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The Biden Administration issued an executive order on August 9th that declared a national emergency and directed the Treasury & Commerce Departments to adopt regulations requiring outbound investment screening. Treasury simultaneously issued a draft advance notice of proposed rulemaking seeking public comment on implementing regulations. We’ve been expecting this executive order following a report issued by the Treasury & Commerce Departments, which John blogged about earlier this year. This Fenwick alert describes the purpose of the new outbound investment screening:

President Biden issued the new E.O. because of the national security threats presented by the rapid development of semiconductor, quantum computing and artificial intelligence technologies by Chinese companies and their potential contribution to China’s military, intelligence, surveillance and cyber-enabled capabilities. The new outbound investment regulatory regime will be aimed at limiting the ability of Chinese companies engaged in the development of these technologies to access U.S. investments and the intangible benefits that accompany such investments, such as managerial assistance, talent acquisition, market access and additional financing.

This Hogan Lovells memo gives more info about the executive order and notice of proposed rulemaking in a Q&A format. Here’s an excerpt:

The outbound investment program, pursuant to forthcoming implementing regulations, will (1) require U.S. persons to notify Treasury of certain transactions and (2) prohibit U.S. persons from engaging in other transactions, in both cases related to certain Chinese parties that are engaged in subsets of three advanced technology sectors: (a) semiconductors and microelectronics; (b) quantum information technologies and (c) certain artificial intelligence (“AI”) systems. In particular, the outbound investment program will be focused on investments that could result in the advancement of sensitive technologies critical to China’s military modernization.

Alongside the EO, Treasury issued an Advance Notice of Proposed Rulemaking (“ANPRM”), which details the intended scope of the outbound investment program and solicits input from the public in order to engage stakeholder participation in the rulemaking process. The ANPRM provides a 45-day public comment period (ending September 28, 2023) and solicits feedback on more than 80 questions, which are intended to inform the forthcoming implementing regulations.

Importantly, while the EO articulates the broad contours of the outbound investment program and the ANPRM proposes some preliminary details, the specifics of the program, including the entities and activities that will be covered, remain in flux. It will be critical for U.S. and foreign stakeholders to actively engage in the rulemaking process to shape the program.

We’re posting related memos in our “National Security Considerations” Practice Area.

– Meredith Ervine