Treasury's New Outbound Investment Security Program Rule Targeting Investments In China's Tech Industry And Recent Guidance

On Jan. 2, 2025, the US Department of the Treasury's ("Treasury") final rule implementing the Outbound Investment Security Program ("OIP") went into effect, under which US persons are prohibited from engaging in, or are required to provide notification to Treasury of, certain investments involving persons of so-called "Countries of Concern" (currently, the People's Republic of China, including the Special Administrative Regions of Hong Kong and Macau) that operate in certain technology sectors ("Covered Foreign Persons," and such transactions involving Covered Foreign Persons, "Covered Transactions").¹ Specifically, the OIP seeks to minimize the "intangible benefits" from US investment that certain foreign adversaries may exploit to "accelerate and increase the success of the development of sensitive technologies" against US interests.² Addressing these concerns, the new restrictions and reporting requirements are focused on investments relating to specified technologies currently consisting of: semiconductors and microelectronics; quantum information technologies; and certain artificial intelligence systems (collectively, "Covered Activities").³

The OIP is now in effect and applies to any transaction that closed or closes after Jan. 2, 2025, with an exception for transactions made after Jan. 2, 2025, pursuant to a binding, uncalled capital commitment entered into before such date.⁴ Treasury recently released guidance in the form of frequently-asked-questions ("FAQs") clarifying certain aspects of these new regulations.⁵ The Trump Administration has also signaled that it is considering expanding restrictions on US investment in China, including by modifying the scope of the OIP.⁶

This Alert summarizes the key takeaways from the OIP and related guidance and outlines the scope of the new obligations that the OIP will impose on US persons.

Executive Summary

The OIP imposes new obligations on asset managers and US Persons that make direct or indirect investments in China. Notably, unlike with its sanctions programs that restrict US Persons from dealing with persons and entities designated on the Specially Designated Nationals and Blocked Property List and other sanctions lists, Treasury is not establishing a list of Covered Foreign Persons subject to the requirements of the OIP. US Persons are expected to conduct their own due diligence on investment targets to ensure compliance with the OIP.⁷ Additionally, while the OIP has sometimes been referred to as a "reverse CFIUS,"⁸ it differs in many aspects, including that compliance is solely the responsibility of US Persons and not their foreign counterparties, and unlike CFIUS, the OIP pre-emptively prohibits certain transactions.

Asset managers should continue to assess the impact of the OIP, and consider whether they need to update relevant risk factors disclosed to investors and anticipate making compliance-related representations to investors. Compliance with the OIP may also require implementing or enhancing due diligence policies and procedures to evaluate (i) the nature of their foreign investments, (ii) the ownership or control of an investment target and (iii) whether any investment targets engage in Covered Activities.

Executive Branch Actions and Federal Lawmaking Initiatives May Further Curtail Investments in China

Outbound investment restrictions targeting China's military technology industry remain a topic of interest for the Trump Administration and the US Congress, and it is possible that additional Executive Orders or federal legislation augmenting the OIP will be enacted. Most recently, on Feb. 21, 2025, the Trump Administration issued a policy memorandum ("Memorandum") signaling its intention to increase restrictions on US investments in China under "all necessary legal instruments," including IEEPA, the Chinese Military-Industrial Complex Companies program administered under Executive Orders 13959 and 14032, as well as potentiatally expanding the scope of the OIP.⁹

The Memorandum does not immediately implement any new restrictions, but directs the Treasury's Office of Science and Technology Policy to regularly review and update restrictions on investmensts in China in sensitive technology sectors, such as "biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas implicated by [China's] national Military-Civil Fusion Strategy."¹⁰ The Memorandum also contemplates further review of, and potentially expanded restrictions on, "outbound private equity investments, venture capital investments, greenfield investments, corporate expansions, and investments in publicly traded securities from sources including pension funds, university endowments, and other limited-partner investors."¹¹ This Memorandum follows a similarly focused policy statement that was released on Jan. 20, 2025, in which the Trump Administration called for, among other things, a review of the existing OIP to determine whether it "includes sufficient controls to address national security threats" and requiring the Secretary of the Treasury to "make recommendations based upon the findings of [the] review, including potential modifications" to the existing OIP.¹² Pursuant to these two policy statements, the Trump Administration could impose new investment restrictions on US investment in China under multiple authorities, raising the possibility that the OIP could be applied to additional technology sectors and investments types. But as of the date of publication of this Alert, no new investment restrictions have been implemented.

