Treasury Releases Final Rule on Outbound Investments

The U.S. Department of Treasury issued a much-speculated-about and anticipated final rule on October, 28, 2024 for outbound investment titled “Provisions Pertaining to U.S. Investments in Certain National Security Technologies and Products in Countries of Concern" (“Final Rule”),1  which will become effective January 2, 2025, related to the implementation of President Biden’s August 9, 2023 Executive Order 14105 declaring a national emergency in “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.”2   Throughout the Final Rule’s 297 pages, Treasury details prohibitions or notification requirements of U.S. persons of U.S. investments or transactions in specific countries of concern that design, develop, or exploit sensitive technologies or critical products for the specific countries of concern’s military, intelligence, surveillance, or cyber capabilities.  There is an annex to the Executive Order, which may be modified, identifying the specific countries of concern as the People’s Republic of China, Hong Kong, and Macau (“Countries of Concern”).  Additionally, ‘sensitive technologies’ is to include three sectors as follows:

• Semiconductors and microelectronics,  
• Quantum information technologies, and 
• Artificial intelligence. 

The Final Rule aims to limit or identify the extent to which U.S. persons and transaction aid in the advancement of Countries of Concern’s military, intelligence, surveillance, or cyber capabilities, resulting in a contribution to increasing the U.S. National Security risks. More colloquially speaking, the U.S. is trying to reduce U.S. persons and investment from assisting Countries of Concern in ways that could potentially be used against the U.S. Examples given in the Final Rule include through the “development of more sophisticated weapons systems, breaking of cryptographic codes, and other applications that could provide a country of concern with military advantages.” In addition to capital investment, the Final Rule also outlays contribution to intangible benefits, such as perceived favorable reputation and increased access to markets, talent, and financing, among others, that often accompany U.S. private sector investment.  

The Final Rule provides technical detail around exceptions to the rule across nine different categories, such as publicly traded securities or certain derivatives, and does allow for a U.S. person to request an exemption based on U.S. national interest as well as whether existing investment requires notification, and whether there should be continued monitoring of investments for a change that would require notification where notification was previously not required. This is centered around when the U.S. person acquired the knowledge after completion and outlines the penalty for violations, such as civil penalty, criminal violations, and divestment. While the Treasury’s press release about the Final Rule3 contains answers to frequently asked questions, such as whether U.S. nationals working at foreign entities are impacted and how U.S. persons are expected to comply, it is sure that U.S. persons with investments in Countries of Concern as well as professionals in the national security space will need to consult and digest the Final Rule. The Treasury has indicated the intent to provide instructions on how to file a notification and request a national interest determination on the Outbound Investment Security Program website.   

Full information about the ruling can be found here: Outbound Investment Security Program | U.S. Department of the Treasury