Noah Cothern, Contributing Member 2023-2024
Intellectual Property and Computer Law Journal
Introduction
Foreign Direct Investment (FDI), the ownership of at least 10 percent of a domestic company by foreign investors, provides means for Americans to support their businesses by increasing available funds.[1] Research from the U.S. Department of Commerce shows that, as recently as 2019, 16 million jobs, or 10.1 percent of all U.S. employment was supported by FDI.[2] Despite the advantages, FDI is not without controversy. Many in the U.S. government fear that the presence of foreign entities of in sensitive business sectors puts U.S. national security at risk.[3]
In response to this fear, President Ford established the Committee on Foreign Investment in the United States (CFIUS) to review FDI for potential national security risks. In the nearly 50 years since its creation, and in response to growing concerns regarding economic globalization, CFIUS has grown increasingly powerful.[4] Exercising this power, CIFUS has been engaged in a multi-year review of social media titan TikTok for threats to national security.[5]
This article considers the threat to national security posed by TikTok. Part II of this article explores the history of FDI in the U.S., the growing role of CFIUS review, and an overview of why TikTok is controversial. Part III argues that TikTok presents a threat to national security, but that threat does not warrant a nationwide ban.
Background
Foreign Direct Investment
In the decades following the Second World War, the U.S. found itself at the center of a rapidly expanding and more globally connected economy. Businesses which were once funded entirely by domestic entities were now looking abroad for investors. Likewise, foreign entities often looked into the U.S. homeland for business to merge with and acquire. While this model aligns with the free market values the U.S. was built upon, there exists the potential for deals that run counter to U.S. security interests.
Public outcry and political pressure have spotlighted the vulnerability of U.S. security interests in foreign deals on numerous occasions. In 1987, the Japanese computer conglomerate Fujitsu attempted to purchase an 80% stake in American computer chip manufacturer Fairchild Semiconductor.[6] Secretary of Defense Caspar Weinberger and Secretary of Commerce Malcolm Baldrige publicly opposed the deal arguing it would increase the U.S. military’s dependence on foreigners to produce essential components of defense equipment.[7] The deal was abandoned later that year as a result of public outcry.[8] In 2006, Dubai Ports World attempted to purchase 6 American ports including ports in New York and New Jersey.[9] The deal was met with bipartisan opposition as Senators on both sides of the political isle called it a mistake to entrust port customs security with a company from the United Arab Emirates. [10] More recently, American leaders in the tech industry have sounded the alarm on Chinese investments in American tech companies. Much of this concern comes from the risk that vital technology trade-secrets may make their way to Beijing.[11]
Committee on Foreign Investment in the United States
The role CFIUS plays in review of FDI has swelled in the years since its inception. When it was first created in 1975, CFIUS was limited in the scope of what transactions it could review.[12] In response to the Fujitsu/Fairchild Semiconductor deal, Congress passed the Exon-Florio amendment which gave the President wider latitude to block a foreign acquisition deal on broad grounds of national security. These decisions would not require congressional approval and could not be reviewed in the judiciary.[13] In 2007, Congress passed the Foreign Investment and National Security Act of 2007 (FINSA) which expanded the definition of what constitutes national security and made CFIUS review mandatory for any FDI that involved a company which was owned by a foreign government.[14] In 2018, Congress passed the Foreign Investment Risk Review Modernization Act (FIRRMA) which permitted CFIUS to review a much broader class of transactions, lengthened the period of review, granted more latitude to suspend transactions, increased CFIUS’ size and budget, and made a separate review process before any sensitive U.S. technologies could be exported.[15] Once CFIUS has completed their review and made a recommendation to the President, the President may proceed to block the transaction when there exists credible evidence that the transaction will impair national security, and that existing laws are insufficient to protect national security.
