August 21, 2020

National Security: Post-Closing CFIUS Review Unwinds TikTok Deal

Unless you’ve been living under a rock for the last several weeks, you’re well aware of President Trump’s efforts to first ban, and then compel the sale of, the popular TikTok app. This Crowell & Moring memo looks at one aspect of this situation – the Executive Order issued last Friday that compels ByteDance to unwind the 2017 deal in which it acquired TikTok:

Citing the existence of credible evidence that ByteDance, Ltd.’s (ByteDance) 2017 acquisition of “threatens to impair the national security of the United States”, the President issued an Executive Order on August 14, 2020, ordering ByteDance to divest all of its interests in the mobile application TikTok within 90 days.

Specifically, the order prohibits the 2017 acquisition along with any ownership interests in by ByteDance. Further, it directs ByteDance to divest all interests in “any tangible or intangible assets or property, wherever located, used to enable or support ByteDance’s operation of the TikTok application in the United States” and “any data obtained or derived from TikTok application or application users in the United States.”

Following divestiture, ByteDance must certify in writing to the Committee on Foreign Investment in the United States (CFIUS) that it has destroyed that data as well as any copies of that data wherever located. CFIUS may require an audit to ensure destruction of the data.

The memo says that the President’s action highlights the risk that CFIUS may determine to investigate a transaction post-closing. That’s a rare event, but CFIUS can initiate a review of a “non-notified” transaction at any time, and that post-closing review may result in divestiture. In contrast, deals that are filed with and cleared by CFIUS enjoy a safe harbor from subsequent CFIUS review.  There’s a lesson in there somewhere. . .

John Jenkins