The US government is forcing Chinese gaming and technology company Beijing Kunlun Tech to sell the popular gay dating app Grindr, with officials in Washington warning that the foreign ownership of the mobile platform threatens national security, according to people with knowledge of the matter.
The intervention by the Committee on Foreign Investment in the US (Cfius), the powerful inter-agency US group that vets foreign deals, signalled an intensifying scrutiny of acquisitions involving social networks or companies with vast troves of personal information. It raised questions about whether Chinese buyers would be forbidden from buying a wide range of social networking companies.
The specific concerns Cfius had over the acquisition of an application like Grindr were unclear. The platform allows users to share photos and personal data including their location, age, sexual preferences and HIV status.
Lawyers who have followed recent decisions from Cfius said the action indicated it was sharpening its focus on social media outlets where foreign governments could exploit user data to influence policymakers or people with security clearances.
“Data and data aggregation are now a national security issue,” said Ivan Schlager, a partner at law firm Skadden Arps. “We’ve seen this in transactions before, but this makes the issue [for Cfius] clearer.”
A spokesperson for the US Treasury, which leads the inter-agency panel, said that by law any information related to Cfius could not be publicly disclosed. “The department does not comment on information relating to specific Cfius cases, including whether or not certain parties have filed notices for review,” the spokesperson said.
One former senior intelligence official said the US was increasingly scrutinising Chinese firms that own social media groups, such as Grindr, because of concerns that Beijing could use the data from the apps to blackmail Americans. The former official added that the proliferation of data meant that Chinese intelligence agencies were much more easily able to make “cold pitches” to Americans to persuade them to spy — in many cases without even stepping foot into the US.
The ability to access the data also helps Beijing build a comprehensive map of Americans who may be covert intelligence operatives, the official said. The US has taken an increasingly tough stance on China over the past year as officials raise concerns about Chinese espionage, and particularly cyber hacking that could compromise US intelligence. Washington blames China for several hacking operations — on the US government and private companies such as the Marriott hotel group — that were seen as an effort to identify US officials with security clearances.
Daily active users on Grindr
The increased scrutiny of Chinese ownership of US firms comes as the CIA has become more sensitive about efforts to compromise its network of spies in China. The US last year indicted a former CIA operative named Jerry Lee for attempting to commit espionage. The CIA believes Mr Lee provided Chinese intelligence with information on sources and methods, in a move that decimated a network of spies that the agency had created and managed in China over many years.
The US Congress last year passed laws to give Cfius greater authority to review deals, but the committee has rarely exerted its powers to reverse completed acquisitions. In 1990, President George H W Bush ordered the China National Aero-Technology Import and Export Corporation to sell aeroplane parts manufacturer Mamco, which it had purchased months earlier. In 2012, President Barack Obama ordered Chinese-owned Ralls Corp to sell land near a naval base it purchased to develop a wind farm.
Beijing Kunlun Tech has hired US investment bank Cowen to handle the sale process for Grindr. The Chinese group acquired a majority stake in Grindr in 2016 for $93m, before purchasing the remainder of the West Hollywood-based group from founder Joel Simkhai in early 2018 for an additional $152m.
The cash infusions were expected to help Grindr expand beyond the namesake app that launched in 2009 and spawned dozens of copycats. The app, which counts 3.3m daily active users and characterises itself as the largest social network for gay, bisexual, transgender and queer people, has faced increasing competition from rivals such as Scruff and Chappy.
The company spent part of 2018 putting out fires, including several that were self initiated. In April, it faced criticism after it was reported that it had shared users’ HIV status with third party companies. In November, it faced pressure over a Facebook post from a top executive that was interpreted as being against same-sex marriage.
Beijing Kunlun Tech said it would float Grindr, which has been profitable for the past three years, according to a filing on the Shenzhen stock exchange in August. But the Cfius intervention, first reported by Reuters, has upended those plans. An initial public offering of Grindr would still leave the Chinese company with a stake in the app, which could take longer to sell down than an outright sale.
Grindr and Cowen declined to comment. Beijing Kunlun Tech could not be reached for comment.
Additional reporting by Hannah Murphy