Only once before has any company attempted to fight a CFIUS determination in the courts.[16] In Ralls Corp. v. Comm. on Foreign Inv. In U.S., the Court of Appeals for the District of Colombia held that the statutory grounds of CFIUS prohibited judicial review of final action taken by a President to suspend any transaction that threatens or impairs national security.[17]
As a result, the expansion of CFIUS has dramatically decreased the ability of foreign entities – particularly Chinese ones – to enter the American market. In their 2021 annual report to Congress, CFIUS revealed that Chinese transaction registrations in the U.S. had decreased by 43 percent since the enactment of FIRRMA.[18]
TikTok
TikTok is a video sharing social media platform with over 150 million users in the U.S.[19] It allows users to create and share short video clips, send messages, and browse recommended content. TikTok’s parent company, ByteDance, is a Chinese technology company that is speculated to have close ties with the Chinese Communist Party (CCP).[20] Prominent national security leaders including FBI Director Christopher Wray, Director of National Intelligence Avril Haines, CIA Director William Burns, and National Security Agency Director Paul Nakasone have called TikTok a threat to national security.[21] Specifically, they cite the ability of the Chinese government to collect sensitive data, perform mass-surveillance, and control the flow of information that reaches the American population.[22] TikTok has been under continuous CFIUS review since 2019.[23]
Discussion
TikTok presents a unique threat to national security which, if left unaddressed, puts American citizens at risk. CFIUS should act to eliminate the security risks without offending Constitutional freedoms by recommending structural reforms which provide greater transparency to users and sever any connection between TikTok and the Chinese government.
TikTok is a Likely Threat to National Security
TikTok is a powerful tool capable of both initiating societal change and exposing sensitive information. American security interests are at risk if forced to rely on ByteDance being uninfluenced by the Chinese government.
In Europe, where nations like the United Kingdom, France, and the Netherlands have already banned TikTok on state computers, lawmakers passed the Digital Services Act. This Act requires social media companies to keep public databases of advertisements.[24] On this database, it was revealed that TikTok had been running ads created by Chinese state propaganda outlets espousing common CCP talking points to millions living in Europe.[25] This is despite TikTok claiming that it “does not show political or election ads on the platform.”[26] Similarly, TikTok moderation guidelines in 2020 revealed that moderators were instructed to remove content that portrayed the Chinese government in a negative light. This included content that mentioned the Tiananmen Square massacre or Tibetan independence.[27]
In the buildup to the 2022 midterm elections in the U.S., TikTok accounts run by China Central Television pushed content which attacked American candidates and spotlighted controversial social issues that divide the U.S. such as abortion and gun violence.[28] While this would be ordinary political content in most instances, the posts were made without readily apparent indication that they were made by a foreign government.[29] This becomes more suspect in light of TikTok’s “heating button” which permits ByteDance employees to select certain videos that will be exposed to more users’ feeds.[30] It therefore lies within the power of ByteDance to take divisive political content and enhance its visibility – thus exacerbating domestic strife. Research demonstrates that media providers who “agenda set” can influence views on issues among the public and policy makers.[31]
TikTok maintains robust access to the metadata of its users. As recently as June 2023, it was reported that users’ sensitive financial data was stored on a server in China that was accessible to ByteDance employees. This data included American users’ social security numbers.[32] TikTok also makes use of sophisticated online trackers which can monitor what content users are searching for across the internet.[33] Aside from financial and personal data, TikTok is able to collect users’ precise geographic data – though it claims to do so only when given a user’s consent.[34] This data, while useful for running targeted advertisement, carries with it the potential for severe abuse should it fall into the hands of bad actors.
ByteDance is not an entity completely distinct and separate from the Chinese government. Testifying before Congress, TikTok CEO Shou Zi Chew maintained that ByteDance was not “owned or controlled by the Chinese government.”[35] Despite this, many experts find reasons to believe otherwise. A prominent former executive at ByteDance filed a wrongful termination lawsuit in 2023 alleging certain members of the CCP had enhanced credentials that granted access to complete data banks.[36] A report by the Australian Strategic Policy Institute found that ByteDance regularly “collaborates” with public security bureaus throughout China to disseminate party propaganda.[37] The Australian Select Committee on Foreign Interference through Social Media went on to conclude that “the company [ByteDance] can no longer be accurately described as a private enterprise.”[38]
Any enterprise from China ultimately exists at the discretion of the government. Indeed, many prominent Chinese tech executives such as Jack Ma and Whitney Duan have faced stiff consequences after making statements contrary to the interests of the CCP.[39] The line from private industry to state-owned tool, whether or not it has yet been crossed, would be one small step for the Chinese government to execute. TikTok would then provide the CCP opportunity for the mass surveillance, study, and influence of over 150 million American citizens. For these reasons, TikTok presents an actionable threat to national security.
