TikTok national-security deal roiled by internal strife

The Biden administration is at odds over whether to force the Chinese owner of TikTok to divest from its U.S. operations, according to five people with knowledge of the discussions, casting doubt on a proposed compromise that could allow the parent firm to keep control of the popular video-sharing app.

The Committee on Foreign Investment in the United States, an interagency board, has been reviewing the potential national security risks posed by TikTok since the Trump administration. The company is owned by Chinese tech firm ByteDance.

U.S. national security officials and some lawmakers say TikTok’s operations in the U.S. pose a security risk, arguing the Chinese Communist Party can use the app — and the wide range of data it collects from users — to surveil Americans and various government institutions.

The committee — made up of representatives from Treasury, DOJ, the Department of Commerce, DOD and others — could conclude its review as soon as next month, said the people with knowledge of their deliberations, who requested anonymity to speak about confidential policy discussions. But first they have to resolve a divide between national security agencies and the Treasury Department, a rift that hasn’t been previously reported.

Whether Washington orders divestment or a restructuring for TikTok, the move will mark one of the most aggressive actions yet from the federal government to curtail Chinese business interests in the U.S. on the grounds of national security. It would also complete a campaign started under former President Donald Trump to crack down on the app in the U.S. Already, five states have banned TikTok from use on government phones and the U.S. Senate unanimously passed a similar prohibition for federal devices on Wednesday.

National security agencies, including the Department of Defense and intelligence community, as well as the DOJ, have pushed for the Committee to issue an order requiring ByteDance to sell its U.S. TikTok operations to an American company, one in an allied nation, or set it up as a standalone company.

But the Treasury Department, which chairs the CFIUS board, is wary of any outright divestment order, concerned it would face legal challenges similar to the Trump administration’s attempt to force a sale of the U.S. version of TikTok, which ran aground late in Trump’s tenure, leaving the issue to Biden. The White House and Treasury declined to comment. DOJ did not respond to a request for comment.

A person close to the process stressed that it would primarily be Treasury and DOJ that come to a decision on the issue, saying that DOD and other national security agencies are not intimately involved. Treasury agency is also exploring options outside the CFIUS review, the person added, that would protect national security.

Treasury is more amenable to a proposed compromise worked out with TikTok that would allow ByteDance to maintain at least nominal ownership of the app in the U.S., said another person familiar with deliberations. That deal, first reported in The New York Times back in September, would involve separating TikTok’s U.S. operations under a new subsidiary with an independent board composed of national security officials.

But that deal, despite being on the table for months, is still beset by debate between agencies, raising the potential for a more drastic action if they cannot come to agreement. Since it was proposed, FBI Director Christopher Wray has cast doubt on the deal, raising concerns in November and early this month that the Chinese government could use the app to collect American data or influence its algorithms, giving it sway over what users see. Those concerns are “very much” a part of the discussion at CFIUS, he told a University of Michigan audience, according to Bloomberg.

If the sides cannot decide how to safely structure a secure, U.S.-based TikTok subsidiary, then an order forcing ByteDance to divest from the app in the U.S. is the most likely outcome from the CFIUS review, said one person familiar. President Joe Biden could also step in to override the debate.

A TikTok spokesperson said the company has been working with CFIUS for over two years to “address all reasonable national security concerns” about its presence in the U.S., and urged the government to approve the proposed compromise that would avoid divestment.

“CFIUS is currently considering a comprehensive solution to do so that addresses corporate governance, content recommendation and moderation, and data security and access,” said TikTok spokesperson Brooke Oberwetter, referring to the proposed compromise agreement. "The solution under consideration by CFIUS is a comprehensive package of measures with layers of government and independent oversight to address concerns about TikTok content recommendation and access to U.S. user data — measures well beyond what any peer company is doing today."

TikTok has already made "substantial progress" implementing aspects of the mitigation plan, she added. "Further measures are unnecessary and punitive; they send a chilling message to foreign tech companies wishing to do business in the U.S. and deliver globally interoperable experiences to compete alongside other global platforms.”

Lawmakers, meanwhile, are growing impatient over the slow progress. On Capitol Hill, efforts to outright block the app from operating in the U.S. are gaining traction.

“I wanted to give them the benefit of the doubt — a chance — but the fact that it’s been going over a year, and we still don’t know anything … my concerns have frankly gone up, not decreased,” said Senate Intelligence Committee Chairman Mark Warner (D-Va.).

Warner said on Wednesday that he has not endorsed any legislative efforts to regulate or ban TikTok — like the bill introduced this week from Intelligence Committee Ranking Member Marco Rubio (R-Fla.) — because he was waiting for the Biden administration to act. But patience is growing thin between the Intelligence Committee leaders, who now say that even a forced divestment may not go far enough.

But for some China hawks, both Treasury’s mitigation plan and divestment may be viewed as insufficient. Rubio cast doubt on whether divestment would workable on Capitol Hill this week, questioning whether Chinese national security laws would allow ByteDance to make a clean break with the American version of the app. And Warner expressed concern about any deal that could leave Chinese ownership over TikTok, worried the CCP could still influence the recommendation algorithms the app uses to serve content to viewers.

“I’m waiting to hear the case for that,” Warner said of a deal that would leave ByteDance in nominal control of TikTok. “But the case has gotten harder to make in my mind.”

And divestment carries its own risks, including valuation and regulatory uncertainties. TikTok is likely worth hundreds of billions of dollars, making it difficult for even the most deep-pocketed buyers to afford it. Any company that would have a strategic interest in buying the company would raise serious issues for U.S. antitrust law. Oracle previously sought to buy the U.S. version of TikTok, after Trump ordered it be divested from ByteDance in 2020, but that deal fell through, leaving the issue to the Biden White House.

Separate from the CFIUS review, the Biden administration is also crafting an executive order that would limit the ability of TikTok and other foreign-owned apps to collect American data and sell or transfer it to third parties. That order, in the works for months, was put on hold as Congress and CFIUS addressed the TikTok issue, said one of the people with knowledge of the planning, but could be issued early next year.

Josh Sisco contributed to this report.