Takeaways

In assessing the implications of the OIP, some key compliance measures for asset managers to undertake include:

• Conducting a risk assessment on investment strategies and portfolios to determine existing or future exposure to potentially Covered Transactions. For example, at this time purchases of publicly traded securities that do not result in acquiring more than minority shareholder protection rights are generally excepted from OIP regulations.
• Evaluating whether to modify disclosures to investors, such as the scope of the asset manager's investment strategy and any new risk factors arising from the OIP. For example, broad investment strategies may cause investors to seek additional information.
• Updating due diligence procedures to include assessments (such as through questionnaires) of whether investment targets are engaged in Covered Activities and whether they are Covered Foreign Persons, and ensuring such diligence is documented.
• Determining whether any US-managed foreign funds have US investors and whether engaging in potential Covered Transactions may trigger reporting requirements for those investors.
• Anticipating requests for representations regarding Covered Transactions and evaluating how those representations align with compliance obligations under the OIP (which may differ for US and non-US funds) and the fund's investment strategies, particularly with respect to permissible notifiable transactions.
• Assessing any added compliance burdens relating to filing notifications with Treasury, which are due 30 days from the transaction date.
• Educating compliance and investment personnel about the OIP, and in the case of non-US entities, instituting recusal policies for US Person personnel.
• Monitoring for regulatory changes, additional Executive Orders, and any new guidance from Treasury that may impact the OIP, as well as keeping apprised of legislative efforts similar to the OIP being weighed by Congress.

Below we outline the key provisions of the OIP that asset managers and investors should consider in assessing the impact of the OIP on their investments and any compliance measures they may need to implement.

Key Provisions and Definitions of the OIP

Under the OIP, US Persons (discussed below) are required to determine if they are engaging in a transaction with a potential investment target that is a Covered Foreign Person. Depending on the nature of technology-based activities of a Covered Foreign Person, such transactions may either be prohibited ("Prohibited Transactions"¹³), or may obligate a US Person to notify Treasury of the transactions ("Notifiable Transactions"¹⁴). US Persons may also have obligations with respect to non-US entities under their direction or control—either to prevent such non-US entities from engaging in certain transactions, or filing notification of a Covered Transaction (discussed below) on their behalf.

US Persons

The OIP applies to all "US Persons," which means "any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States, including any foreign branch of any such entity, or any person in the United States."¹⁵ Non-US asset managers should be aware that the OIP can impact foreign entities that employ US Persons, as well as foreign entities with non-US Person employees who engage in Covered Activities while they are physically located in the US (e.g., during international business travel).¹⁶ Non-US asset managers should consider implementing policies for any US Person personnel to recuse themselves from Covered Transactions and monitor the geographic location of all personnel engaged in Covered Transactions (defined below).

Covered Transactions

The OIP applies to direct or indirect¹⁷ outbound investments by US Persons involving Covered Foreign Persons, including certain acquisitions of equity interests (e.g., mergers and acquisitions, private equity and venture capital) and contingent equity interests, certain debt financing transactions, greenfield and brownfield investments, joint ventures and certain acquisitions of limited partner ("LP") or LP-equivalent interests by US Persons in non-US Person investment funds.¹⁸ Covered Transactions may either be prohibited or require submitting notification to Treasury, depending on the nature of the specified technologies in which the investment target is involved.

