A new executive order issued Aug. 9 directs the Treasury Department to regulate certain U.S. investments into countries of concern in entities engaged in activities involving sensitive technologies that are critical to U.S. national security in three sectors: semiconductors and microelectronics, quantum information technologies, and artificial intelligence. The EO identifies China, along with Hong Kong and Macau, as a country of concern, although this list could be expanded in the future.
Concurrently, Treasury issued an advance notice of proposed rulemaking aimed at developing a regulation that (1) prohibits U.S. persons from engaging in certain transactions involving certain technologies and products that pose a particularly acute national security threat to the U.S., and (2) requires U.S. persons to notify Treasury of certain other transactions involving certain technologies and products that may contribute to the threat to the national security of the U.S. Interested parties may submit input on the ANPR (which will be followed by draft regulations at a later stage) through Sept. 28.
According to Treasury, the EO provides for the establishment of a new and targeted national security program to be implemented and administered by Treasury, in consultation with other relevant executive departments and agencies. Treasury adds that this action is intended to complement the existing U.S. export control regime, as well as inbound investment screening tools, and protect U.S. national security while maintaining the U.S.’ longstanding commitment to open investment.
According to the ANPR, Treasury is currently considering the following actions with respect to U.S. investments in a country of concern:
- a prohibition on transactions related to certain advanced semiconductor and microelectronics technologies and products (focused on software for electronic design automation, integrated circuit manufacturing equipment, advanced integrated circuit design, advanced integrated circuit fabrication, advanced integrated circuit packaging, and supercomputers), as well as a notification requirement for the design, fabrication, and packaging of other integrated circuits;
- a prohibition on transactions related to certain quantum information technologies and products (including quantum computers and components, quantum sensors, quantum networking, and quantum communication systems); and
- a notification requirement for transactions related to certain AI technologies and products with specific end uses, as well as a prohibition in certain other cases.
Treasury anticipates that transactions covered by the program would include certain acquisitions of equity interests (e.g., mergers and acquisitions, private equity, and venture capital), greenfield, joint ventures, and certain debt financing transactions by U.S. persons. Treasury also expects to create a carveout or exception for specific types of transactions, such as certain investments into publicly-traded securities or exchange-traded funds.
Commenters may submit input on a range of topics, including the definitions of such terms as “U.S. person”, “covered foreign person”, “person of a country of concern”, “prohibited transactions”, and “excepted transactions”, as well as the scope of specific covered national security technologies and products for purposes of notifiable transactions and prohibited transactions. Other matters under consideration relate to knowledge standard considerations, specific notification requirements, knowingly directing transactions, obligations of U.S. persons with regard to controlled foreign entities, national interest exemptions, compliance and recordkeeping requirements, and penalties.
Congress has also been contemplating the possibility of adopting an outbound investment notification regime for transactions into countries of concern, and the defense spending bill that was approved by the Senate July 27 did include bipartisan language in this regard (although no prohibition language was included). In addition to the three sectors identified in the EO, the language in the Senate defense spending bill included hypersonics, satellite-based communications, and networked laser scanning systems with dual-use applications.
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