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In 2023, President Biden issued an executive order directing the Treasury & Commerce Departments to adopt outbound investment screening regulations. The Treasury Department issued a proposed rule to implement the screening regime, seeking public comment, in June of this year. Earlier this week, Treasury announced the final rules and issued this “Additional Information and FAQs” document. The fact sheet has this summary:

The Final Rule prohibits U.S. persons from engaging in certain transactions involving a defined set of technologies and products that pose a particularly acute national security threat to the United States.  The Final Rule also requires U.S. persons to notify the Department of the Treasury of certain other transactions involving a defined set of technologies and products that may contribute to a threat to the national security of the United States.

Covered technologies fall into three categories: semiconductors and microelectronics, quantum information technologies, and artificial intelligence.  This narrow set of technologies is core to the next generation of military, cybersecurity, surveillance, and intelligence applications.

The screening regime will be housed in the Office of Investment Security’s newly formed Office of Global Transactions. The final regulations take effect on January 2, 2025.

This Simpson Thacher alert gives key takeaways and discusses changes from the notice of proposed rulemaking. For example, the final rule contains some additional exceptions for covered transactions not included in the proposed rule:

– Employee Stock or Stock Options: The final rule includes a new exception for “employment compensation by an individual in the form of an award of equity or the grant of an option to purchase equity in a covered foreign person, or the exercise of such option” (§ 850.501(f)). Treasury indicates that it considered the impact on U.S. persons’ employment prospects and personal finances in adding this exception.
– Derivatives: The final rule contains a new exception for investments by U.S. persons in derivatives “so long as such derivative does not confer the right to acquire equity, any rights associated with equity, or any assets in or of a covered foreign person.” (§ 850.501(a)(1) (iv)).
– Certain Transactions Between a U.S. Person and Its Controlled Foreign Entities: The final rule also clarifies that the exception for intracompany transactions excepts transactions in connection with “covered activities that the controlled foreign entity was engaged in prior to January 2, 2025.” (§ 850.501(c)).
– Transactions Pursuant to Binding, Uncalled Capital Commitments: The final rule adjusts this exception to exclude transactions made pursuant to binding, uncalled capital commitments prior to the effective date of January 2, 2025. The previous iteration of this exception only applied to such commitments made prior to the issuance of the August 2023 Order. Treasury adjusted this exception “given certain fairness considerations raised by the commenters” on the NPRM.

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

– Meredith Ervine