Acquisition of LP or LP-Equivalent Interests in Non-US Pooled Funds

US asset managers should be aware that the acquisition of an LP interest by a US Person in a non-US venture capital fund, private equity fund, fund of fund, or other pooled investment fund (collectively, "Non-US Pooled Fund") is a Covered Transaction only if (1) the US Person knows or has reason to know at the time of the acquisition that the Non-US Pooled Fund is likely to invest in a person of a Country of Concern who is engaged in a Covered Activity and (2) the Non-US Pooled Fund undertakes a transaction that would be a Covered Transaction if it were undertaken by a US Person.¹⁹

Controlled Foreign Entities

The OIP also imposes obligations on US Persons with respect to foreign entities that they control ("Controlled Foreign Entities"). A Controlled Foreign Entity means "any entity incorporated in, or otherwise organized under the laws of a country other than the United States of which a U.S. person is a parent."²⁰ The OIP further defines "parent" to mean a person that directly or indirectly holds more than 50% of the outstanding voting interest in an entity or of the board of the entity; a general partner, managing member or equivalent of an entity; or an investment adviser (as defined in the Investment Advisers Act of 1940) to any entity that is a pooled investment fund ("Parent").²¹

Under the OIP, US Persons must take "all reasonable steps to prohibit and prevent" a Controlled Foreign Entity from engaging in a Prohibited Transaction²² and file a notification to Treasury for any Notifiable Transaction undertaken by a Controlled Foreign Entity no later than 30 calendar days after the completion date of the Notifiable Transaction.²³ The OIP outlines a non-exhaustive list of factors that Treasury will consider in determining whether a US Person took "all reasonable steps to prohibit and prevent" a Controlled Foreign Entity from engaging in a Prohibited Transaction, such as whether agreements to implement training and internal reporting between the US Person Parent and the Controlled Foreign Entity to ensure compliance with the OIP were executed, the implementation, auditing, and testing of appropriate controls, policies and procedures, as well whether such steps were "intended to be effective and ... were adequately resourced," among other factors.²⁴

Covered Foreign Persons

A direct or indirect outbound investment by a US Person is not a Covered Transaction unless it involves (or may establish) a Covered Foreign Person. The OIP defines Covered Foreign Persons to include:

1. A person of a Country of Concern that is engaged in a Covered Activity;²⁵
2. A person that is not otherwise a Covered Foreign Person but:
   1. Has, directly or indirectly, a voting or equity interest in, a board seat (voting or observer) on, or any contractual power to direct or cause the direction of management or policies of, a Covered Foreign Person; and
   2. More than 50% of the person's annual revenue, net income, capital expenditure, or operating expenses²⁶ are attributable to Covered Foreign Persons, either individually or aggregated across all such Covered Foreign Persons from which the person derives or incurs (as applicable) at least $50,000 of the relevant metric;²⁷
3. With respect to a joint venture transaction that constitutes a Covered Transaction, a person of a Country of Concern that participates in such joint venture.²⁸

Covered Activities

The OIP defines Covered Activities to include all Prohibited and Notifiable Transactions as they are defined in the OIP.²⁹

Prohibited Transactions

• Semiconductor and Microelectronics Sector. Prohibited Transactions in the semiconductor and microelectronics sector will include Covered Transactions in which the Covered Foreign Person:
  • develops or produces design automation software for integrated circuits design or advanced packaging;
  • develops or produces equipment for semiconductor fabrication, volume fabrication of integrated circuits, volume advanced packaging or extreme ultraviolet lithography;
  • designs or fabricates integrated circuits that meet or exceed specified performance characteristics; and
  • packages integrated circuits using advanced packaging techniques.³⁰
• Artificial intelligence ("AI") Systems. Prohibited Transactions in the AI systems sector will include Covered Transactions in which the Covered Foreign Person:
  • develops AI systems designed exclusively for or intended to be used for a military, government intelligence or mass surveillance end use; and
  • develops AI systems that are trained using a quantity of computing power greater than 10^25 computational operations, or 10^24 computational operations using primarily biological sequence data.³¹
• Quantum Information Technologies Sector. Prohibited Transactions in the quantum information technologies sector will include Covered Transactions in which the Covered Foreign Person:
  • develops, installs, sells or produces supercomputers that exceed specified performance and density criteria;
  • develops or produces a quantum computer or critical components required to produce a quantum computer;
  • develops or produces a quantum sensing platform intended for military, government intelligence or mass surveillance end uses; and
  • develops or produces quantum networks or quantum communications systems intended to be used for scaling quantum computing, secure communications or any other application that has a military, government intelligence or mass surveillance end use.³²

