The U.S. government has reportedly opened a national security investigation into TikTok’s parent company, China-based Bytedance, and its 2017 $800 million acquisition of competitor app Musical.ly.
Two anonymous sources familiar with the matter told Reuters the federal government’s Committee on Foreign Investment in the United States (CFIUS) is currently in mitigation with TikTok, and the two are discussing what TikTok can do to divest Musical.ly’s assets from its business.
Musical.ly, which launched in 2014, was founded by Chinese entrepreneurs Alex Zhu and Luyu Yang, and operated out of offices in Shanghai and Santa Monica. Last August, a little less than a year after acquiring it, Bytedance shuttered the app and folded its user base into TikTok, effectively merging the two. Now, it appears CFIUS’s investigation is, at least in part, about how to undo that merge.
Reuters’ sources didn’t give details about CFIUS’s national security concerns, or what prompted the agency’s investigation. Clues about what CFIUS is looking into, though, might be found in a recent letter to Secretary of the Treasury Steven Mnuchin from U.S. Senator Marco Rubio (R-Fla.).
In the letter, Rubio specifically requests that CFIUS investigate Bytedance and Musical.ly, citing concerns that Bytedance censors content the Chinese government doesn’t approve of — an accusation seemingly supported by leaked documents that allegedly contain Bytedance’s moderation guidelines.
However, the part of Rubio’s letter where he directly addresses CFIUS and asks that it look into the Bytedance/Musical.ly deal is based on inaccurate information. Rubio wrote that CFIUS should investigate the acquisition because Bytedance bought Musical.ly and subsequently “relaunched the service for Western markets,” introducing it to the U.S. as TikTok. But Musical.ly was first launched in the U.S. in 2014, and experienced a popularity boom among U.S. teens in 2016, more than a year before it was acquired by Bytedance.
That means it’s not accurate to say Musical.ly became TikTok and then found popularity thanks to a push from Bytedance. Conversely, it’s more likely that TikTok’s own growing popularity with teens and young adults (the app now has 26.5 million U.S users, 60% of whom are ages 16-24) could well have been caused by last year’s influx of former U.S.-based Musical.ly users. Well, that and the upwards of $3 million it spends per day on advertising its product stateside.
Rubio added, “These Chinese-owned apps are increasingly being used to censor content and silence open discussion on topics deemed sensitive by the Chinese Government and Communist Party.” It appears he’s ultimately theorizing that Bytedance bought Musical.ly with the express purpose of gathering U.S. users, and then utilizing Chinese laws to censor those users’ content and speech that Chinese officials don’t approve of.
Rubio’s apprehension was echoed last week by Sen. Tom Cotton (R-Ark.) and Senate Minority Leader Chuck Schumer (D-N.Y.), who described TikTok as “a potential counterintelligence threat we cannot ignore.” In their own letter to the acting director of National Intelligence, Joseph Maguire, they expressed concern about what personal data TikTok collects from users and whether users could be targeted by foreign campaigns.
TikTok, which is operated out of a headquarters in Culver City, Calif., responded to Cotton and Schumer in a statement posted to its website. “We are not influenced by any foreign government, including the Chinese government,” it wrote. “TikTok does not operate in China, nor do we have any intention of doing so in the future.” (Bytedance also owns Douyin, an app very similar to but separate from TikTok, which is operated in China.)
In response to senators’ worries that TikTok may be censoring content, the company added, “TikTok does not remove content based on sensitivities related to China. We have never been asked by the Chinese government to remove any content and we would not do so if asked. Period.”
This is not the first time Musical.ly’s acquisition and merge have caught the attention of the U.S. government. In February, the Federal Trade Commission (FTC) slapped Bytedance with a $5.7 million fine after Musical.ly illegally collected personal data from children under the age of 13.