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FutureStarrTikTok CEO Denies Calls For Chinese Owners to Sell Stakes
TikTok has vigorously denied all spying allegations and boasted of its $1.5 billion investment in data security.
The Biden administration is now threatening to ban the app in the U.S. unless its Chinese owners sell their stakes, according to The Wall Street Journal. CFIUS, or Committee on Foreign Investment in the United States, has made this demand.
A key US government agency has threatened to ban TikTok unless Chinese owners of the video app sell their stakes, signaling an intensified level of scrutiny by officials regarding China's connections to the company. This call from Committee on Foreign Investment in the U.S. (part of Treasury Department) comes following a long and high-stakes discussion with TikTok over data security concerns.
The Biden administration's announcement comes amid an uptick in criticism from both the White House and members of Congress over TikTok, which boasts more than 100 million American users and was recently identified by Commerce Department as a potential security risk. Furthermore, officials and lawmakers have taken aim at Chinese tech companies broadly recently due to their perceived interference with American data privacy laws.
CFIUS recently approached TikTok's Chinese owners, Beijing-based ByteDance, and demanded they sell their shares, the Wall Street Journal reports citing "people familiar with the matter."
TikTok maintains that divestiture would not address national security concerns. A statement released by TikTok spokesperson Brooke Oberwetter explained the best solution to address those worries is through transparent U.S.-based protection of user data and systems with robust third-party monitoring, vetting and verification - such as Project Texas which TikTok is working to implement with U.S. software giant Oracle.
One reason the administration is considering selling TikTok is that they believe ByteDance's founders own about 20% of the company and exercise disproportionate control over voting rights, according to The Wall Street Journal. Global investors own 60% of TikTok, while employees own another 20%, according to the report.
TikTok's leadership appears to be open to splitting with ByteDance, though they view the potential sale as a last resort. This announcement marks an intense rise in concerns over China's ties to the app and could face legal obstacles as a result.
The Biden administration has a history of blocking the app from federal devices, but this marks the first time they are considering a nationwide ban. Any such move would face significant legal obstacles and affect millions of Americans.
TikTok has invested billions of dollars into data security measures, such as U.S.-based data centers and Oracle's infrastructure. And the company refuses to abandon its data security deal with the Biden administration despite growing concerns from federal officials.
According to a report by the Wall Street Journal, President Biden may be considering banning TikTok in America unless its Chinese owners sell their stakes, potentially putting an end to two years of debate over data security.
Last week, Congress introduced bipartisan legislation that would enable the Department of Commerce to ban certain foreign technology deemed a security risk. While it does not specifically mention TikTok by name, other technology companies are listed as potential hazards in the bill.
TikTok, whose highly successful video-sharing app is used by millions around the world, has come under increasing scrutiny in both the United States and Europe. In an effort to further fuel opposition against their company, their CEO will be appearing before a Congressional committee for the first time.
House Energy and Commerce Committee chair Cathy McMorris Rodgers announced Monday that Chew will testify before her committee in March. The hearing will focus on "TikTok's consumer privacy and data security practices, the platforms' impact on kids, as well as their relationship with the Chinese Communist Party," according to a statement released by the committee.
Shou Zi Chew, the CEO of TikTok and a Singaporean, graduated from Harvard Business School and worked at Facebook when it was still in its early days. He took over as CEO in May after Kevin Mayer abruptly left the company eight months prior.
Since then, he's launched an outreach effort to reassure critics of TikTok's app that it is safe for its users and has taken measures to safeguard their personal data from being handed over to China without their consent. As such, TikTok currently stores user data in servers outside China's National Intelligence Law in the US and Singapore - locations which the company says fall outside its purview.
But that doesn't mean TikTok has been immune from legislative efforts to ban the app outright. Last month, the House of Representatives passed a bill prohibiting its use on government-issued devices in America; more than 30 other states have followed suit.
As a result, TikTok has come under increasing pressure to demonstrate that its data collection complies with US laws and its U.S.-based servers are secure. Despite these efforts, there remain growing worries that TikTok may not be protecting its users' privacy or may even be sharing their data with China.
In an effort to assuage those fears, TikTok has hired more than 100 new U.S. employees and created a team dedicated to trust and safety. Furthermore, three people familiar with the decision told Forbes that TikTok has stopped development on a half-built store off Melrose Avenue in Los Angeles due to security concerns, according to three people familiar with the decision.
TikTok has also shifted its marketing focus from being a platform that creates trends and conversations to one that serves as an utility. It has collaborated with Oracle to route traffic through their servers in the U.S., which will enable TikTok to collect less user data than other social media apps.
Chew, a former Google executive, has requested private meetings with at least half a dozen members of the committee to address his concerns and find a resolution. According to two senior Democratic staffers, Chew expressed his desire to address these matters head-on and find an amicable resolution.
TikTok's CEO has rejected calls for Chinese owners to sell stakes in the company, which could face a US ban unless they do so. This demand comes from Treasury Department officials on the Committee on Foreign Investment in the U.S. (CFIUS), an oversight panel that evaluates cross-border deals.
This call marks a dramatic development in the already contentious relationship between the US and TikTok, which has come under increasing scrutiny due to child safety concerns and its connections to China. A bipartisan group of state attorneys general launched an investigation into the app earlier this year, with Indiana becoming the first American state to sue it this week.
Investigations have placed TikTok in the crossfire of both US government and Congress, who have advocated for more stringent child safety regulations for online video content. Its CEO, Shou Zi Chew, is set to appear before the House Energy and Commerce Committee next Thursday.
On Wednesday, The Wall Street Journal reported that the Biden administration has threatened to ban an app from the US unless its Chinese owners sell their stakes in the business. This demand was made by CFIUS (Commisssion on Foreign Investment in the U.S.), based at Treasury Department and responsible for assessing security risks posed by foreign companies operating here.
Bloomberg News reports that ByteDance may split into a separate company, according to people familiar with the talks. This move could enable TikTok to address CFIUS' national security concerns without compromising its data protections or user access rights.
ByteDance is owned by a number of investors, including 60% from global investors and 20% from its employees. The company has been engaged in negotiations with CFIUS for two years regarding data security requirements and denies any spying allegations.
According to a Wall Street Journal report, CFIUS is demanding ByteDance sell its stake in ByteDance even though TikTok has been working with them on safeguarding user information for several months. But that wouldn't resolve the data security concerns lawmakers have with the app, according to TikTok spokeswoman Brooke Oberwetter Reuters.
Divestment is typically considered a last resort and will only be considered if the existing proposal with CFIUS fails. It's not an immediate fix and could potentially spark another round of government and regulatory scrutiny regarding TikTok's connections to China.
House lawmakers are calling on TikTok to meet with them before the end of the year, citing child safety issues. Four lawmakers sent a letter to the company's top brass on Wednesday, citing a Forbes report that found TikTok failed to remove accounts trading illegal child sexual content.
Another possible solution is for the United States to ban TikTok altogether, a major setback for this popular app with tens of millions of users in America. However, it seems unlikely that Trump administration will permit such an outcome.