The Treasury Department announced this week a final rule that will impose additional restrictions on U.S. outbound investments in national security technologies and countries of concern. This rule will be administered by the newly-created Office of Global Transactions within Treasury’s Office of Investment Security and will apply to transactions with a completion date on or after Jan. 2, 2025. More information about this rule, including changes from the proposed rule, can be found here.
Executive Order 14105, issued in August 2023, directs Treasury 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.
To implement the EO, Treasury has issued regulations that will (1) prohibit U.S. persons (which includes any entity organized under U.S. laws) from engaging in certain transactions with persons of a country of concern involving a defined set of technologies and products that pose a particularly acute national security threat to the U.S., and (2) require U.S. persons to notify Treasury of certain other transactions involving a defined set of technologies and products that may contribute to the threat to U.S. national security.
Prohibited transactions will include those related to (1) electronic design automation software, certain fabrication and advanced packaging tools, the design or fabrication of certain advanced integrated circuits, and supercomputers, (2) the development of quantum computers or production of critical components, the development or production of certain quantum sensing platforms, and the development or production of quantum networking and quantum communication systems, and (3) the development of any AI system designed to be exclusively used for, or intended to be used for, certain end-uses.
Notifiable transactions will include those related to (1) the design, fabrication, or packaging of integrated circuits not otherwise covered by the prohibited transaction definition, and (2) the development of any AI system not otherwise covered by the prohibited transaction definition if it is designed or intended to be used for certain end-uses or is trained using a specified quantity of computing power.
According to Treasury, the final rule provides details on (1) the obligations of U.S. persons regarding a covered transaction, (2) categories of covered and excepted transactions, (3) technical specifications to inform the scope of covered transactions, (4) information required as part of a notification, (5) the knowledge standard and expectations for a U.S. person to conduct a reasonable and diligent inquiry prior to undertaking a transaction, and (6) conduct that would be treated as a violation as well as applicable criminal and civil penalties.
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