The focus of the probe is on how the company stores data from its U.S. clients, Reuters reported citing three people briefed on the probe, including personal information and intellectual property.
The administration is concerned over whether the Chinese government can gain access to the data and whether Beijing can disrupt access by U.S. users to their information stored on Alibaba cloud.
A U.S. Commerce Department spokesperson told Reuters that it could not comment on the "existence or non-existence of transaction reviews."
"The Chinese government—officially known as the People’s Republic of China (PRC)—engages in malicious cyber activities to pursue its national interests," the U.S. Cybersecurity & Infrastructure Security Agency says of the PRC.
"China presents a prolific and effective cyber-espionage threat, possesses substantial cyber-attack capabilities, and presents a growing influence threat."
A request for comment from Alibaba was not immediately returned. A request for comment from the Commerce Department also was not returned.
Cloud servers are prime targets for hackers to launch cyber from since the origin of the attack can be concealed more effectively.
U.S Ups Pressure on China
Alibaba's U.S. cloud business is only a small slice of the company's revenue pie, accounting for less than $50 million of the company's $863.3 billion annual revenue.
But, while Alibaba's cloud business is not fully monetized, research firm Canalys says the business' 4 million worldwide customers represent its "second pillar of growth," according to Reuters.
All told, Alibaba's cloud business saw a 50% rise in revenue in 2020 to $9.2 billion.
Shares of Alibaba were falling more than 1% at the time of printing.
The probe kind of underscores how U.S and chinese businesses are becoming ensnared in geopolitical tensions between Washington D.C and Beijing.
The U.S. has recently increased its pressure on the People's Republic in recent weeks over human rights abuses.
In December, President Biden signed a law banning products from China's Xinjiang region where the Chinese government utilizes forced labor from from the country's Uyghur religious minority.
Chinese authorities have been cracking down on their own companies in recent years also as the country looks to exercise control over cyberspace.