Commerce Department Identifies Prohibited Transactions Involving WeChat and TikTok

International Trade & Compliance Alert
September.19.2020

Yesterday, 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).

Authors

Harry Clark Partner, International Trade and Investment, Mergers & Acquisitions

Washington, D.C.

See my bio

D:+1 202 339 8499
E: [email protected]

Practice:

Technology & Innovation Sector
International Trade and Investment
Mergers & Acquisitions
Responsible Business
Strategic Advisory & Government Enforcement (SAGE)

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Harry Clark Partner

Washington, D.C.

Harry is experienced in areas such as CFIUS/Exon-Florio examinations of foreign investment, military and “dual use” export control regulations (ITAR/EAR), economic sanctions administered by the U.S. Treasury Department (OFAC), customs regulations, the Foreign Corrupt Practices Act, anti-money laundering rules, anti-boycott requirements and defense industrial security requirements. He executes internal corporate investigations regarding trade and investment rules and advises on such rules in the context of corporate transactions.

Additionally, Harry has extensive experience with government contracting matters. His government contracting work has included, for example, design and implementation of U.S. Defense Department renewable energy projects. He also represents broad industry coalitions on major trade litigations and international negotiations. His experience in these areas includes a leading role in what is often considered the largest-ever international trade dispute: the controversy regarding unfair softwood lumber imports from Canada. It has involved myriad administrative proceedings before federal agencies, NAFTA panel appeals, WTO dispute proceedings, judicial proceedings and international settlement agreements.

Harry has represented a coalition of major U.S. oil companies in antidumping and countervailing duty litigation. As a related matter, he pursues policy issues with congressional and executive branch officials and advises on international trade rules (e.g., GATT, WTO agreements and NAFTA).

Chambers 2022 recognizes Harry as a leader in the field of export controls and economic sanctions (Chambers Global and Chambers USA), as well as CFIUS (Chambers USA). Previous editions have also recognized Harry’s achievements regarding his work related to the Foreign Corrupt Practices Act. Clients note that Harry provides “accurate, straightforward guidance incredibly efficiently” and “he has an ability to translate complex legal requirements and rules into business-friendly jargon.”

Jeanine P. McGuinness Partner, International Trade and Investment, FCPA & Anti–Corruption

Washington, D.C.

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D:+1 202 339 8543
E: [email protected]

Practice:

International Trade and Investment
FCPA & Anti–Corruption
Anti‐Money Laundering and Bank Secrecy Act
Mergers & Acquisitions
Responsible Business
Strategic Advisory & Government Enforcement (SAGE)

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Jeanine P. McGuinness Partner

Washington, D.C.

Jeanine’s clients include major U.S. and foreign financial institutions, and pharmaceutical, technology, telecommunications, energy, and natural resources companies.

Examples of Jeanine’s experience include:

Represents clients in preparing voluntary self-disclosures, administrative subpoena responses and license applications, and represents companies in connection with enforcement actions by the Treasury Department’s Office of Foreign Assets Control (OFAC)
Provides policy and compliance advice to clients affected by frequent changes in U.S. sanctions, including sanctions targeting Iran, Cuba, and Russia/Ukraine
Assists foreign purchasers of U.S. companies in national security reviews, including navigating the CFIUS process, through preparation of notices, meetings with CFIUS member agencies, advising on follow-on investigations, and negotiating and implementing mitigation agreements
Assists clients in developing and updating economic sanctions, anti-money laundering, and anti-corruption compliance policies and procedures
Represents financial institutions in connection with U.S. federal and state enforcement actions regarding compliance with U.S. anti-money laundering laws and regulations
Represents lenders, underwriters, borrowers, and issuers in international lending and capital markets transactions regarding sanctions, anti-corruption, and anti-money laundering issues
Advises a U.S. trade association and its member banks regarding U.S. sanctions, anti-corruption, and anti-money laundering issues in lending transactions, and prepares guidance for the industry on these matters
Advises financial institutions on the application of U.S. anti-money laundering regulations, with specific emphasis on customer identification program (CIP)/know your customer (KYC)/customer due diligence (CDD) requirements and suspicious activity reporting requirements
Regularly advises private equity and hedge funds regarding compliance with U.S. anti-money laundering and sanctions laws and regulations, including with respect to appropriate provisions in subscription materials and enhanced due diligence on high-risk investors
Advises clients regarding sanctions-related inquiries from the Securities and Exchange Commission (SEC) and state agencies implementing divestment laws and assists clients in preparing sanctions-related disclosure for inclusion in annual reports to the SEC

Jeanine is ranked in both the CFIUS Experts and Export Controls & Economic Sanctions categories by Chambers USA in 2019, 2020, 2021, and 2022. An interviewee had this to say of their experience working with Jeanine, “I am continuously impressed by her extensive knowledge, excellent communication skills and her ability to wrap her subject matter expertise around the details of the matter and then drive conclusions or recommendations for next steps."

Gregory I. Hume Economist and Compliance Specialist, Mergers & Acquisitions, International Trade and Investment

Washington, D.C.

See my bio

Practice:

Mergers & Acquisitions
International Trade and Investment
Strategic Advisory & Government Enforcement (SAGE)

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Gregory I. Hume Economist and Compliance Specialist

Washington, D.C.

Greg assists in a variety of regulatory and investigatory activities relating to the Committee for Foreign Investment in the United States (CFIUS), export controls, economic sanctions and anti-boycott regulations, including the preparation of CFIUS Notices, voluntary disclosures, internal audit documentation and compliance policies and procedures. He also actively participates in corporate transaction due diligence related to Trade Controls and the Foreign Corrupt Practices Act, as well as internal investigatory activities.

With over 20 years' experience in antidumping and countervailing duty investigations (and consequent administrative reviews) of unfairly-traded goods, Greg has been centrally involved in the statistical, economic and financial analysis of the confidential pricing, logistical, marketing and accounting information submitted by parties in such cases, as well as supporting the drafting and review of briefs and other pleadings filed by parties in the cases. Among the unfair trade cases in which he has participated are those involving crystalline solar voltaic panels, softwood lumber, warmwater shrimp, wooden bedroom furniture, outboard motors and various flat-rolled steel products.

Greg has frequently presented litigation-related testimony before the International Trade Administration and actively participates in representing firm clients before the U.S. Department of Commerce, the International Trade Commission, the Court of International Trade, the Court of Appeals for the Federal Circuit and the World Trade Organization.

Greg actively participated in the negotiation of a major international trade agreement involving billions of dollars of trade, and the subsequent monitoring of that agreement. In binding arbitration emerging from that agreement, he developed a damages estimate adopted by the U.S. Government and accepted by the arbitral panel.

Greg also supports a variety of litigation efforts requiring data analysis, and has developed and analyzed damages estimates for various arbitration and litigation matters.