Musk’s Twitter deal could be the subject of a national security probe into foreign investors

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Elon Musk’s $44 billion purchase of Twitter could be investigated over potential national security risks posed by Musk’s foreign investors, says a Reuters report Friday. Foreign investment could invite “the kind of regulatory scrutiny over U.S. national security that social media peer TikTok has faced,” according to the report.

Musk’s investors include Qatar’s sovereign wealth fund and Prince Al Waleed bin Talal al Saud of Saudi Arabia. The Saudi Kingdom Holding Company already owns 5.2% of Twitter shares and plans to transfer that $1.9 billion stake in Musk’s privatized Twitter. Qatar’s investment is $375 million.

Musk also has a $500 million investment from Binance, a major cryptocurrency exchange that has faced its own government scrutiny. Binance was founded in China in 2017 but quickly left the country when the Chinese government restricted cryptocurrency trading; it works now without official headquarters. The founder of Binance is Changpeng Zhao, who was born in China but reportedly moved to Canada with his family when he was 12 years old.

These three investors “could give the Committee on Foreign Investments in the United States (CFIUS) an opening to review the deal for potential national security risks, said six regulatory lawyers not involved in the transaction and interviewed. by Reuters,” according to the Reuters report. .

“To the extent that Musk’s proposed acquisition of Twitter includes foreign investment, it could very well fall within the jurisdiction of CFIUS,” Chris Griner, chairman of the national security firm of Stroock & Stroock & Lavan, told Reuters. LLP.

The risk of treating is low

The lawyers “said the risk of CFIUS blocking Musk’s deal is low because it will control Twitter as part of the proposed takeover and foreign investors will acquire relatively small stakes,” but that “would change if Musk gave foreign investors influence over the company, through a seat on its board of directors or through other means,” the report said.

The risk to the deal is heightened somewhat because “personal data processing activity by social media companies such as Twitter is generally considered critical infrastructure by CFIUS.” Sensitive personal data may include non-public communications such as direct messages from Twitter.

The CFIUS is a interagency committee chaired by the Treasury Department which can review transactions involving foreign investment to determine their impact on national security. The committee raised concerns about Broadcom’s attempted acquisition of Qualcomm in 2018, shortly before then-President Donald Trump blocked the deal. The committee also investigated the Chinese owner of TikTok, ByteDance.

A Treasury Department spokesperson “declined whether the national security panel planned to review Musk’s Twitter deal,” Reuters wrote.

Musk also has a $1 billion investment from Oracle co-founder Larry Ellison.

Free speech issues

The CFIUS could apply scrutiny to “Musk’s business dealings with foreign governments hostile to free speech or eager to technologically leapfrog the United States,” the Reuters report said, noting that Tesla, led by Musk, heavily dependent on China. With Twitter, CFIUS can consider “whether or not there will be an opportunity for China to leverage its business activity to achieve the desired outcome,” Vinson & Elkins LLP partner Richard Sofield told Reuters.

Reuters noted that “China blocked Twitter in 2009, but many Chinese officials have been active on the social media platform. unfairly targeted”.

While Musk said he bought Twitter to protect free speech, the two Saudi Arabia and Qatar impose severe restrictions on speech. Last month, Musk questioned Saudi Arabia’s treatment of journalists’ free speech in a Tweeter responding to Al Waleed bin Talal, who initially opposed Musk’s purchase of Twitter.

But Musk’s explanation of his views on free speech suggests he doesn’t oppose government-imposed speech restrictions. “By ‘freedom of speech,’ I simply mean what is within the law,” Musk wrote. “I am against censorship that goes far beyond the law. If people want less freedom of expression, they will ask the government to pass laws to that effect.”

Possible antitrust investigation

Separately, the Musk/Twitter deal could be subject to an antitrust investigation. Federal Trade Commission ‘reviewing Elon Musk’s $44 billion takeover of Twitter, a person familiar with the deal said, setting a deadline next month for the agency to decide whether to conduct a full review of the deal”. Bloomberg reported Thursday.

“Under U.S. merger law, Musk is required to notify the FTC and the Department of Justice of the transaction and wait at least 30 days before closing to allow investigation of possible antitrust issues.” , continues the report. “The FTC may request additional information, issuing what is called a second request, which would further delay the shutdown.”

However, the FTC may not be a big hurdle, as Bloomberg notes that “antitrust experts do not expect the deal to raise antitrust concerns.” Reuters’ report on the potential CFIUS review also said that “regulatory experts said they did not expect the deal to face significant antitrust scrutiny.”

Musk and Twitter are also facing a shareholder lawsuit who disputes the acquisition.

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