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The U.S. getting a cut of TikTok sale is 'totally inappropriate': Former CFIUS Member

Former CFIUS Member and Kirkland & Ellis Senior Partner Mario Mancuso joins the On the Move panel to discuss what to expect from the sale of TikTok.

Video Transcript

ADAM SHAPIRO: What's happening with shares of Microsoft? That stock trading up a little bit today, still negotiating for the purchase perhaps of TikTok. To help us understand where that might go, we welcome into the stream Mario Mancuso, former CFIUS member-- and that's the Committee on Foreign Investment in the United States. Now a lawyer at the Kirkland & Ellis Law Firm. Good to have you here. We also know that you are a Senior Partner at Kirkland & Ellis. Can you help us understand the authority that CFIUS has to force the sale or to push this sale forward?

MARIO MANCUSO: Sure. Well, it's great to be here. Thanks for having me. I think the best way to think about CFIUS is that CFIUS is an absolutely critical national security tool that the United States has to think about national security issues in the context of foreign investment transactions-- not every transaction, but certain transactions where non-US persons acquire or invest in certain ways in US companies. That's sort of the piece of the puzzle that is an important complement to the other aspects of-- the other tools that the United States has-- think diplomacy, military, et cetera.

The authority that CFIUS has is actually the president's authority-- the president's authority as commander in chief as embodied by congressional statute. So it's an incredible legal authority. It's an incredibly firm legal authority, and CFIUS has tremendous power to review transactions, to frustrate transactions, and to condition transactions. That's what we're seeing, especially now as this competition between the United States and China heats up, where you have this power amidst the two largest economies in the world-- economies that happen to be integrated, even though that integration is coming under some pressure now.

AKIKO FUJITA: Mario, to your point, we've seen CFIUS jump in on a number of transactions in the past, whether that was Ant Financial or most recently with Grindr, the app. But it seems like this has really put CFIUS in the forefront. I mean, when you're talking about Microsoft CEO Satya Nadella speaking directly with President Trump as Microsoft has already said. I mean, is that how transactions were reviewed in the past, or is this kind of unprecedented in terms of the involvement from the White House?

MARIO MANCUSO: Well, I think, strangely enough, it's a little bit of both in the sense that the world has changed. The world that we knew in the past 50 years with respect to China basically died in March of 2020. OK. A lot of that had to do with US policy, but a lot has to do with developments in China.

I think when-- we think it's surprising, both in terms of the outreach to the White House, also in terms of deals that CFIUS has gotten involved with, for example, Grindr a few months ago. You mentioned TikTok. There have been other deals. This seems to be dissonant with how most Americans-- and frankly, much of the world-- thinks about what is sort of encompassed by what we mean by national security. Most people tend to think-- when you think national security, you sort of understand, OK, rockets, missiles, airplanes, things like that.

But the United States security profile has fundamentally changed, and what the US has been saying through CFIUS is that we need to think about lots of different industries including high tech. Including the things that you would ordinarily think about, but including other things like data-intensive businesses, i.e. TikTok, i.e. Grindr, because we need to ensure that US security vulnerabilities are protected.

And so when CFIUS is engaged in a transaction-- even a transaction that at a surface level seems to have nothing to do with national security-- there's usually core national security interests or at least core national security questions at issue beneath the surface that reflect macro changes that have happened in the global environment, again, in the last 30 years, and I think in a pretty acute way over the last decade.

JULIE HYMAN: Mario, it's Julie here. So as we see perhaps the US take a more adversarial stance in the world-- not just with China, but perhaps with Russia, with other nations as well, even at times with the EU-- are we going to see the scope of these-- and perhaps the severity-- of the CFIUS scrutiny of deals increase over time, not just with China-US deals?

MARIO MANCUSO: I think the answer is absolutely clear, and I think there is a separate question about, how do businesses, operating companies actually think about the business implications of this change. So I think the short answer to your question is absolutely yes. But, you know, the United States sees China as a near-peer. It sees Russia as a rogue power. And I think China is in a category of one for CFIUS purposes. And how CFIUS assesses China risk-- it will assess it by means of, is there a Chinese buyer on the other side of a US deal? But it will also-- because it is so focused on China-- it will also look for so-called China risk in the context of otherwise benign buyers of US businesses.

So think, for example, a European semiconductor company-- this is a notional example-- that has a large market presence in China, and that European company is thinking about acquiring a US company. CFIUS will actually scratch through, you know, the surface level national identity of the foreign buyer, look into the value chain of that buyer, and say, is there China risk-- even indirect China risk-- that can arise? That is the magnitude of the concern that the United States has with respect to China, in particular.

So again, there will be more focus, more scrutiny, but it will also be indirect, as well as direct. And I think it will come up in non-obvious and, frankly, sometimes counterintuitive ways.

AKIKO FUJITA: And Mario, going back to the TikTok case, we've heard the president come out and say that the US government wants a substantial cut from this transaction. Not sure if the president was serious or not. But I'm curious within the CFIUS tools, I mean, is that within the scope of the committee? Can the government actually seek out a cut from the transaction?

MARIO MANCUSO: Let me just say that is atypical. That has never happened before. I think many of us who've served in government work, in the private sector-- that's just never happened, and it would be, frankly, in my view, totally inappropriate. The United States has a strong interest in actually attracting foreign investment that's benign, right? And it has a strong interest in applying a rigorous but nuanced sift in stopping or otherwise conditioning transactions that may present US security risks.

But the idea that the United States government would get a cut-- I mean, that's just not even in the realm of-- first, it's never happened, but it's just a bad policy idea and frankly, unfortunately, I think, sends the message to the rest of the world that to do business in the United States that somehow we're going to have a mercantilist policy around this. It's just not the right answer.