International Trade & Compliance Alert
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.
The WeChat Sanctions and the TikTok Sanctions prohibit any of the following activity within the United States beginning on September 20, 2020:
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:
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.
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.