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There’s a lot to parse in the National Defense Authorization Act (NDAA) that was signed into law last week. As this Debevoise alert notes, it includes the Comprehensive Outbound Investment National Security Act, which authorizes the US Treasury Secretary to expand the US outbound investment control framework.

First, the Act authorizes, but does not require, the Secretary to issue regulations prohibiting U.S. persons, including their controlled foreign entities, from knowingly engaging in covered national security transactions involving a prohibited technology.

Separately and regardless of whether any such prohibitions are adopted, the Act directs the Secretary, within 450 days of enactment, to issue regulations requiring 30-day post-transaction notice if a U.S. person or its controlled foreign entity knowingly engages in a covered national security transaction in a prohibited technology (unless the transaction has been prohibited by the Secretary pursuant to the discretionary rulemaking authority noted in the preceding sentence) or a notifiable technology.

The interplay of these restrictions is not entirely clear, but it would appear the Act only requires a notification regime, with Treasury to decide whether to prohibit any transactions.

This is implied above, but in case it’s not clear, the alert says:

The Act does not amend the existing Outbound Investment Rule but, rather, authorizes the Secretary to amend, terminate or supersede the rule and requires any such rulemaking to provide a reasonable timeframe for compliance. Accordingly, any expansion of the scope of prohibited or notifiable transactions under the Act would occur through subsequent Treasury rulemaking.

It does contemplate new rulemaking expanding the scope of the regime. For example:

Certain key terms under the Act differ from and expand on the operative definitions under the Outbound Investment Rule, including with respect to the targeted countries, targeted technologies, and targeted investment transactions by U.S. persons.

The Act generally authorizes the Secretary to exclude any category of transactions determined to be in the U.S. national interest or transactions below a de minimis value. The Act expressly provides for certain exceptions similar to, but not exactly the same as, many of those provided under the Outbound Investment Rule . . . The Act does not include reference to exceptions currently provided under the Outbound Investment Rule for (i) acquisition of a voting interest in a covered foreign person upon default or other condition involving a loan made by a syndicate of banks in a loan participation, subject to certain conditions on the U.S. person lender or (ii) a U.S. person individual’s receipt of employment compensation 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. As noted above, however, the Secretary has discretion to except categories of transactions determined to be in the U.S. national interest.

The Act specifies new exceptions not included under the Outbound Investment Rule.

Each of these changes is described at length in the alert. Check out our “National Security Considerations” Practice Area, where we’ll be posting memos.

– Meredith Ervine