Saturday, October 31, 2020

Mnuchin pushes forward on TikTok deal despite opposition

Sep 18. 2020
Facebook Twitter

By The Washington Post · Ellen Nakashima, Rachel Lerman, Jeff Stein · NATIONAL, BUSINESS, WORLD, TECHNOLOGY, POLITICS, NATIONAL-SECURITY, ASIA-PACIFIC

WASHINGTON - Treasury Secretary Steven Mnuchin is determined to push through a TikTok deal that would enable the wildly popular app to retain some Chinese ownership, despite significant national security concerns from some lawmakers, other agencies and President Donald Trump's own skepticism.

The president signed an executive order banning undefined transactions with the app in the U.S. starting Sept. 20, as well as another order requiring its divestiture. But Mnuchin has been lobbying hard for a deal in which TikTok outsources data management to Oracle while allowing TikTok to keep ties with its Chinese parent company, ByteDance, according to people familiar with the talks who were not authorized to discuss the matter publicly.

The deal would require extensive outside oversight of TikTok in the U.S., including a plan for the company to go public within the next year or so to increase transparency into its operations, one of the individuals said.

Mnuchin called Department of Defense officials Wednesday and briefed them on the deal but told them it was going to get done regardless, according to some of the people familiar with the talks.

His message was, "Give me your concerns and I will try to address them, but we are doing this," said one former U.S. official briefed on the call.

Oracle chief executive Safra Catz has developed a close relationship with the White House, including serving on Trump's transition team as he took office. Nonetheless, Trump met with Oracle on Wednesday and expressed concerns with the deal, a senior administration official said.

Trump told reporters Wednesday that he would not be happy if ByteDance maintained its majority stake in the business.

"Conceptually, I can tell you I don't like that," said Trump. "If that's the case, I'm not going to be happy with that."

TikTok confirmed this week that it has chosen Oracle as its "trusted technology partner" after two months of confusion and harried dealmaking, as Trump moved to ban the short-form video app in the country, citing national security concerns. Suitors including Microsoft, Walmart and Oracle were interested bidders, but as government requirements conflicted in the District of Columbia and Beijing, TikTok eventually presented a deal that marked a significant step back from a full sale.

Instead, the proposed deal would make TikTok's U.S. user data entrusted "exclusively" to Oracle and give Oracle oversight over all TikTok's technical operations in the country, according to the person familiar with the talks. The entire deal is designed to quell officials' fears that TikTok poses a national security threat because of its Chinese parent company. TikTok has said repeatedly it does not share U.S. customer information with the Chinese government.

U.S. officials say, however, Chinese laws require Chinese companies to share data with the government if directed and give the companies no discretion to refuse.

The Treasury Department sent the proposal back to the companies Wednesday with revisions on how the security structure would work, and ByteDance accepted the changes, one of the people said.

The deal still may hit a roadblock. "I don't think anybody has the ability to push something through if the president is opposed to it," said a senior administration official.

Under the proposed deal, the U.S. government would be able to approve the board members of the new TikTok entity, which would probably include Walmart chief executive Doug McMillon. Walmart would invest in the company, one of the people said.

TikTok would also prepare for a U.S. IPO in the next year. And it would allow a third-party organization to conduct audits and oversight of its operations.

Oracle, Walmart and TikTok did not comment beyond previous public statements earlier this week.

The Treasury Department did not immediately respond to a request for comment.

Pentagon spokeswoman Jessica Maxwell had no comment.

TikTok's saga with the U.S. government heated up this summer when Trump threatened to ban the app and eventually issued an order that takes effect Sunday, though the government hasn't said exactly what that ban would look like. The Commerce Department will issue an order Friday spelling out what transactions will be subject to the ban.

"We're not interested in going after the college kid in his dorm room taking videos," the senior administration official said. "We are focused on the corporate level transactions, the business-to-business relationships. If people have TikTok on their phones, they're not going to find themselves before a judge."

Trump issued a second order that would require ByteDance to essentially divest from TikTok in the U.S. under a process by the Committee of Foreign Investment in the United States (CFIUS), an interagency organization that oversees mergers with foreign companies for national security risks.

The irony, said the former U.S. official, is that the administration had a potential answer to its concerns through a deal in which Microsoft would buy TikTok, including its valuable algorithm, which determines what users see on the app. But that deal fell through.

Longtime CFIUS staff are upset about how the deal is being handled and have expressed concerns that what is supposed to be a walled-off national security process is being increasingly politicized, according to a former CFIUS official.

By law, the Treasury Department "is the chair of CFIUS and therefore the 'first among equals,'" said another former official, "but it does not grant them authority to blatantly steamroll other CFIUS member agencies and ignore legitimate national security concerns. Unfortunately, the system has drifted off course."

The companies and government have been working to finish the deal before the ban is set to take place in just a few days. Mnuchin previously said on CNBC that the deal would also require TikTok to establish a U.S. headquarters for the newly created company and hire an additional 20,000 people here. Currently, TikTok runs its U.S. operations from Culver City, Calif.

Oracle was a somewhat surprising choice to win the TikTok deal after weeks of speculation that Microsoft was the front-runner in the bidding process.

Oracle, which provides database and other services to large companies, does not have a consumer business. But its executives have close ties to Trump, and TikTok is probably an attractive target to boost Oracle's cloud technology business, which has failed to break into the top of the pack.

TikTok could also bolster Oracle's data brokerage business, which collects detailed information on consumers to sell to advertisers. TikTok has a growing U.S. base of about 100 million users quarterly.

 

Tags:
Facebook Twitter
More in Ed & Tech
Editor’s Picks
wmg-logo
Top News
wmg-logo