A Nationwide Ban is Unwarranted
CFIUS should demand structural reforms from TikTok if TikTok is to continue operating in the U.S. If data from American users is collected and stored exclusively in facilities on American soil run by American employees, the security threat posed by TikTok would be neutralized. Any security weaknesses that could be obtained by data pulled from users’ devices such as population hot-spots, financial login information, or industry secrets would be unusable to the Chinese government. Ahead of any decision by the U.S. government, TikTok has voluntarily initiated “Project Texas,” a plan to move TikTok’s operations within the U.S. where it will be accountable to further direction from CFIUS.[40]
Similarly, robust disclaimers about who pays for messages may alleviate some concerns that TikTok could push propaganda sowing division in American civil life at any time convenient to the Chinese government. Currently, major American social media companies like YouTube and Facebook prominently label content made by state-run media outlets.[41]
These two potential actions could dramatically reduce the threat posed by TikTok. Vitally, they accomplish this goal without invoking scrutiny as suppression of free speech.
Conclusion
TikTok poses a legitimate threat to American national security. Imposing reforms on the structures and policies of TikTok can eliminate the risk of the Chinese government using the app for purposes that harm American interests. It is therefore the duty of CFIUS to use its power to effectuate these reforms in a manner which maximizes security while minimizing restrictions on the ability of Americans to freely send and receive information.
[1] Jonathan Masters, James McBride, and Noah Berman, What Happens When Foreign Investment Becomes a Security Risk?, Council on Foreign Relations, https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk (last updated Jan. 3, 2023).
[2] FDI and Employment The Role of FDI in Supporting U.S. Jobs, SELECTUSA, https://www.trade.gov/sites/default/files/2022-04/IndirectJobsSelectUSABrief.pdf (last visited Sep. 14, 2023).
[3] Masters, McBride, and Berman, supra note 1.
[4] Id.
[5] Fatima Hussein, Sally Ho, How a Little-Known Agency Holds Power over TikTok’s Future, AP News, (Mar. 31, 2023, 10:38 AM). https://apnews.com/article/tiktok-ban-china-cfius-national-security-a7f59032a6a68c67470a0746d560e411.
[6] Donna K. H. Walters, Deal to Sell Fairchild Semiconductor to Fujitsu Canceled, Los Angeles Times, (Mar. 17, 1987, 12:00 PM) https://www.latimes.com/archives/la-xpm-1987-03-17-fi-12290-story.html.
[7] Id.
[8] Id.
[9] US Lawmakers Criticise Ports Deal, BBC News, http://news.bbc.co.uk/2/hi/americas/4734728.stm (last updated Feb, 21, 2006, 9:55 GMT).
[10] Id.
[11] Chinese Investment in Critical U.S. Technology: Risks to U.S. Security Interests, Council on Foreign Relations, (Oct. 16, 2017) https://www.cfr.org/report/chinese-investment-critical-us-technology-risks-us-security-interests.
[12] Masters, McBride, and Berman, supra note 1.
[13] Id.
[14] Id.
[15] Id.
[16] Ralls and U.S. Government Settle Only CFIUS Suit in History, Steptoe Int’l Compliance Blog, (Oct. 14, 2015) https://www.steptoeinternationalcomplianceblog.com/2015/10/ralls-and-u-s-government-settle-only-cfius-suit-in-history/.
[17] Ralls Corp. v. Comm. on Foreign Inv. In U.S., 758 F.3d 296 (D.C. Cir. 2014).
[18] Annual Report to Congress, Comm. on Foreign Inv. in the U.S., https://home.treasury.gov/system/files/206/CFIUS-Public-AnnualReporttoCongressCY2021.pdf (last visited Sep. 14, 2023).
[19] Hussein, Ho, supra note 5.
[20] Id.
[21] FBI Chief Says TikTok ‘Screams’ of US National Security Concerns, Reuters, (Mar. 9, 2023) https://www.reuters.com/technology/fbi-chief-says-tiktok-screams-us-national-security-concerns-2023-03-08/.
[22] Id.
[23] Hussein, Ho, supra note 5.
