*UPDATE*Just hours after the WeChat Prohibitions went into effect, a federal judge issued a preliminary injunction (Scan the QR code below to the judge’s order) halting them from going into effect. The injunction will be in effect while the lawsuit challenging the prohibitions is being litigated or until a higher court overturns the injunction.

Preview

On Thursday, August 6, 2020, US President Donald Trump issued an executive order directed at WeChat, the popular mobile application owned by Tencent Holdings Ltd. The “Executive Order on Addressing the Threat Posed by WeChat” (the “WeChat Order”) prohibits, as of September 20, 2020, “any transaction that is related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States, with Tencent Holdings Ltd. … or any subsidiary of that entity, as identified by the Secretary of Commerce … .” The August 6 Executive Order was based on a national emergency that President Trump declared in a May 15, 2019 Executive Order addressing security issues related to the information and communications technology and services supply chain.On September 18, 2020, the Department of Commerce issued its “Identification of Prohibited Transactions” to implement the August 6 Executive Order (“WeChat Prohibitions”).[1] The prohibited transactions are limited to business-to-business transactions and include providing:
  • Services to distribute or maintain the WeChat mobile app where mobile users within US territory may download or update the app for use on their mobile devices;
  • Internet hosting, content delivery, or directly contracted or arranged internet transit or peering services enabling the functioning or optimization of the app within US territory; and
  • Services through the app for the purpose of transferring funds or processing payments to or from parties within US territory.
The prohibitions also prevent Tencent from authorizing a US-based company to use its WeChat code to create new software that might perform the same functions as WeChat under a different name or different ownership.Despite these broad prohibitions, the WeChat Prohibitions document also carves out certain activities that are not prohibited, such as users exchanging personal or business information using WeChat, including the transferring and receiving of funds.The prohibitions are targeted at undermining the infrastructure that allows WeChat users to communicate with each other, whether through text or multimedia messages or by voice or video calls, and to conduct transactions. Generally, the prohibitions do not implicate individuals or businesses who may be using the app, but the prohibitions may make using WeChat difficult or impossible within the United States if US-based service providers cannot provide a platform that allows WeChat to function. Depending on how strictly network providers interpret the prohibitions, all WeChat data traffic may be blocked.It remains to be seen whether the Department of Commerce will grant any general or specific licenses to continue providing services to allow WeChat to continue functioning in the United States. It also remains to be seen whether a federal court will enjoin the prohibitions from going into effect in a lawsuit filed by a group called US WeChat Users Alliance.
What You Can Do
When reviewing the WeChat Prohibitions, it is important to first read what is notprohibited. The prohibitions do not apply to the four categories of transactions below. However, while you may be able to continue using the app, the necessary infrastructure may no longer be available.
1. Payment of wages, salaries or benefits to employees or contractors. This will allow Tencent to pay its employees and contractors.
2. Exchange of personal or business information using WeChat, including transferring or receiving funds.
3. Activities outside the US, even where US individuals or those subject to US jurisdiction may be involved. This will permit Apple and Google to continue offering the WeChat app on their non-US app stores.
4. The storing of WeChat data in the US. Assuming a company had access to such data, it could maintain that data as long as it is not transferred to China Thus, users can download and save chats to preserve them for the future, e.g., to be used as evidence in a litigation over a supply contract.
What You Can’t Do
The prohibitions only apply to business-to-business transactions and are targeted at persons who are engaged in business with Tencent.While the prohibitions are phrased in terms of activities, they implicitly define the types of businesses that are prohibited from providing services to WeChat. Under the terms of the WeChat Prohibitions, any person subject to US jurisdiction is prohibited from engaging in a business-to-business transaction with Tencent in the following activities:

 

1.Providing the WeChat App – Distribution or maintenance of the WeChat mobile app or updates to it through an online mobile app store or any online marketplace where mobile users within US territory can download or update the app for use on their mobile devices. Starting Sunday, users will no longer be able to download the WeChat app from the US Apple App Store or US Google Play Store.

2. Providing hosting for WeChat services – Provision of internet hosting services that enable the functioning or optimization of the WeChat mobile app in the US. Internet hosting services means a service through which storage or computing resources are provided to individuals or organizations for the accommodation of one or more website or internet services, for example, file hosting, domain name server hosting or cloud hosting. Thus, US internet hosting services will be unable to provide hosting services to Tencent, even if they have a contract that predates the August 6 Executive Order, and are required to exclude WeChat from their services starting Sunday.

3. Providing WeChat content delivery – Provision of content delivery services enabling the functioning and optimization of the WeChat mobile app in the US. A content delivery service is a service that copies, saves and delivers content for a fee. For example, a website may contract with a content delivery network to provide proxy servers geographically close to end users, rather than from a single centralized location, to improve response time. Such content delivery services will be prohibited from serving content for WeChat “for a fee” starting Sunday.

4. Providing internet transit or peering services – Any provision of directly contracted or arranged internet transit or peering services enabling or optimizing the WeChat mobile app within the US. At a minimum, this prohibits network providers from directly contracting or arranging with Tencent to provide dedicated bandwidth for WeChat. This may not be a significant problem because it is understood that Tencent’s servers for North America are situated in Canada. A more strict interpretation of this prohibition would require network providers to block all WeChat data traffic. Between item 2 above and this prohibition, the transfer of WeChat data within the US will be subject to delays and, in the worst case, will become virtually impossible.

5. Providing fund transfers or payment processing – Provision of services through the WeChat mobile app for the purpose of transferring funds or processing payments. Examples may include financial institutions and merchants. But note that this prohibition only applies to business-to-business transactions. Individual users may still be able to send other users funds using WeChat if doing so does not require a business-to-business fund transfer or payment processing.

6. Using WeChat code or functions for other software – Utilization of the WeChat mobile app’s constituent code, function or services in the function of software or services developed or accessible in the US. This provision will prohibit using the WeChat mobile app’s source code to create another version of the application or to provide “mini programs” such as games that work within WeChat.

7. Any transaction that may be later identified –  Other transactions related to WeChat with Tencent as may be identified at a future date by the Secretary of Commerce. This provision is a catch-all placeholder for future identifications of prohibitions that the Secretary of Commerce may announce in the same manner as the WeChat Prohibitions have been announced under the authority delegated to it under the August 6 Executive Order. This provision threatens additional prohibitions to be announced in the future and is likely designed to persuade businesses from engaging in transactions with Tencent that are not specifically prohibited by the WeChat Prohibitions.

KWM has an experienced team of professionals ready to provide additional guidance and advice for our clients. Please reach out to ：
Aaron Wolfson(Aaron.Wolfson@us.kwm.com) orMeg Utterback (Meg.Utterback@us.kwm.com) with any questions. 

 

Authors: KWM New York Office