Notifiable Transactions

• Semiconductor and Microelectronics Sector.Notifiable Transactions in the semiconductor and microelectronics sector will include Covered Transactions in which the Covered Foreign Person designs, fabricates and packages certain integrated circuits.³³
• Artificial Intelligence. Notifiable Transactions in the artificial intelligence sector will include Covered Transactions in which the Covered Foreign Person develops an AI system that does not meet the criteria to make the transaction a Prohibited transaction, but nevertheless is:
  • designed to be used for a military end use, government intelligence or mass surveillance end use;
  • intended to be used for cybersecurity applications, digital forensic tools, penetration testing tools or the control of robotic systems; or
  • trained using computing power greater than 10^23 computational operations.³⁴
• Quantum Information Technologies Sector. There are no categories of Notifiable Transactions with respect to the quantum information technology sector.

Excepted Transactions

The OIP establishes conditions under which an otherwise Covered Transaction will not be considered a Notifiable or Prohibited Transaction ("Excepted Transactions"). Subject to certain qualifications, Excepted Transactions include:

• An investment by a US Person in publicly traded securities (as "security" is defined under Section 3(a)(10) of the Securities Exchange Act), denominated in any currency, that trades on a US or non-US securities exchange or "over-the-counter" in any jurisdiction;
• An investment by a US Person in a security issued by a registered investment company (e.g., index fund, mutual fund, exchange-traded fund) or issued by any company that has elected to be a business development company;
• Certain limited partner ("LP") or equivelant investments by a US Person in a venture capital fund, private equity fund, fund of funds or other pooled investment fund, provided that either (1) the LP or equivalent's committed capital is not more than $2,000,000, aggregated across any investment and co-investment vehicles of the fund or (2) the LP or equivalent has secured a binding contractual assurance that its capital in the pooled investment fund will not be used to engage in a transaction that would be a Prohibited or Notifiable Transaction if engaged in by a US Person;³⁵
• Certain investments by US Persons in derivatives, provided that such investment does not confer the right to acquire equity, any rights associated with equity, or any assets in or of a Covered Foreign Person;³⁶
• A US Person's full buyout of all interests of any person of a country of concern in an entity, such that the entity is not a Covered Foreign Person following the transaction;
• An intracompany transaction between a US Person Parent and its Controlled Foreign Entity that supports new operations that are not Covered Activities or that maintains ongoing operations, including ongoing Covered Activities;
• Fulfillment of a US Person's binding, uncalled capital commitment entered into prior to the effective date of the OIP (Jan. 2, 2025);
• The acquisition of a voting interest in a Covered Foreign Person upon default or other condition involving a loan, where the loan was made by a lending syndicate and a US Person participated passively in the syndicate;
• The receipt of employment compensation by an individual in the form of stock or stock options, or the exercise of such options; and
• Certain transactions with or involving a non-US Person or entity that have been designated by the Secretary of the Treasury in accordance with certain criteria (yet to be developed) that relate to the foreign country or territory's own measures to address the national security risk related to a particular outbound investment.³⁷

Importantly, even if a transaction falls within the above categories, it is not an Excepted Transaction if the transaction would give a US Person rights with respect to a Covered Foreign Person that are "beyond standard minority shareholder protections."³⁸ Additionally, Treasury has also stated that with respect to initial public offerings ("IPOs"), pre-IPO transactions involving the acquisition of equity in a Covered Foreign Person "such as a purchase with the intent to create a market for the security or to resell the security on a secondary market" are Covered Transactions, because the equity interest is not yet publicly traded.³⁹

Knowingly Directing an Otherwise Prohibited Transaction

The OIP also prohibits US Persons from "knowingly directing" a transaction by a foreign entity that the US Person knows at the time of the transaction would be prohibited if the transaction were engaged in by a US Person.⁴⁰ The OIP clarifies that the "knowingly directing" provision only applies to a US Person that "has authority, individually or as part of a group, to make or substantially participate in decisions on behalf of a non-US Person, and exercises that authority to direct, order, decide upon or approve a transaction" ("Management Personnel").⁴¹ In its recent FAQs, Treasury explains that a corporate officer who is a member of an investment committee that votes on whether to undertake potential investments has the requisite authority to knowingly direct an otherwise Prohibited Transaction and meets the definition of Management Personnel, while an accountant who conducts financial due diligence on a potential investment at the instruction of corporate management does not.⁴² Treasury also notes that the "knowingly directing" provision applies not just to individuals, but also to US entities with such authority.⁴³

