they relate to WeChat) Tencent generally to the extent they relate to operations outside the United States.
Ultimately, though, until Commerce takes implementing action any discussion of scope is educated guesswork. We will continue to monitor and report on developments.
1 Executive Order on Addressing the Threat Posed by WeChat (Aug, 6, 2020), available at https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-posed-wechat/ ("WeChat Order"); Executive Order on Addressing the Threat Posed by TikTok (Aug, 6, 2020), available at https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-posed-tiktok/ ("TikTok Order").
2 WeChat Order, § 1(c); TikTok Order § 1(c). The letters transmitting the Executive Orders to Congress are fully consistent, stating "To deal with this threat, the order prohibits, beginning 45 days after the date of this order, to the extent permitted under applicable law, any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, with ByteDance Ltd. (a.k.a. Zìjié Tiàodòng), Beijing, China, or its subsidiaries, in which any such company has any interest, as identified by the Secretary of Commerce (Secretary). The Secretary will identify the transactions subject to this prohibition 45 days after the date of the order." White House, Text of a Letter to the Speaker of the House and President of the Senate on Addressing the Threat Posed by TikTok (Aug. 6, 2020), available at https://www.whitehouse.gov/briefings-statements/text-letter-speaker-house-president-senate-addressing-threat-posed-wechat/ (emphasis added). Parallel language appears in the letter transmitting the WeChat Order. White House, Text of a Letter to the Speaker of the House and President of the Senate on Addressing the Threat Posed by WeChat (Aug. 6, 2020), available at https://www.whitehouse.gov/briefings-statements/text-letter-speaker-house-president-senate-addressing-threat-posed-tiktok/.
3 For more discussion of the TikTok matter, see our blog post "TikTok: Familiar Issues, Unfamiliar Responses" (Aug. 5, 2020), available at https://www.clearytradewatch.com/2020/08/tiktok-familiar-issues-unfamiliar-responses/.
4 Executive Order 13873, 84 Fed. Reg. 22689 (May 15, 2019). See our alert memorandum, "Proposed Regulations Create National Security Review of U.S. IT and Telecom Transactions Linked to 'Foreign Adversaries'" (Nov. 27, 2019), available at https://www.clearygottlieb.com/-/media/files/alert-memos-2019/proposed-regulations-create-national-security-v2-pdf.pdf, for a discussion of the proposed implementing regulations for the Executive Order.
5 International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq. It appears that these telecommunications security programs may have been delegated to Commerce rather than OFAC because Commerce has greater technical and engineering expertise as a result of the Bureau of Industry and Security's administration of U.S. export control programs.
6 See Executive Order 13757, 82 Fed. Reg. 1 (Jan. 3, 2017); Executive Order 13698, 80 Fed. Reg. 18077 (Apr. 2, 2015).
7 U.S. Dept. of State, "Announcing the Expansion of the Clean Network to Safeguard America's Assets" (Aug. 5, 2020), available at https://www.state.gov/announcing-the-expansion-of-the-clean-network-to-safeguard-americas-assets/
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