While Musk has said he would allow Twitter an even wider range of discourse than today, the ability of Chinese leaders to influence Musk’s fortunes may encourage them to demand that he identify the opposition and American Twitter users. block content that the government deems illegal. or at least allow its own propaganda to spread unchecked, these people said.
There’s no way to know how Musk and a privately owned Twitter will respond, and Musk did not respond to emailed questions. But because most of his wealth is tied to or backed by Tesla stock, some experts said the interagency group that scrutinizes foreign investment should escalate its nascent investigation of the deal.
“Given the volume of information, the number of users that Twitter has and the amount of sensitive personal data that Twitter has, any foreign investment is likely to be closely scrutinized,” said Richard Sofield, a partner at Vinson & Elkins who led. such Justice Department reviews under the previous two presidents.
Just the potential access to user data is “clearly a significant national security concern,” said an official in President Barack Obama’s administration. US officials have previously sued Chinese nationals for hacking insurance company Anthem and credit reporting agency Equifax in pursuit of personal information they feared could be cross-referenced with files on US intelligence officers, which were stolen by Office of Personnel Management in 2015.
The ability to extract sensitive personal information from hospitals and insurers that could be used in counterintelligence work has been reason enough to block or modify acquisitions in those industries, the former official said, and “obviously Twitter would be one of those things”. Like the others, he asked to speak anonymously because of his previous involvement in the secretive process run by the Committee on Foreign Investment in the United States, known as CFIUS.
Led by the Treasury Department and including representatives from Justice, Defense, State and other departments, CFIUS was given more power in 2018 to recommend blocking acquisitions where a foreign company was not directly taking control of an American one. The Washington Post reported Wednesday that CFIUS has begun asking questions about foreign investors participating in Musk’s bid.
Musk has not been accused of wrongdoing and, in his capacity as CEO of SpaceX, NASA’s mission launch partner, he has been thoroughly vetted by the US government.
However, potential Chinese influence over Tesla is hard to argue with.
The company’s factory in Shanghai was ready half of Tesla’s 2021 production and China is one of the largest markets for the vehicles. Last year, Musk said he would become the biggest.
Musk also has to deal with the all-powerful authorities there, as he recently did over the coronavirus pandemic restrictions that had shut down the Shanghai factory.
China is even more crucial on the supply side.
In an impact report released in May, Tesla disclosed the direct sources for its batteries, most of which were in China.
All those listed supplied cobalt, lithium or nickel, among the most sought-after commodities in the industry. Focusing on electric battery supplies as a strategic goal a decade ago, China produces the global majority of them.
Tesla and its rivals also source minerals from Congo and elsewhere, but China has maneuvered to take ownership stakes in related companies there and win long concessions from governments.
To increase Tesla’s bargaining power and secure future supplies, Musk has entered into long-term agreements with mines in Canada, Australia and other countries.
But China not only has one barrier to key minerals, it also has another in processing those minerals, analysts said.
Musk recently floated the idea of Tesla getting into mining, which would take seven to 10 years in Western countries, according to Wood Mackenzie research director Gavin Montgomery.
“In the final analysis, it’s not practical to leave China completely,” Montgomery said. “They could share Tesla, or they could all wait. And if we end up in a crisis, China has the option of keeping that cobalt for its own domestic industry.”
Musk raised hopes for more independence from China last year when he said he would switch Tesla cars to iron phosphate batteries that don’t need cobalt or nickel. In April, Tesla said that nearly half of the previous quarter’s new vehicles included those types of batteries.
Unfortunately for the company, the vast majority of so-called LFP batteries also come from China.
“You would think the move to LFP would reduce some of the dependencies, but all the LFPs he uses are made in China or sourced from there,” Montgomery said.
Some US intelligence analysts and White House officials are among those worried about the potential for arm-twisting by China if Musk gets hold of Twitter.
That wouldn’t be enough by itself to formally block the $44 billion transaction: CFIUS is generally prevented from intervening when the buyer is American, as Musk is.