Recusal Carve-Out

US Persons employed as Management Personnel at foreign entities who fully recuse themselves from the following activities in connection with a Prohibited Transaction will not be determined to have "knowingly directed" that transaction:

1. Participating in formal approval and decision-making processes related to the transaction, including making a recommendation;
2. Reviewing, editing, commenting on, approving and signing relevant transaction documents; and
3. Engaging in negotiations with the investment target or, as applicable, the relevant transaction counterparty.⁴⁴

In order to successfully invoke the recusal carve out, the US Person must "immediately cease" involvement in any of the above activities "prior to" the foreign entity approving and engaging in the Prohibited Transaction.⁴⁵ Notably, the "knowingly directing" provision of the OIP captures foreign entities (e.g., non-US asset managers) that employ US Persons as Management Personnel abroad. As such, to avoid violating the OIP, US Person Management Personnel must fully recuse themselves from any involvement in the foreign entity's decisions relating to such a transaction.⁴⁶

Knowledge Standard

In order for a Covered Transaction to be subject to the OIP, the participating US Person must have knowledge at the time of the transaction that:

• the transaction involves a Covered Foreign Person;
• the transaction will result or is planned to result in the establishment of a Covered Foreign Person (especially applicable to greenfield, brownfield or joint venture investments); or
• the transaction will result or is planned to result⁴⁷ in a person of a Country of Concern's engagement in a Covered Activity (especially applicable to brownfield investments).⁴⁸

For the purposes of the OIP, "knowledge" includes:

• actual knowledge that a fact or circumstance exists or is substantially certain to occur;
• awareness of a high probability of a fact or circumstance's existence or future occurrence; or
• reason to know of a fact or circumstance's existence.⁴⁹

Due Diligence

Under the OIP, a US Person is responsible for knowledge they had or could have had through a "reasonable and diligent inquiry" at the time of the transaction.⁵⁰ Accordingly, US Persons will need to engage in, and document, due diligence on potential investment targets to ascertain whether the investment is a Covered Transaction.⁵¹ Factors that Treasury will consider in determining whether a reasonable and diligent inquiry was made at the time of the transaction, as outlined in the OIP and reiterated in recent guidance, include:

• questions that the US Person asked of the investment target or other relevant transaction counterparty (e.g., a joint venturer) as of the time of the transaction;
• contractual representations or warranties that the US Person has obtained or attempted to obtain from the investment target or other relevant transaction counterparty with respect to the determination of the transaction's status as a Covered Transaction and the status of the investment target or other relevant counterparty as a Covered Foreign Person;
• Efforts by the US Person as of the time of the transaction to obtain and consider available non-public information relevant to the determination of a transaction's status as a Covered Transaction and the status of an investment target or other relevant transaction counterparty as a Covered Foreign Person;
• Available public information, the efforts undertaken by the US Person to obtain and consider such information, and the degree to which other information available to the US Person as of the time of the transaction is consistent or inconsistent with such publicly available information;
• Whether the US Person purposefully avoided learning or seeking relevant information;
• The presence or absence of warning signs, which may include evasive responses or non-responses from an investment target or other relevant transaction counterparty to questions or a refusal to provide information, contractual representations or warranties; and
• The use of available public and commercial databases to identify and verify relevant information of an investment target or other relevant transaction counterparty.⁵²

Treasury notes that this is not an exhaustive list, and that its assessment of whether a US Person has undertaken a reasonable and diligent inquiry will ultimately depend on its consideration of the totality of the circumstances.⁵³ In its recent FAQs, Treasury also acknowledges that information necessary to determine whether a transaction is a Covered Transaction may only be within the possession of an investment target or may be otherwise difficult to obtain.⁵⁴ In these cases, obtaining representations and warranties from the investment target relevant to the transaction's status as a Covered Transaction may, in the absence of other warning signs, provide an indication that a US Person lacked the requisite knowledge to make the OIP applicable. However, Treasury notes that obtaining representations and warranties does not establisha safe harbor.⁵⁵ Accordingly, US Persons should be wary of any warning signs indicating that an investment target's responses to diligence questions are potentially incomplete, inaccurate or untruthful.⁵⁶

