Exclusive-TikTok steps up efforts to clinch U.S. security deal

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By Echo Wang and David Shepardson

NEW YORK/WASHINGTON (Reuters) - Popular short-video app TikTok is offering to operate more of its business at arm's length and subject it to outside scrutiny as it tries to convince the U.S. government to allow it to remain under the ownership of Chinese technology company ByteDance, according to people familiar with the matter.

TikTok has been seeking to assure U.S. government departments and agencies for the last three years that the personal data of U.S. citizens cannot be accessed and its content cannot be manipulated by China's Communist Party or any other entity under the influence of that country's government.

Last year, President Joe Biden revoked an executive order by his predecessor Donald Trump to ban TikTok in the United States, but negotiations between his administration and the social media company continued over a potential deal that would address the security concerns.

U.S. lawmakers seeking to crack down on China as part of broader set of disputes over trade, intellectual property and human rights have seized on the security concerns over TikTok to pressure the White House to take a hard line.

TikTok has already unveiled several measures aimed at appeasing the U.S. government, including an agreement for Oracle Corp (NYSE:ORCL) to store the data of the app's users in the United States and a United States Data Security (USDS) division to oversee data protection and content moderation decisions. It has spent $1.5 billion on hiring and reorganization costs to build up that unit, according to a source familiar with the matter.

But some government officials, including at the U.S. Department of Defense, the Federal Bureau of Investigation and the Central Intelligence Agency, remain opposed to a security deal, according to the sources. These officials argue that TikTok's users would continue to be vulnerable because the app would still rely for its technology on ByteDance, which also operates Chinese short-video app Douyin.

To overcome these hurdles, TikTok has sought to provide new layers of oversight to the U.S. government. It has expanded Oracle's role to ensuring that TikTok's technology infrastructure is separate from ByteDance, the sources said.

Oracle will review both app codes, which determine the look and feel of TikTok, and server codes, which provide functions such as search and recommendations, according to the sources. The reviews will occur at dedicated "transparency centers" visited by Oracle engineers, with the first one scheduled to open in Maryland in January, one of the sources added.

TikTok has also proposed to form a "proxy" board that would run the USDS division independent of ByteDance, the sources said. This division is headed on an interim basis by Andrew Bonillo, a former U.S Secret Service agent, and until a security deal with the U.S. is reached it reports to TikTok Chief Executive Shou Zi Chew.

The USDS board would have three members who would be screened by the Committee on Foreign Investment in the United States (CFIUS), a national security panel, the sources said. ByteDance would not have control over the board and its decisions even though it would pay for the USDS division's operations, the sources added.

TikTok has been also seeking to hire independent auditors and monitors who would be paid by the company but report to CFIUS, according to the sources. It has sent out requests for proposals for some of the roles to companies and consultants and has set a deadline for responses in the first half of January.

The sources requested anonymity to discuss Oracle's expanded role, the proposed proxy board and details of the hiring and spending at TikTok, which are reported here for the first time.

A TikTok spokeswoman declined to comment on specific concessions the company has made to the U.S. government but said that the solution to security concerns it put to CFIUS was "comprehensive." She added that TikTok has not had any discussions with the U.S. government "on the substance of the proposed agreement" since the end of the summer.

"We have made substantial progress on implementing that solution over the past year, and look forward to completing that work to put these concerns to rest," the TikTok spokeswoman said.

Oracle did not respond to a request for comment. A spokesman for the Treasury Department, which chairs CFIUS, declined to comment other than to say the panel was committed to safeguarding national security. The White House declined to comment on the CFIUS review of TikTok.

WHITE HOUSE TO DECIDE

U.S officials involved in the talks have indicated that many of the voluntary measures TikTok is implementing to bolster its security may be part of any agreement to allow ByteDance to retain its ownership, one of the sources said. However, it is unclear whether Biden's administration will eventually sign off on a security deal with TikTok.

The U.S. Treasury Department and the Department of Justice, which have been leading the negotiations with TikTok, have been open to a deal to avoid the kind of legal challenge from the company that bogged down Trump's bid to force a divestment, the sources said.

The outcome will ultimately be determined by the White House, the sources added, because Biden will be called upon to adjudicate the arguments of the various government departments and agencies that are either supportive or dismissive of a deal.