Just this past week as I relished one of Jason Derulo’s latest contributions to the expanding canon of coordinated short form dance videos, I was informed that the president had made a startling claim to a group of reporters accompanying him aboard Air Force 1. He said he “had the power” to ban the wildly popular social video app and attention span saboteur, “TikTok”.
Given the devastating effect that such a claim, if true, could have on my misuse of the remaining summer’s abundant down time, I decided it might be a worthwhile exercise to understand whether this power actually exists and whence it’s derived.
To my astonishment, the president’s claim did seem to be based on kernels of truth. Cursory sleuthing revealed that there exists a “Committee on Foreign Investment in the United States” or CFIUS; a special intra-agency panel helmed by the Department of the Treasury, reporting up to the President.
Apparently, the CFIUS has been around for more than 40 years, and up until 9/11 operated largely on the down low. Broadly responsible for “Reviewing National Security Aspects of Foreign Direct Investment in the US economy”, this was the syndicate that initiated an investigation of TikTok’s parent, the China-based company called ByteDance last year. This appears to be the investigation which has now yielded an executive order issued by the White House on Thursday which seeks to prohibit “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...or its subsidiaries” (incl. TikTok). And herein lies the language which could effectively ban the app in the US (assuming the courts don’t intervene).
It’s a curious organ of the sprawling federal bureaucracy, this CFIUS. There is apparently no formal mechanism by which transactions are referred to the committee - they are generally submitted voluntarily even though the Committee reserves the right to investigate transactions that haven't been volunteered. The committee’s most recent annual report submitted to Congress for CY2019, provides some interesting (depending on your standard, I suppose) additional insight into how the arcane group operates.
From 2010 through the end of last year there were 1571 transaction notices filed with the committee for their review (generally mergers/acquisitions involving US companies or interests). Of these about half (850) were actually investigated. Of the investigated cases, only a tiny fraction of them - just 5 in nearly a decade - resulted in some kind of presidential action and of those, most were during the current president’s first term.
What’s clear by combing through investigations past is that one country - China - repeatedly pops up as the object of the committee’s scrutiny. Of all the transactions investigated, approximately 20% involved Chinese acquirers and of the 5 investigations that resulted in presidential action from 2010-2019, 4 of them were attempted acquisitions of US interests by China-based companies. As chronicled in the Committee’s annual reports, the President intervened:
In 2012 to prevent the Chinese owned Ralls Corporation from acquiring a wind farm project company,
In 2016 to prevent a Chinese held parent company (Fujian Grand Chip Investment Fund) from controlling the U.S. businesses of Aixtron SE,
In 2017 to prohibit the China Venture Capital Fund Corporation Limited from acquiring Lattice Semiconductor Corporation
In 2018 to prohibit the acquisition of Qualcomm Incorporated - this time, the thwarted acquirer was Broadcom Limited, based in Singapore.
In 2019 to prohibit a Chinese public company, Beijing Shiji Information Technology Co., from acquiring Delaware based stayNtouch Inc.
Given that previous presidential actions have been taken against less consumer facing, less internationally prominent brands it’s not surprising that the general public has up until now known little about the CFIUS. However, given how much publicity this most recent presidential action targeting TikTok’s parent company has garnered, and given the increasing scrutiny of Chinese M&A activity in certain sectors, we should expect this once obscure executive power to be wielded more frequently.
Who's in the committee's crosshairs next, you ask? For starters, ALL "untrusted" Chinese apps from Apple's App Store and Google Play. Read here for emerging details.