Treasury notes in its recent FAQs that while part of a "reasonable and diligent inquiry" includes determining whether an investment target's subsidiaries are Covered Foreign Persons and whether such subsidiaries "contribute to the investment target's overall finances in a way that could make the target a [Covered Foreign Person]," this does not create an obligation to conduct a "reasonable and diligent inquiry" into each entity in which the investment target may have an interest.⁵⁷ Treasury also anticipates releasing additional guidance on its Outbound Investment Security Program website regarding application of the knowledge standard to the multitude of US foreign investment regimes that exist.⁵⁸

Notification Procedures

Under the OIP, a US Person that engages in a Notifiable Transaction is required to submit an electronic notification to Treasury within 30 calendar days following the completion of the transaction.⁵⁹ All notification submissions must include a certification that the notification is in compliance with 31 CFR 850.203.⁶⁰ The notification must include certain specified information⁶¹ and be submitted through the Outbound Notification System (ONS) portal⁶² in accordance with the electronic filing instructions posted on Treasury's Outbound Investment Security Program website.⁶³

• Recordkeeping. The OIP requires US Persons to maintain a copy of the notification filed and supporting documentation for a period of ten years from the date of the filing.⁶⁴ If the US Person does not provide Treasury with the required information, the OIP requires that they (1) provide a "sufficient explanation" for why the information is unavailable or otherwise cannot be obtained and (2) explain their efforts to obtain such information.⁶⁵ If such information subsequently becomes available, the US Person must provide this information to Treasury promptly and no later than 30 calendar days following the availability of such information.⁶⁶
• Confidentiality. The OIP generally prohibits Treasury from disclosing to the public information and documentary materials submitted by US Persons in connection with reporting Notifiable Transactions, with certain exceptions for disclosures pursuant to judicial or administrative proceedings and reports made to Congress or a government agency.⁶⁷
• Parties Responsible for Submission. Treasury clarified in a recent FAQ that joint submissions by US persons are not permitted. Each US person participating in a Notifiable Transaction much submit a separate notice and certify to the accuracy of the information submitted.⁶⁸

National Interest Exemption

The Final Rule does not establish a licensing regime for US Persons to engage in Prohibited or Notifiable Transactions. However, the Final Rule permits US Persons to engage in a Prohibited or Notifiable Transaction if they can demonstrate that the Covered Transaction is in the national interest.⁶⁹ In determining whether a transaction qualifies under the national interest exemption, Treasury, in consultation with other agencies, will consider, among other factors:

• The transaction's effect on critical US supply chain needs;
• Domestic production needs in the US for projected national defense requirements;
• US's technological leadership globally in areas affecting US national security; and
• The impact on US national security if the US Person is prohibited from undertaking the transaction.⁷⁰

Enforcement

A US Person can violate the OIP in any of four ways:

1. Taking any action prohibited by the OIP;
2. Failing to take any action that the OIP requires within the time frame and manner specified in the OIP;
3. Making any materially false or misleading representation, statement or certification, including falsifying, concealing or omitting any material fact when submitting information required by the OIP; or
4. Conspiring to violate the OIP or taking any action that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate the OIP.⁷¹

Violations of the OIP can give rise to the following civil and criminal penalties under the International Emergency Economic Powers Act ("IEEPA"):

• A maximum civil penalty of up to (a) twice the amount of the transaction that is the basis for the violation or (b) approximately $368,000 (adjusted annually for inflation), whichever is greater; and
• For willful violations, a criminal fine of up to $1 million, a prison sentence of up to 20 years, or both.⁷²

Consistent with E.O. 14015, the OIP provides that Treasury may take any action authorized by IEEPA to nullify, void, or compel the divestment of a Prohibited Transaction that was entered into after the OIP's effective date (Jan. 2, 2025).⁷³

Footnotes

1. Final Rule, Provisions Pertaining to US Investments in Certain National Security Technologies and Products in Countries of Concern, 89 Fed. Reg. 90398 (Oct. 28, 2024), available here; see also Treasury, Press Release, Treasury Issues Regulations to Implement Executive Order Addressing US Investments in Certain National Security Technologies and Products in Countries of Concern (Oct. 28, 2024), available here.