“Twitter would not be a ‘foreign investment in the United States,’ and it’s difficult to use that authority to review it,” Matthew Turpin, a senior White House and Commerce Department China analyst, said in a statement. in 2019, when he became a councillor. to government contractor Palantir Technologies.
However, after allowing and then regretting several deals in semiconductors and elsewhere, CFIUS has taken a broader view of its authority, looking not only at the acquirer but also at its financial backers and customers. This has been particularly true of minority Chinese investments in technology companies.
In another Case in point, Obama blocked a Chinese-backed acquisition of the American business of semiconductor firm Aixtron, in part because a former Chinese customer of Aixtron had ties to the buyer and government backing.
“Where there may be Chinese interests, such as if there are Chinese operations or existing US business customers, CFIUS is conducting a very thorough risk-based analysis, no matter how benign the transaction may appear,” law firm Covington wrote. & Burling. in that time.
President Donald Trump later blocked an attempted takeover of Qualcomm by chipmaker Broadcom in 2018, shortly after the former said it was relocating to the United States from Singapore. In that case, CFIUS was concerned about both Broadcom’s Chinese customers and Qualcomm’s sensitivity as a supplier to the Department of Defense and other critical industries.
The former officials said there was at least reason to ask further questions and that they assumed Musk’s lawyers were preparing to brief officials and allay concerns.
“It’s likely that CFIUS will ask for more information and they may want a submission to clarify national security issues,” the Obama veteran said. “In theory, could they screw up the whole deal? Absolutely.”
A member of Musk’s legal team did not respond to emailed questions.
A former Senate Commerce staffer said questions were sure to arise even though going further would break new ground.
“It’s obviously a sensitive national security asset, but you have to find the jurisdictional hook,” he said, speaking on condition of anonymity because of the sensitivity of the matter.
One way to get more information, current and former officials said, would be to press Musk’s team for influence and access to Twitter information held by his minority investors, including a sovereign wealth fund. of Qatar and Saudi Prince Alwaleed Bin Talal Bin Alsaud. .
Governments in countries such as Russia, China and Saudi Arabia have invested in using Twitter to advance their national interests, and regulators fear that this could be facilitated by access to inside information or influence over Twitter leaders.
While Twitter itself is blocked in China and thus not accessible to most people, Beijing is interested in how it can influence foreigners’ views of the country, and a number of Chinese diplomats have been particularly active on Twitter in recent years.
Countries such as Saudi Arabia are constantly seeking inside information about US technology companies, including social media firms like Twitter, national security experts say. In 2019, a former Twitter employee was accused of spying for Saudi Arabia.
Major cryptocurrency exchange Binance could also play a role in any investigation, several officials said: While moving away from its original home in China, the company has partnered with a Chinese government-owned firm on a blockchain initiative. A spokesperson for Binance said the effort was powerless, that it had no presence in China and that it had never received any investment from an entity controlled by the Chinese government.
Ivan Schlager, a trade lawyer at Kirkland & Ellis, said the US government was already too attuned to supply chain issues surrounding the surge in demand for batteries for electric vehicles, particularly after failing to stop a Chinese company from buying a US manufacturer. bankrupt of batteries A123. Systems.
“CFIUS is increasingly concerned with access to raw materials and protecting what’s left of battery manufacturing,” Schlager said.
American companies should be worried, too, especially if they have Musk’s money, said Robbie Diamond, founder of the nonprofit group SAFE, formerly America’s Future Energy Insurer.
“The entire electric vehicle industry is currently shackled by China and completely dependent,” said Diamond, who has been a supporter of Tesla and Musk.
“I can’t talk to Twitter. But I think in some ways his money would be better spent building that supply chain to support the auto company that gives him that wealth.”
Eva Dou in Shenzhen, China, and Faiz Siddiqui and Gerrit De Vynck in San Francisco contributed to this report.
