The Department of the Treasury has issued a Final Rule to implement Executive Order 14105 of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” This Final Rule provides the operative regulations and a detailed explanatory discussion regarding the intent and application of these new U.S. outbound investment regulations. This Final Rule is effective on January 2, 2025. Currently, only the People’s Republic of China, along with the Special Administrative Regions of Hong Kong and Macau, are identified as a country of concern. The Outbound Investment Security Program will be administered by the newly created Office of Global Transactions, within Treasury’s Office of Investment Security.
The Final Rule builds on Treasury’s August 2023 Advance Notice of Proposed Rulemaking and its July 2024 Notice of Proposed Rulemaking. Treasury invited comment on these earlier rulemaking efforts to develop the regulations. For additional details, see Thompson Hine Updates of June 25, 2024, and August 11, 2023. The Final Rule seeks to address earlier public comments on the scope and objective of the regulations by maintaining the goals of both open investment and protection of national security by focusing on U.S. investments that present a likelihood of conveying both capital and intangible benefits that can be exploited to accelerate the development of sensitive technologies or products critical for military, intelligence, surveillance, or cyber-enabled capabilities of countries of concern in ways that threaten the national security of the United States. This includes, but is not limited to, further clarification and changes to: (i) the definitions of covered transaction and excepted transaction; (ii) the knowledge standard; (iii) the illustrative list of factors to be considered in assessing whether a U.S. person has undertaken a “reasonable and diligent inquiry” with respect to a particular transaction, and further guidance on the information to gather for assessing information; (iv) edits to the definition of “AI system” and notifiable transactions involving AI systems, end use and technical thresholds; and, (v) the intracompany transfer exception. The Final Rule also allows a U.S. person to seek an exemption from the application of the prohibition or notification requirement on the basis that a transaction is in the national interest of the United States.
Treasury has also indicated that it intends to provide additional information following
publication of the Final Rule, and will engage in stakeholder outreach and education on the requirements in the Final Rule. At this time, Treasury does not anticipate establishing an advisory opinion process to allow parties to request determinations of whether a particular transaction is covered, notifiable, or prohibited.