The Trump administration is to review the “technical partnership” deal struck between Oracle and ByteDance, the Chinese group that owns TikTok, before deciding whether to approve the agreement.
The deal — which falls short of a full sale — comes as the video-sharing app has been caught up in an escalating tech war between Washington and Beijing.
After originally threatening to ban TikTok, which has soared in popularity in recent months, Donald Trump last month said he would allow an American company to buy TikTok’s US operations, setting a September 20 deadline.
The US president stressed that he wanted a payment made to the Treasury as part of any deal, an unprecedented demand that the White House never explained.
However, two people familiar with the deal between Oracle, the US software group, and ByteDance said the agreement did not include any payment to the US Treasury. A senior US official said there was no current discussion about a payment but that the deal would provide economic benefits.
A person involved in the talks added that the two companies would invest heavily in the US and create thousands of jobs.
The White House declined to comment on the lack of a payment to Treasury.
Steven Mnuchin, US Treasury secretary, said the Committee on Foreign Investment — a government inter-agency panel that can block deals on national security grounds — would review the agreement this week to see if it protected the private data of American users of the app.
“We will be reviewing that at the Cfius committee this week, and then we’ll be making a recommendation to the president,” Mr Mnuchin told CNBC television.
The US official said Cfius would not accept a deal that did not include sufficient protections against national security risks. But he stressed that there were positive elements in the deal that would be welcomed by even some of the more hawkish officials.
The person involved in the negotiations said the deal, which could change following the Cfius review, had numerous safeguards to protect the data of American users, while allowing the Chinese group to retain key intellectual property rights.
Mr Mnuchin said the deal with Oracle would involve the establishment of a US-based headquarters that would create 20,000 new jobs domestically.
Oracle, which was co-founded by Larry Ellison, a supporter of Mr Trump who is also the company’s largest shareholder, confirmed that it was “part of the proposal” that ByteDance presented to the Treasury. The business software group said it would “serve as the trusted technology provider”.
To satisfy Cfius, ByteDance plans to structure the deal in a similar manner to the acquisition of the US insurer Genworth by China’s Oceanside, according to two people involved in the talks. Oceanside agreed to use US-owned and based third-party companies to process sensitive data from Genworth’s policyholders.
In TikTok’s case, Oracle would be responsible for safeguarding the private data of American users by building a clear firewall between them and ByteDance, said two of the people involved in the talks.
Several people familiar with the deal said such a plan could satisfy Cfius officials. But some cautioned that the situation was not comparable to any previous case.
“We have a president who is running a campaign against China and any indication of giving in to Beijing over TikTok will be seen as weakness,” said a person involved in the negotiations, who was concerned about the deal not being cleared by the Trump administration.
Josh Hawley, a Republican senator and China hawk in Congress, on Monday urged Cfius to reject the deal.
“ByteDance can still pursue a full sale of TikTok, its code and its algorithm to a US company, so that the app can be rebuilt from the ground up to remove any trace of Chinese Communist party influence,” Mr Hawley said.
Mr Hawley said any “partnership” that maintained a link with China was “flatly inconsistent” with the order Mr Trump issued last month.
During the first three years of his administration, Mr Trump showed little interest in national security issues related to China as he focused on trade talks with Beijing.
But he has sharply ratcheted up pressure on China in recent months, blaming Beijing for the global spread of Covid-19 and taking a tougher stance on human rights abuses and the crackdown on the pro-democracy movement in Hong Kong.
One veteran Cfius lawyer cautioned any deal with ByteDance that allowed the Chinese company to retain a majority ownership of the app in the US would be hard for the administration to approve. But the lawyer added that, “what could change this is the close relationship Oracle has with Trump”.
Mr Ellison, Oracle’s chairman, is a rare Silicon Valley-based supporter and fundraiser for Mr Trump, while the tech group’s chief executive, Safra Catz, was a member of Mr Trump’s transition team in 2016.
Microsoft had also been in talks to buy TikTok. But its effort was scuppered by China’s introduction of technology export rules in August that made it almost impossible for the US group to gain control of the app’s algorithm, which is critical to its success, said a person with knowledge of the matter.
Theresa Payton, a cyber security expert who served as White House chief information officer during the George W Bush administration, said the deal was far from what the administration had signalled would be acceptable.
“This is the sale that is not a sale, but kind of gives everyone a face-saving moment,” said Ms Payton, who is chief executive of Fortalice Solutions.
Ms Payton said it remained unclear what the deal meant for the algorithm and whether Oracle could provide the necessary assurances. She said the question was whether Mr Ellison could leverage his relationship with Mr Trump and his administration “to be able to look them in the eye” and say that he could ensure that the data of US citizens would be protected.
Oracle is likely to own a minority stake in the US business if the deal is approved. Existing ByteDance investors were also expected to have a stake, said a person with knowledge of the discussions. Any deal would require the support of both the US and Chinese governments.
Additional reporting by Miles Kruppa in San Francisco