DealLawyers.com Blog

February 4, 2025

National Security: Treasury’s Outbound Investment Screening Guidance

The Treasury Department’s new outbound investment screening program — which requires notifications for or prohibits certain U.S. investments in Chinese companies — went into effect on January 2. When the rule was finalized, Treasury issued this “Additional Information and FAQs” document. This Gibson Dunn alert describes the Treasury Department’s subsequent guidance that tries to provide additional clarification on the scope of the rules — the latest of which was posted on January 17.

The Program website provides the following information and features about the Rules:

– Treasury published over 40 FAQs, described further below.

– In addition to the FAQs, Treasury provided further detail on the process for requesting a national interest exemption—an exemption from the Rules for transactions that the U.S. government determines are in the national interest. Treasury notes that these exemptions, which will be determined by the Secretary of the Treasury in consultation with the Secretaries of Commerce and State and heads of other relevant agencies, will be made “only in exceptional circumstances,” and will be assessed based on the totality of relevant facts and circumstances.

– Treasury launched the Outbound Notification System portal for reportable transactions, which functions very similarly to the portal used by the Committee on Foreign Investment in the United States (CFIUS). Templates for each type of notification are available on the Treasury website here.

– An Enforcement Overview and Guidance document for the Program, enumerating aggravating and mitigating factors to be used in enforcement actions, and an update to the civil monetary penalty amounts.

– Treasury provides several ways to contact the Office of Investment Security, including to ask questions about the Rules, report a transaction, or request a national interest exemption.

The memo then lists a number of compliance steps and considerations for U.S. person investors, noting that, while it’s been effective for only a few weeks, the program has already caused compliance challenges for companies and financial institutions that are struggling through making appropriate changes to their policies, procedures, and agreements.

If you’re wondering what the fate of these rules may be, the memo has this to say about what the change in Administration means for the future of outbound investment screening:

On January 20, 2025, President Trump issued an order for a “Regulatory Freeze Pending Review.” While this order directed agencies to consider postponing the effective date for any rules that have been issued which have not taken effect, it will not impact the Program, which was already effective prior to President Trump taking office.

However, the “America First Trade Policy“ memorandum calls for a review of Executive Order 14105, which provided the basis for the Program and the Rules, and may impact the Program. The Memorandum directs Treasury to assess whether the current controls in the Program are sufficient to address national security interests and make recommendations for any further modification by April 1, 2025. Some members of Congress have also called for additional or stronger restrictions on outbound flows of U.S. capital to China in sensitive industries . . .

While it is difficult to anticipate future actions by the new Trump Administration, there has been a steady consensus from the first Trump Administration through the Biden Administration – and with AI developments increasingly top of mind for national security and technological competitiveness reasons – there is a reasonable chance that the Program becomes more muscular after April 2025 following the aforementioned regulatory review.

Meredith Ervine