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President Issues Executive Orders against Chinese Social Media Companies; OFAC Sanctions Hong Kong Leader

James.Treanor@cwt.com's picture
Commentary by James Treanor

President Donald J. Trump issued two separate Executive Orders (see here and here) to "address the threat" created by the U.S. operations of two social media mobile applications, TikTok and WeChat, both owned by companies based in the People's Republic of China. The President stated that action was required to deal with a national emergency related to "the information and communication services supply chain." He described TikTok and WeChat as applications that capture "vast swaths of information" from their users, including those in the United States. In addition, OFAC designated Hong Kong Chief Executive Carrie Lam, among other officials, to its Specially Designated Nationals and Blocked Persons List.

Executive Orders

TikTok. According to the Order, TikTok has been downloaded over 175 million times in the United States, and tracks users' location data, search and browsing history, and other information. The information could allow China to "track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage." An additional concern is that TikTok reportedly censors information deemed politically sensitive by the Chinese Communist Party ("CCP"), including content related to protests in Hong Kong and China's handling of its Uyghur and other Muslim minority communities.

WeChat. According to this Order, WeChat captures personal information for use by the CCP - including the tracking of Chinese nationals visiting the United States.

The Executive Orders authorize the Secretary of Commerce, beginning on September 20, 2020, to identify prohibited transactions with ByteDance Ltd., the owner of TikTok, and Tencent Holdings Ltd., the owner of WeChat. The Secretary of Commerce is authorized to prohibit such transactions - but an affirmative action on the part of the Secretary or his designee is required in order to give effect to the authorization. The WeChat Executive Order only authorizes the prohibition of transactions "related to WeChat"; it does not extend to transactions related to Tencent Holdings Ltd.'s myriad other ventures.

OFAC Sanctions Hong Kong Chief Executive and Others

OFAC designated Hong Kong Chief Executive Carrie Lam, among other officials, to its Specially Designated Nationals and Blocked Persons List ("SDN List"). Under a recent Executive Order, President Trump authorized sanctions on persons involved in (i) the implementation of China's recent security law affecting Hong Kong and (ii) related human rights abuses in the territory (see previous coverage). As a result of the designations, U.S. persons generally are prohibited from engaging in transactions with Lam and the other targeted individuals. Transactions transiting through the U.S. financial system also are prohibited.

Commentary

The new Executive Orders have thrown China's popular WeChat platform into the swirl of speculation that recently has focused on the fate of TikTok (see previous coverage). While the apps' Chinese owners and potential suitors try to work out a deal (under the watchful eye of at least two keenly interested governments), everyone else is left to wonder whether TikTok and WeChat will be effectively banned by the first day of fall. And, more importantly: What's next? Will pressure on Chinese tech companies continue to mount? Will other sectors come under scrutiny? Will China retaliate? How soon, and in what way?

Similarly, the sanctions imposed on the Hong Kong Chief Executive represent a swift escalation of the U.S. response to the implementation of China's new national security law in the former British colony. U.S. and other businesses must now exercise extreme caution in their dealings with Ms. Lam and the other designated individuals - even if those individuals are acting in an official capacity. Recall that OFAC sought to penalize ExxonMobil $2 million for signing a contract with Igor Sechin, who was on the SDN List, even though Sechin was acting in his role as CEO of the Russian oil company Rosneft - not in his individual capacity. As covered here, ExxonMobil successfully challenged the penalty on the grounds that OFAC had not given "fair notice" of its interpretation of the sanctions on Sechin. But given the publicity surrounding the ExxonMobil case, no one should doubt OFAC's view of the expansiveness of the new Hong Kong sanctions. Perhaps of even greater concern, the move against Hong Kong's top political leadership also could signal a willingness by the U.S. government to target key business interests viewed as supporting China's policies in the territory.

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