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US launches national security probe in to TikTok

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Via Financial Times

The US has launched an investigation into the Chinese technology company ByteDance over its 2017 purchase of Musical.ly, a deal that paved the way for the explosive growth of TikTok, the company’s video sharing app.

People briefed on the situation confirmed the US Treasury had opened a probe into the deal on national security grounds, following pressure from Congress to do so. The move was first revealed by Reuters.

ByteDance is the latest Chinese technology company to fall under the scrutiny of US regulators, who have already taken action against Huawei, the telecoms equipment maker, as well as a group of surveillance companies including Hikvision.

One person familiar with the situation said TikTok had been contacted by the Committee on Foreign Investment in the United States, the part of the Treasury which checks foreign purchases of US companies on security grounds.

A spokesperson for TikTok said: “While we cannot comment on ongoing regulatory processes, TikTok has made clear that we have no higher priority than earning the trust of users and regulators in the US. Part of that effort includes working with Congress and we are committed to doing so.”

The Treasury did not respond to a request for comment.

Senators have put pressure on regulators in recent weeks to look more closely into TikTok, which has rapidly gained popularity outside China. Earlier this year the TikTok app passed 1bn downloads, according to Sensor Tower, a US company that tracks apps. Over 100m of those have come from the US.

Marco Rubio, the Republican senator for Florida, wrote to Steven Mnuchin, the Treasury secretary, last month, urging the Treasury to undertake a Cfius review into the $1bn purchase of Musical.ly, which significantly boosted its international scale.

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ByteDance decided in 2017 to not seek Cfius approval because Musical.ly was a Chinese-based company, one person familiar with the discussions said.

Cfius does not typically review foreign investments in foreign companies, but national security law analysts said the law may apply broadly to US businesses, including the US operations of foreign groups in sensitive sectors.

Musical.ly maintained offices in both Shanghai and Los Angeles and largely targeted teenagers in the US and Europe. Its backers also included the US venture capital firms GGV Capital and Greylock Partners.

Mr Rubio and other members of Congress are now worried that apps such as TikTok could send American users’ data back to China, where it could be accessed by the government.

Mr Rubio said on Friday: “I remain deeply concerned that any platform or application that has Chinese ownership or direct links to China, such as TikTok, can be used as a tool by the Chinese Communist party to extend its authoritarian censorship of information outside China’s borders and amass data on millions of unsuspecting users.

“Last month, I urged Cfius to investigate TikTok’s acquisition of Musical.ly, and I welcome today’s news that an investigation has reportedly been opened.”

Two of Mr Rubio’s colleagues in the Senate, Charles Schumer and Tom Cotton, have separately written to Joseph Maguire, the acting director of national intelligence, asking intelligence agencies also to open a probe into the company.

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