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Government Will Quash Oracle's TikTok Deal if Security Requirements Not Met

By Eric Volkman – Sep 30, 2020 at 4:54PM

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The authorities aren't letting up on their threats against the popular video-sharing app.

Treasury Secretary Steven Mnuchin said Wednesday that the government will shut down the TikTok app if its presumptive lead strategic investor, Oracle (ORCL 0.27%), does not enact stricter standards for the video-sharing app's security.

One of the key demands from the government is that the code for the app be held within our borders. "All of the code will have to be in the United States. Oracle will be responsible for rebuilding the code, sanitizing the code, making sure it's safe in their cloud, and ... it'll satisfy all of our requirements," said Mnuchin in remarks made during a CNBC investor conference.

Woman making video with a phone.

Image source: Getty Images.

Under pressure from U.S. authorities to divest TikTok, the app's owner -- China-based ByteDance -- reached a deal earlier this month for Oracle to buy a 12.5% stake in the business. Walmart (WMT -1.33%) will subsequently purchase a 7.5% TikTok stake.

Those holdings, combined with the 40% of ByteDance owned by venture capital firms in this country, will give U.S. politicians sufficient scope to claim that TikTok is majority-owned by U.S. entities. 

TikTok is the latest video-sharing app wildly popular with consumers, particularly young ones. Echoing security concerns that have been prevalent since the app's rise to prominence, the government mandated a divestment. It set Sept. 20 as a deadline for such a move to be completed or else TikTok would be banned in the U.S.

On Monday, though, a Federal judge effectively blocked that ban temporarily, and the app remains freely available for download.

Neither of the two would-be major shareholders in TikTok, Oracle and Walmart, have yet commented on Mnuchin's pronouncements.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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