DealLawyers.com Blog

Last week, the Department of the Treasury announced the first civil penalty under its Outbound Investment Security Program. A company was fined $200,000 for failing to notify the Treasury of an investment of $92,478 in a Chinese tech company by a foreign entity it controls.

This WilmerHale alert explains:

The OISP, which took effect on January 2, 2025, prohibits, or requires notification to Treasury of, certain “covered transactions” by US persons, and by non-US entities they control, in “covered foreign persons.” These are generally entities in, or connected to, China (including Hong Kong and Macau) that are engaged in specified activities in the AI, semiconductor and microelectronics, and quantum computing sectors.

As Treasury’s release emphasizes, a US person must notify Treasury within 30 days of the closing of any transaction by its controlled foreign entity that would be notifiable if engaged in by a US person, and must take all reasonable steps to prevent a controlled foreign entity’s transaction that would be prohibited. In particular, the OISP requires US persons to notify Treasury whenever they engage in covered investments that are not otherwise prohibited and where the covered foreign person develops an AI system that is intended to be used for the control of robotics systems, or which was trained using a quantity of computing power greater than 1023 computational operations.

Treasury’s announcement notes that the COINS Act will expand OISP jurisdiction to additional countries and technology sectors.

– Meredith Ervine