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On Monday President Trump unabashedly told reporters that a “very substantial portion” of a sale price of TikTok to Microsoft
Key money is a dated term used in real estate transactions. It's money a prospective tenant would pay under the table to a landlord, building manager or even another tenant to secure a lease. Think of a middle school bully demanding another student's lunch money in exchange for safe passage.
The problem with Mr. Trump's demand, among many, is that it overshadows an issue of national security. It suggests that he cares more about the 'Art of the Deal' than the security of our children's data.
How did we get here?
TikTok and data security have been a growing concern for many. TikTok is a social media platform that enables its users to create and share short videos. It's popular among children and young adults. Launched in 2016, it has 800 million active users worldwide, and 41% of its users are between the ages of 16 and 24. It has 165 million users in the U.S.
Late last year it was reported that the Committee on Foreign Investment in the United States (CFIUS) began reviewing ByteDance's acquisition of Musical.ly, the app that was rebranded into TikTok. ByteDance is the Chinese company headquartered in Beijing that owns TikTok. The concern? That Chinese law could force TikTok to hand over data on U.S. users to the Chinese government.
Given China's history of corporate espionage and theft of data on U.S. citizens, the concern is well founded. Just last month China targeted Covid-19 research. One has to wonder if there is anything China wouldn't do to gain a competitive advantage over any other nation or people.
The concern over China and TikTok's data is widespread. As reported in the Washington Post, several countries are alarmed over China's potential access to TikTok's data. This summer India banned the app, although the ban occurred after 20 Indian solders were killed in a clash with Chinese troops. Australia is investigating the app's potential security threat. The European Union's data protection regulators have launched a probe into TikTok's privacy polices. Other countries raising varying degrees of concern include Japan, Turkey, Indonesia and Pakistan.
In the U.S., concerns over China's access to TikTok's data cross party lines. Yesterday Senator Chuck Schumer said that a "US company should buy TikTok so everyone can keep using it and your data is safe."
What Microsoft is saying
This past weekend Microsoft issued a statement on its blog. According to the statement, Microsoft is prepared to continue exploring a purchase of TikTok in the U.S. following discussions between its CEO Satya Nadella and Mr. Trump. It also said it is committed to acquiring TikTok subject to, among other things, “providing proper economic benefits to the United States, including the Unites States Treasury.”
It's unclear if this refers to the tax revenue that would naturally flow from the deal. Given the statement's use of the term “proper,” one might infer that Microsoft has no intention of paying the government key money.
The statement also noted that Microsoft and ByteDance provided notice of their intent to explore a deal to CFIUS. The deal would cover TikTok service in the U.S., Canada, Australia and New Zealand.
Trump and the Art of the Deal
Yesterday Mr. Trump said that the Treasury would receive a “very substantial portion” of the deal:
“A very substantial portion of that [sale] price is going to have to come into the Treasury of the United States. Because we’re making it possible for this deal to happen. Right now they don’t have any rights, unless we give it to them.”
He likened his demand to key money: “It’s a little bit like the landlord-tenant. Without a lease, the tenant has nothing. So they pay what’s called key money or they pay something.” And in case there was any doubt about the carrot and stick Mr. Trump is extending TikTok:
“[TikTok] will close down on September 15th unless Microsoft or somebody else is able to buy it and work out . . . an appropriate deal so the Treasury . . . gets a lot of money, a lot of money.”
It's not unusual for the Treasury to collect fees as part of a CFIUS review. The fees are based on the size of the transaction, but cannot exceed $300,000, according to the Washington Post. In this regard, they are similar to the fees collected as part of a Hart-Scott-Rodino filing, which reviews proposed mergers for antitrust concerns. Those fees are currently capped at $280,000.
Mr. Trump's demands appear to go far beyond a $300,000 CFIUS review fee. At a White House media briefing on Monday, Trump said that the United States “should get a very large percentage of that price” of the sale. “It would come from the sale — whatever the number is, it would come from the sale,” the president said. “Which nobody else would be thinking about but me. But that’s the way I think.”
Extortion as policy
Mr. Trump's comments raise alarming questions about U.S. policy. Our government is right to be concerned about data privacy and the Chinese government's willingness to steal data on U.S. citizens. But Mr. Trump's demand for a “large percentage” of a sale feels more like a shakedown. Pay up or else.
It's a view shared by others.
It's the kind of demand one could imagine a dictator in a third world country making before allowing food and medical supplies into the country. More importantly, Mr. Trump's demand for a cut turns attention away from what's really at stake——the safety and security of U.S. citizens, including our children.
