PALO ALTO, U.S. -- The U.S. Department of Justice has launched an investigation into Zoom's proposed $15 billion acquisition of American cloud contact center software Five9, as the deal poses potential national security risks due to "foreign participation," a public filing shows.
The Justice Department asked the Federal Communications Commission, which is reviewing the deal, to not take any action until it completes the investigation over the companies' "foreign relationships and ownership," according to a letter submitted to the FCC last month.
The letter did not specify which foreign relationship raised alarms. However, Zoom has come under security in the U.S. for its links with China, especially in the past two years. The San Jose, California-based company is now facing multiple ongoing federal investigations related to its dealings with Beijing, according to its latest quarterly filing.
"The Five9 acquisition is subject to certain telecom regulatory approvals," a Zoom spokesperson told Nikkei Asia. "We have made filings with the various applicable regulatory agencies, and these approval processes are proceeding as expected."
Zoom anticipates receiving the required regulatory approvals to close the transaction as scheduled in the first half of 2022, the spokesperson added.
The Justice Department's probe will be led by the committee for the assessment of foreign participation in the U.S. telecommunications service sector, which was established in April 2020 under an executive order by former President Donald Trump. The committee was given expanded federal authority to review foreign investment in the sector amid the height of U.S.-China tensions.
Founded in 2011 by Chinese-born engineer Eric Yuan, who is an American citizen, Zoom has gone to great lengths to try to distance itself from Beijing but is still under fire in the U.S. for its China links.
In April last year, the New York-listed company was called a "Chinese entity" by House Speaker Nancy Pelosi, after the company admitted that it had mistakenly routed some American users' data through servers in mainland China.
In response, Zoom has rolled out a series of initiatives to improve its privacy and security features and built firewalls between Chinese and American user data. The company then stopped selling new or upgraded products directly to customers in mainland China in August, a few months after it halted service to individual users in the country.
A former China-based Zoom executive was charged by federal prosecutors in December for conspiring to disrupt an online commemoration of the 1989 Tiananmen Square crackdown. Zoom said it fired the executive after an internal investigation.
Zoom's research and development team still has a "significant footprint" in China, according to the company's latest filing. However, it has been expanding its engineering facilities in India and the U.S. as part of its efforts to reduce dependence on the China-based team amid rising security concerns from Washington.
Zoom shares closed at $278.24 on Tuesday, down 0.87%.