[24] Iain Martin, Emily Baker-White, TikTok Has Pushed Chinese Propaganda Ads To Millions Across Europe, Forbes, (Jul. 27, 2023, 6:30 AM) https://www.forbes.com/sites/iainmartin/2023/07/26/tiktok-chinese-propaganda-ads-europe/?sh=57befded203d.
[25] Id.
[26] TikTok, https://library.tiktok.com/faq (last visited Sep. 14, 2023).
[27] Alex Hern, Revealed: How TikTok Censors Videos That do not Please Beijing, The Guardian, (Sep. 25, 2019) https://www.theguardian.com/technology/2019/sep/25/revealed-how-tiktok-censors-videos-that-do-not-please-beijing.
[28] Emily Baker-White, Iain Martin, On TikTok, Chinese State Media Pushes Divisive Videos About U.S. Politicians, Forbes, (Dec. 1, 2022, 7:00 AM) https://www.forbes.com/sites/emilybaker-white/2022/12/01/tiktok-chinese-state-media-divisive-politics/?sh=3c7af8145e64.
[29] Id.
[30] Britney Nguyen, TikTok Reportedly has a ‘Heating Feature’ that Lets its Staff Pick Which Videos go Viral, Business Insider, (Jan. 20, 2023, 3:57 PM) https://www.businessinsider.com/tiktok-staff-pick-videos-viral-boost-views-heating-feature-report-2023-1.
[31] Fay Lomax Cook et al., Media and Agenda Setting: Effects on the Public, Interest Group Leaders, Policy Makers, and Policy, 47 The Public Opinion Quarterly 16, 32-33 (1983).
[32] Dylan Smith, TikTok Has Stored Creators’ ‘Sensitive Financial Data’ — Including Social Security Numbers — in China, Report Says, Digital Music News, (June 2, 2023) https://www.digitalmusicnews.com/2023/06/02/tiktok-creators-financial-data-storage/.
[33] Thomas Germain, How TikTok Tracks You Across the Web, Even If You Don’t Use the App, Consumer Reports, https://www.consumerreports.org/electronics-computers/privacy/tiktok-tracks-you-across-the-web-even-if-you-dont-use-app-a4383537813/ (last updated Sep. 29, 2023).
[34] Max Mason, Amelia Adams and Garry McNab, TikTok Admits Collecting Location Data, Financial Review, (Mar. 25, 2023) https://www.afr.com/technology/tiktok-admits-collecting-location-data-20230309-p5cqo8.
[35] Yaqiu Wang, The Problem with TikTok’s Claim of Independence from Beijing, Human Rights Watch, (Mar. 24, 2023, 1:58 PM) https://www.hrw.org/news/2023/03/24/problem-tiktoks-claim-independence-beijing.
[36] Zen Soo, Former ByteDance Executive says Chinese Communist Party Tracked Hong Kong Protesters via Data, AP News, (June 7, 2023, 6:34 AM) https://apnews.com/article/tiktok-china-bytedance-user-data-d257d98125f69ac80f983e6067a84911.
[37] Mapping More of China’s Tech Giants: AI and Surveillance, Australian Strategic Policy Institute, https://www.aspi.org.au/report/mapping-more-chinas-tech-giants (last visited Sep. 14, 2023).
[38] Rachel Lee, Prudence Luttrell, Matthew Johnson, and John Garnaut, TikTok, ByteDance,and Their Ties to the Chinese Communist Party, Australian Select Committee on Foreign Interference through Social Media, https://www.scribd.com/embeds/633015202/content?start_page=1&view_mode=scroll&access_key=key- (last visited Sep. 14, 2023).
[39] Wang, supra note 35.
[40] Matt Perault, Samm Sacks, Project Texas: The Details of TikTok’s Plan to Remain Operational in the United States, Lawfare, (Jan. 26, 2023, 8:01 AM) https://www.lawfaremedia.org/article/project-texas-the-details-of-tiktok-s-plan-to-remain-operational-in-the-united-states.
[41] Hadas Gold, Facebook Will Start Labeling Pages and Posts from State-Controlled Media, CNN, (June 5, 2023, 5:54 AM) https://www.cnn.com/2020/06/04/media/facebook-state-media-label/index.html.
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