U.S. exploring whether it has authority to review Musk’s Twitter deal

Kiran

A large foreign investor will have access to confidential information about Twitter’s finances — and potentially its users — under Elon Musk’s deal to acquire the social media site, people familiar with the matter told The Washington Post.

The revelations come as Treasury Department officials begin looking into whether they have the legal authority to launch an investigation into the purchase because of Musk’s ties to foreign governments and investors, people familiar with the discussions said.

It was not immediately clear whether Treasury officials were aware of the terms giving information rights to large investors. Exploration of whether a review is needed is fairly routine, and such preliminary inquiries often do not end in a full investigation.

White House officials have also previously discussed a possible national security review of the acquisition, according to another person. In addition, officials at the FBI looked at the potential counterintelligence risks posed by the deal last spring, according to two people familiar with the investigation — though it was unclear whether the matter was being examined by senior officials at the bureau or if the discussion was ongoing. still active. All the people spoke on condition of anonymity to discuss matters they were not authorized to disclose publicly.

The Saudi prince’s holding company and a subsidiary of a Qatari wealth fund are among the investors backing Musk’s purchase of Twitter, as is Binance, a cryptocurrency exchange that was founded in China but has moved its operations elsewhere. Tesla, where Musk is chief executive, has extensive ties to China, too.

Musk and his attorney, Alex Spiro, did not immediately respond to requests for comment.

The US government’s initial effort to scrutinize the Twitter deal comes as the billionaire introduced new changes to the structure of one of the world’s most powerful communications platforms.

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Treasury staff at the Committee on Foreign Investment in the United States (CFIUS) have not yet determined whether Musk’s purchase of the social media platform could trigger a national security review, according to a person familiar with the matter. Musk is a US citizen, and CFIUS reviews are typically used to investigate investments by foreign nationals. So it’s unclear whether they can initiate such a review, and policy experts are divided on whether one would be necessary. Treasury staff regularly investigate whether purchases are worth more thorough investigation, often without proceeding to a full-blown review.

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A 2018 legislative update to CFIUS rules states that the agency can investigate not only foreign ownership, but minority stakes in critical areas, including sensitive personal data held by businesses.

Initial work on the potential investigation has not yet reached the principals on the CFIUS committee – whose members include Treasury Secretary Janet L. Yellen, Attorney General Merrick Garland and Defense Secretary Lloyd Austin – and is in its early days. People familiar with the matter stressed that it is still possible that CFIUS concludes that it does not have the authority to even begin an investigation and that the investigation ends there.

“CFIUS is committed to taking all actions necessary within its authority to protect U.S. national security,” a Treasury spokeswoman said. “Consistent with law and practice, CFIUS does not comment publicly on transactions that may or may not be subject to review.”

An FBI spokesman declined to comment. A White House spokesman pointed to Press Secretary Karine Jean-Pierre’s comments last week that she was unaware of discussions about a national security review of the deal.

The problem could be problematic for the Biden administration. Biden’s aides have tried to counter China’s influence but don’t want to be accused of using the national security process to attack Musk, who has said he voted for Biden in 2020 but has recently become a political foe.

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Musk has extensive ties to China through Tesla, a publicly traded electric vehicle company. Tesla’s “Gigafactory” in Shanghai is its busiest production plant and an important export hub. Tesla also relies on China for production needs – the country controls the global supply of lithium, a key component in electric vehicle batteries – through vast processing and refining apparatus.

Binance also has a stake in Twitter recently through an equity investment of $500 million. While it moved out of its initial home in China, the company has partnered with a Chinese-government-owned firm in the blockchain initiative. A spokesperson for Binance previously told The Post that the business does not exist, that it does not exist in China and that it has never taken investments from institutions controlled by the Chinese government.

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Another global power, Saudi Arabia, is the largest private investor in the new Twitter, after Musk. The country poured about $2 billion into the acquisition, spinning off its previous stake in Twitter stock into the newly privatized company. US relations with the kingdom have been strained under Biden, and the Saudi-led group of oil-producing nations known as OPEC recently announced output cuts in a direct rebuke to the White House. A subsidiary of the Qatari sovereign wealth fund also backed the purchase.

Big investors in the deal have struck a confidentiality agreement that clearly spells out their potential role and access to information, with priority given to those who invested in $ 250 million or higher, according to people familiar with the arrangement who spoke with The Post. That threshold would give Binance, as well as Saudi and Qatari funds, access to information beyond what lower-tier investors would receive. That is unless there is an exception in their terms that expressly prohibits sharing information with them, something CFIUS wants to probe – and require if it is deemed necessary for national security.

The US government has previously indicated that Saudi officials sought information about Twitter users, and a former manager for the platform was convicted in August of concealing payments from Saudi agents in exchange for access to confidential user data.

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A number of Biden allies have in recent days told CFIUS to investigate how these countries might influence Musk. On Monday, Sen. Chris Murphy (D-Conn.) said on Twitter that the federal government should investigate national security issues related to Saudi Arabian entities’ investments in social media platforms. Last week, the American Economic Freedom Project, a left-leaning group, also said in a statement that both CFIUS and the Federal Communications Commission should investigate Musk’s takeover of Twitter because of its “potential dependence on the Chinese government.”

“We should be concerned that the Saudis, who have a clear interest in suppressing political speech and influencing US politics, are now the owners of the second largest social media platform,” Murphy said. said on Twitter.

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Bloomberg News first reported last month that Biden administration officials were considering whether the United States could conduct a national security review of Musk’s efforts at Twitter and SpaceX’s Starlink satellite network.

Andrew Grotto, former senior director for cybersecurity policy under the Obama and Trump administrations, who has focused on CFIUS, said access to information can prove a vital security concern.

“That’s an area where I think CFIUS has strong authority to make sure that Americans’ personal data isn’t maliciously exploited by foreign governments,” he said. “That appears in my mind at least as one of the main vectors for CFIUS to conduct an investigation.”

CFIUS remedies would not necessarily rule out Musk’s acquisition of Twitter, Grotto said, but the government could impose restrictions on what kind of information rights foreign parties are given or seek to limit the power they have over the new company.

“CFIUS will have the authority to demand mitigation including the possibility of forcing the parties to rewrite it,” he said, adding that the committee “may impose modifications.”

Additionally, “when a senator sends a letter to CFIUS asking for a review, the committee is going to poke around a little bit,” said Sarah Bauerle Danzman, an associate professor at Indiana University and a former CFIUS staffer through the State Department.

To trigger a review, Saudi investments must include special privileges – such as board seats as observers, or access to company information – beyond those granted to ordinary small investors in public companies. “If the Saudis are given some additional rights that are more than expected, such as board seats as observers or access to nonpublic information,” that would give CFIUS jurisdiction, he said. The terms of the deal as explained to The Post will do just that. But even so, the review is unlikely to lead to the takeover being reversed, Bauerle Danzman said.

Two former CFIUS advisers said Saudi Arabia’s investment is more likely to provide a review than any ties to China, even though China could leverage Musk more through its Tesla stake. “I would think they have a hook if they want to take this on,” said one former adviser, speaking on condition of anonymity to discuss the politically sensitive issue.



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