2. White House, Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (Aug. 9, 2023) ("E.O. 14105"), available here. The intangible benefits include "enhanced standing and prominence, managerial assistance, investment and talent networks, market access, and enhanced access to financing." Id.

3. Final Rule, 89 Fed. Reg. at 90430. Treasury describes these technologies as "pos[ing] a particularly acute national security threat to the United States" because of their significance to the military, intelligence, surveillance or cyber-enabled capabilities of Countries of Concern.

4. 31 CFR 850.501(d).

5. See Treasury, Outbound Investment Security Program Frequently Asked Questions (last updated Jan. 17, 2025), available here.

6. See White House, America First Investment Policy (Feb. 21, 2025), available here.

7. Outbound Investment Security Program Frequently Asked Questions, FAQ I.10.

8. The Committee on Foreign Investment in the United States ("CFIUS") is an interagency body chaired by the Secretary of the Treasury that advises the President on potential national security risks of certain foreign direct investments in the US economy, and has authority to conduct reviews of foreign investments in US businesses (and make recommendations on mitigating any national security risks). 31 CFR 800.101.

9. White House, America First Investment Policy (Feb. 21, 2025), available here; see also White House, America First Investment Policy Fact Sheet (Feb. 21, 2025), available here.

10. America First Investment Policy, § 2(j).

11. Id.

12. White House, America First Trade Policy (Jan. 20, 2025), available here.

13. 31 CFR 850.224.

14. 31 CFR 850.217.

15. 31 CFR 850.229 (emphasis added).

16. Outbound Investment Security Program Frequently Asked Questions, FAQ II.2, Example 2.6 and FAQ VI.6, Example 6.1.

17. "Indirect" Covered Transactions include transactions where a US Person uses an intermediary, such as a special purpose vehicle, for the purpose of acquiring an equity interest in a Covered Foreign Person. Outbound Investment Security Program Frequently Asked Questions, FAQ III.4, Example 4.1.

18. 31 CFR 850.210.

19. 31 CFR 850.210(a)(6).

20. 31 CFR 850.206.

21. 31 CFR 850.219.

22. 31 CFR 850.302(a).

23. 31 CFR 850.404(c). The OIP clarifies that if a US Person submits a notification to Treasury prior to the completion of a transaction, they must update such notification no later than 30 calendar days following the completion date if there are material changes to the information in the original filing. Final Rule, 89 Fed. Reg. at 90437.

24. 31 CFR 850.302(b); Outbound Investment Security Program Frequently Asked Questions, FAQ V.1.

25. 31 CFR 850.209(a)(1). A person of a Country of Concern includes nationals and permanent resident of a Country of Concern that are not also US citizens or permanent residents, entities with a principal place of business in, headquartered in, or incorporated in or otherwise organized under the laws of, a country of concern, governments of Countries of Concern and their political subdivisions, and entities in which any of the foregoing holds, individually or in the aggregate, directly or indirectly, at least 50 percent of the outstanding voting interest, voting power of the board, or equity interest. 31 C.F.R. § 850.221

26. The OIP clarifies that these calculations should be based on an audited financial statement from the most recent year. If an audited financial statement is not available, the most recent unaudited financial statement shall be used instead. If no financial statement is available, an independent appraisal shall be used instead. If an independent appraisal is not available, a good faith estimate should be used instead. 31 CFR 850.209(b)(1).

27. 31 CFR 850.209(a)(2).

28. 31 CFR 850.209(a)(3).

29. 31 CFR 850.208.

30. 31 CFR 850.224(a) – (e).

31. 31 CFR 850.224(j), (k).

32. 31 CFR 850.224(f) – (i).

33. 31 CFR 850.217(a) – (c).

34. 31 CFR 850.217(d).

35. 31 CFR 850.501(a)(1)(iii).

36. 31 CFR 850.501(a)(1)(iv).

