Reed Smith Client Alerts

On August 6, 2020, President Trump issued an Executive Order (EO) targeting WeChat which would prohibit related transactions to be identified by the U.S. Secretary of Commerce (Secretary of Commerce) with effect from September 20, 2020.

What happened?

On August 5, 2020, the U.S. Secretary of State, Michael R. Pompeo announced the “Clean Network Program” which aims to ban the so-called “untrusted” carriers, applications, mobile application stores, cloud service providers, operators of undersea cables connecting the United States and the global internet. As such, companies that are involved in these businesses, or entities that transact with or rely on vendors that might be impacted are advised to keep abreast of further developments and additional announcements from the U.S. Government regarding the scope of the sanctions in connection with the “Clean Network Program” to assess and plan for contingencies with respect to their business operations and cross-border communication between the United States and other parts of the world.

On August 6, 2020 and following the expansion of the Clean Network Program, President Trump issued EO 13943 of 2020 “Addressing the Threat Posed by WeChat, and Taking Additional Steps to Address the National Emergency With Respect to the Information and Communications Technology and Services Supply Chain”.

In the preamble to the EO, President Trump declared that the spread of WeChat, a messaging, social media and electronic payment mobile application of the Chinese company Tencent Holdings Ltd (Tencent), in the United States poses a threat to the national security, foreign policy and economy of the United States. The mobile application is considered to pose threats to U.S. national security interests as it automatically captures significant amounts of information from users which threatens to allow the Chinese Government access to personal and proprietary information of the users in the United States and reportedly censors content deemed to be politically sensitive, and which may be used for disinformation campaigns that benefit the Chinese Communist Party.

Pursuant to the EO, which goes into effect 45 days after issuance, i.e. on September 20, 2020, any transaction by any person or with respect to any property which is subject to the jurisdiction of the United States. with Tencent or its subsidiaries, as identified by the Secretary of Commerce pursuant to the EO, shall be prohibited except as provided otherwise in statues or pursuant to the EO. The EO specifically refers to any transaction “that is related to WeChat”, but at the moment it is not clear if that would extend to transactions with Tencent.

The EO does not appear to contemplate prohibiting all dealings with the designated entities but, rather, contemplate sanctions applicable to specific transactions. These sanctions, to be determined by the Secretary of Commerce, may range from prohibiting payment processing or financing involving WeChat to the provision of the application in application stores or the installation or use of the application by U.S. persons. While it is difficult to predict what transactions could become subject to sanctions, considering the preamble to the EO, transactions which contribute to risks of national security or foreign policy are likely to be the focus of restrictions to be imposed on or after September 20, 2020.

It is noteworthy that the EO delegates the authority to identify prohibited transactions to the Secretary of Commerce instead of the U.S. Secretary of the Treasury or the U.S. Secretary of State, who are typically responsible for administering financial and commercial sanctions based on the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.). The delegation to the U.S. Department of Commerce - particularly if the Bureau of Industry and Security, which is responsible for administering the Export Administration Registrations (EAR) is involved - gives rise to the possibility that restrictions may take the form of limiting exports of items subject to the EAR (U.S.-origin goods, software and technology, and some foreign-produced items containing or derived from U.S. technology) by adding Tencent and/or its subsidiaries to the Entity List, which identifies foreign parties that are prohibited from receiving some or all items subject to the EAR unless the exporter has obtained a license or there is a waiver or other general license. This is the approach the U.S. Government took with Huawei when Huawei and its overseas-related affiliates were added to the Entity List in 2019.