(Bloomberg) — The Trump administration has asked gaming companies to provide information about their data-security protocols involving Chinese technology giant Tencent Holdings Ltd., people familiar with the matter said.
The Committee on Foreign Investment in the U.S., which is chaired by the Treasury Department, has sent letters to companies, including Epic Games Inc., Riot Games and others, to inquire about their security protocols in handling Americans’ personal data, said the people, who asked not to be named because the discussions are private.
Tencent, the world’s largest gaming company, owns Los Angeles-based Riot and has a 40% stake in Epic, which is the maker of the popular video game Fortnite. Representatives for the companies declined to comment or didn’t immediately respond. The Treasury Department declined to comment.
The inquiry builds on the Trump administration’s heightened scrutiny of Chinese companies and their ties to U.S. firms — a source of fresh tension with the Beijing government and a pillar of President Donald Trump’s reelection campaign. Tencent’s American Depositary Receipts fell 2.4% to $66.66 on the news.
Trump already has ByteDance Ltd., owner of the TikTok video app, in his sights and is cracking down on Tencent’s WeChat app.
Cfius investigates foreign acquisitions of American businesses for national security risks. It has authority to examine full acquisitions as well as non-controlling investments and recommend that the president block or unwind deals. It can also scrutinize deals that weren’t voluntarily reported to the committee before closing.
Aimen Mir, who ran Cfius reviews at the Treasury Department when he was the deputy assistant secretary for investment security, said in an interview on Bloomberg TV after the report that the committee has traditionally been concerned about protecting sensitive data like health, financial and government-employee information but is now broadening the type of data it’s focused on.
“When you’re talking about massive amounts of data, there’s probably something for the committee to look at,” said Mir, now a lawyer at Freshfields Bruckhaus Deringer. “The question then becomes is the risk high enough that it actually warrants forcing deals apart.” That carries risks, including retaliation against U.S. companies doing business in China, he added.
Congress in 2018 increased Cfius’s jurisdiction to review transactions by foreign companies retroactively for non-controlling investments if the companies involved maintain or collect sensitive personal data of U.S. citizens.
Tencent has more than 300 investments in its portfolio, according to PC Gamer. That makes it the force behind many of the world’s most popular games. In 2011, Tencent paid $400 million for a 93% stake in Los Angeles-based Riot Games, the studio behind League of Legends, the No. 1 game on PCs. Four years later, it scooped up the rest.
In 2012, Tencent made a $330 million investment in Epic Games, based in Cary, North Carolina. Tencent also owns a small stake in Activision Blizzard Inc., based in Santa Monica, California, and the maker of the Call of Duty franchise.
In August, Trump issued executive orders prohibiting U.S. residents and firms from doing business with Tencent’s WeChat and ByteDance’s TikTok. The scope of those restrictions are expected to be announced by the Commerce Department around Sept. 20.
ByteDance has been negotiating with Oracle Corp. to take a stake in a reconfigured TikTok to alleviate the president’s concerns about data on the app’s American users being exposed to China.
Trump has escalated his fight with Beijing in recent months as the November presidential elections approach and has blamed China for the Covid-19 pandemic.
(Updates with more detail on Tencent’s games.)
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