37. 31 CFR 850.501(g)(1).

38. 31 CFR 850.501(a)(2). For example, the Treasury describes the ability to nominate and put forward for a vote a slate of directors as a positive right that "goes beyond just protecting the investment of [minority shareholders]." 89 Fed. Reg. at 90443. Accordingly, acquiring a sufficient stake in a publicly traded company that would entitle a US investor to nominate directors is likely not an Excepted Transaction in Treasury's view.

39. 89 Fed. Reg. at 90416. Providing an ancillary service for an IPO that does not involve a US Person acquiring equity in the Covered Foreign Person would not be a Covered Transaction. Id.

40. 31 CFR 850.303(a).

41. Id.

42. Outbound Investment Security Program Frequently Asked Questions, FAQ II.2, Examples 2.8 and 2.9.

43. 89 Fed. Reg. at 90434.

44. 31 CFR 850.303(b).

45. Outbound Investment Security Program Frequently Asked Questions, FAQ VI.3.

46. 89 Fed. Reg. at 90435; see Outbound Investment Security Program Frequently Asked Questions, FAQ VI.3, Example 3.1 (a US Person sitting on the investment committee of a Non-US Pooled Fund must immediately cease from participating in actions or decisions relating to a potential investment target upon obtaining knowledge that the investment would be prohibited if undertaken by a US person).

47. 31 CFR 850.210(a)(4) (emphasis added); 89 Fed. Reg. at 90422. In the context of brownfield investments, Treasury has made clear that a US Person's "plans" can be sufficient to establish a Covered Transaction, regardless of whether the transaction actually results in a person of a Country of Concern engaging in a Covered Activity. See Outbound Investment Security Program Frequently Asked Questions, FAQ III.5 ("[T]he Treasury Department nevertheless seeks to address activities intended to result in a person of a country of concern's engagement in a covered activity, since such a situation is likely to convey intangible benefits from the U.S. person to a covered foreign person.")

48. 89 Fed. Reg. at 90405.

49. 31 CFR 850.216.

50. 89 Fed. Reg. at 90404 (emphasis added).

51. Treasury clarified in a recent FAQ that US Persons who outsource their pre-transaction diligence to non-US third parties "must evaluate whether the diligence conducted by the non-US Person entity is sufficient to meet the standard of a 'reasonable and diligent inquiry.'" See Outbound Investment Security Program Frequently Asked Questions, FAQ VI.2.

52. 31 CFR 850.104(c); Outbound Investment Security Program Frequently Asked Questions, FAQ V.2.

53. 31 CFR 850.104(d); Outbound Investment Security Program Frequently Asked Questions, FAQ V.2.

54. Outbound Investment Security Program Frequently Asked Questions, FAQ V.3.

55. Id.

56. Id. at FAQ V.4.

57. Id.

58. Treasury, Outbound Investment Security Program (last updated Jan. 17, 2025), available here.

59. 31 CFR 850.404(c); Treasury, Form Template for § 850.401 Notifications (Undertaking a Notifiable Transaction) (Jan. 17, 2025), available here; Treasury, Form Template for § 850.402 Notifications (Notification of Actions of a Controlled Foreign Entity) (Jan. 17, 2025), available here.

60. 31 CFR 850.404(a), (b); Treasury, Form Template for § 850.203 Certification (Jan. 2, 2025), available here.

61. For the complete list of required notification content, please refer to 31 CFR 850.405(b).

62. Treasury, Outbound Notification System (ONS) Portal (Jan. 2, 2025), available here.

63. Treasury, ONS User Guide (Jan. 2 2025), available here.

64. 31 CFR 850.405(c).

65. 31 CFR 850.405(d).

66. 31 CFR 850.403; Treasury, Form Template for § 850.403 Notifications (Notification of Post-Transaction Knowledge) (Jan. 17 2025), available here.

67. 31 CFR 850.801.

68. Outbound Investment Security Program Frequently Asked Questions, FAQ IX.1.

69. 31 CFR 850.502.

70. 31 CFR 850.502(b).

71. 31 CFR 850.601-604.

72. 31 CFR 850.701.

73. 31 CFR 850.703.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.