A Justice Department-led panel is investigating Zoom Video Communications deal to buy an American customer-service software company, citing potential national-security risks posed by the US videoconferencing giant’s China ties.
The Department stated the interagency committee—known as Team Telecom—needed to review a license application that arose from the San Jose, California-based company’s nearly US$15 billion deal to buy Five9 to see if it “poses a risk to the national security or law enforcement interests” of the US, according to a letter posted on the Federal Communications Commission (FCC) website. The Department stated there could be a risk from “the foreign relationships and ownership” associated with the application.
In the letter, dated last month, the Justice Department requested the FCC defer action on the application until Team Telecom finishes its review, putting Zoom’s deal for Five9 on hold.
“The Five9 acquisition is subject to certain telecom regulatory approvals,” said a Zoom spokeswoman on Monday, September 20. “We have made filings with the various applicable regulatory agencies, and these approval processes are proceeding as expected.”
Zoom stated it expects to receive regulatory approvals by the first half of next year, which could still leave it on track to close the deal when it had planned.
The US government has been ramping up its scrutiny of Zoom’s China ties. The Justice Department last year charged one of its China-based executives with conspiring to disrupt videoconference commemorations of the Tiananmen Square democracy protests. Zoom is also facing multiple ongoing federal investigations related to its dealings with Beijing.
Experts in telecommunications security said any such negotiations with Team Telecom, which reviews foreign investment in FCC-regulated entities such as Five9, could put Zoom into the crosshairs of officials in the US as well as China, where a significant crackdown on the tech industry is already under way.
“Once Team Telecom is reviewing a company they often look at risks unrelated to the transaction at issue,” said Richard Sofield, a partner at Vinson & Elkins LLP who isn’t involved in the transaction.
“Any time you open the door for Team Telecom to start scrutinizing your business you run the risk of them dictating how you collect and maintain personal data,” for example, said Mr. Sofield, a former chair of Team Telecom.
Zoom became a household name last year as it emerged as a top videoconferencing platform during the COVID-19 pandemic, with more than 300 million daily active participants at one point. Its business exploded as consumers and businesses flocked to the service to keep in touch with friends, family and colleagues, lifting its shares as much as 744% last year.
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