On September 18, 2020, the U.S. Department of Commerce announced new regulations implementing the President’s August 6, 2020 Executive Orders imposing sanctions with respect to TikTok and WeChat, their parent companies, and subsidiaries. The new sanctions clarify the restrictions applicable to TikTok and WeChat, including the usage of both apps within and outside the U.S. The Commerce Department’s notices to the Federal Register are located here (TikTok) and here (WeChat).
Significantly, the sanctions ban the maintenance and distribution of the TikTok and WeChat apps in online mobile application stores within the U.S. beginning on September 20, 2020. Thus, on September 20, 2020, mobile app stores in the U.S. will no longer be permitted to offer the TikTok and WeChat apps for download, and users likely will not be able to receive developer updates. In addition, while the sanctions appear to prohibit certain uses within the U.S. (e.g., payment processing services), the sanctions do not prohibit U.S. companies or individuals from using the WeChat or TikTok apps outside the U.S., nor do the sanctions appear to prohibit U.S. companies and individuals from communicating personal or business information on WeChat or TikTok within the U.S. There are additional prohibitions that go into effect on September 20 (with respect to WeChat) and November 12, 2020 (with respect to TikTok), and certain exceptions, as discussed below.
Background of WeChat and TikTok Sanctions
On August 6, 2020, the President signed two Executive Orders (E.O. 13942 and E.O. 13943) directing that sanctions be imposed with respect to TikTok and WeChat, citing national security concerns. The E.O.’s provided for sanctions to be administered by the Commerce Department following a 45-day implementation period, which expires on September 20, 2020. The E.O.’s generally prohibited U.S. companies and individuals from transacting with: (i) ByteDance Ltd. (the parent company of TikTok), and (ii) Tencent Holdings Ltd. (the parent company of WeChat) with respect to WeChat, and each of the companies’ respective subsidiaries.
The Commerce Department’s regulations announced today implement and identify the prohibited transactions set forth in those E.O.’s.
New WeChat Prohibitions
The Commerce Department’s WeChat sanctions go into effect on September 20, 2020 and prohibit “any transaction that is related to WeChat” with Tencent Holdings Ltd. (or any subsidiary) by any person (or involving any property) subject to the jurisdiction of the U.S. involving, among other things, any provision of services to distribute or maintain the WeChat mobile application, constituent code, or application updates through an online mobile application store in the U.S. Thus, starting on September 20, 2020, mobile app stores in the U.S. will not be permitted to offer the WeChat mobile application.
The Commerce Department’s WeChat sanctions contain additional prohibitions, including, for example, prohibiting any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments within the U.S. It does not appear that U.S. companies will be prohibited from using the WeChat mobile application outside the U.S., including for the provision of services to process payments.
The Commerce Department’s WeChat sanctions contain several exceptions. For example, the sanctions do not apply to “[t]he exchange between or among WeChat mobile application users of personal or business information using the WeChat mobile application,” including the “transferring and receiving of funds.”1 The Commerce Department’s regulations expressly state that the identified prohibitions only apply to the “parties to business-to-business transactions.”
New TikTok Prohibitions
The Commerce Department’s TikTok sanctions go into effect on September 20 and November 12, 2020, depending on the nature of the activities.
Starting on September 20, 2020, Commerce’s TikTok sanctions prohibit any person (or involving any property) subject to the jurisdiction of the U.S. from engaging in “any transaction” with ByteDance Ltd. (or its subsidiaries) involving any provision of services to distribute or maintain the TikTok mobile application, constituent code, or application updates through an online mobile application store in the U.S. Thus, starting on September 20, 2020, mobile app stores in the U.S. will not be permitted to offer the TikTok mobile application.
Notably, similar to the WeChat sanctions, the TikTok sanctions do not apply to the exchange between and among TikTok users of personal or business information utilizing the TikTok app, among other exceptions.
The TikTok sanctions contain additional prohibitions that are not implemented until November 12, 2020. For example, transactions involving the provision of internet hosting services or content delivery network services enabling the functioning or optimization of the TikTok mobile app within the U.S. will not be prohibited until November 12. By contrast, this prohibition with respect to the WeChat application goes into effect on September 20.
Conclusion
In short, tensions between the U.S. and the People’s Republic of China (PRC) have escalated over the past few months. The U.S.’s new sanctions with respect to TikTok and WeChat are unique given that they are implemented and enforced by the Commerce Department, and not by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The Commerce Department traditionally has had authority over the U.S.’s export control laws, and not economic sanctions. This represents a new potential regulator in this space. It will remain to be seen how the Commerce Department enforces these regulations and whether additional prohibitions are announced in the near term.
We will continue to closely monitor developments in this space. If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533) or Andrew S. Jacobson (212-574-1477) at Seward & Kissel’s Sanctions Practice Group.
