US Treasury issued final regulations, 31 CFR 850, on Provisions pertaining to US investments in certain national security technologies, products in countries of concern.
Implementing EO 14105, limiting tech investments in countries of concern, #181772.
Follows Jun. 2024 Treasury NPRM relating to outbound investments, see #216745.
Also, White House fact sheet, press call, and House FSC chair McHenry statement.
Key Elements of Final Rule
Places obligations on US person, includes any US citizen or lawful permanent resident, any entity organized under US law or jurisdiction, including foreign branch of entity.
Knowledge standard where obligations of US person under final rule apply if such person has knowledge of relevant facts or circumstances related to a transaction.
Have knowledge if possess actual knowledge fact, circumstance exists or substantially certain to occur, if aware of high probability of fact’s existence or future occurrence.
Also if could have possessed such information through reasonable and diligent inquiry.
Rule applies to certain transactions by US persons, including acquisition of equity or contingent equity interest, certain debt financing that affords certain rights to lender.
Also, conversion of contingent equity interest, greenfield investment or other corporate expansion, entrance into joint venture; certain investments as LP or equivalent.
Applies to certain transactions that involve covered foreign person, person of country of concern engaged in covered activity related to defined sub-sets of technologies,
Or person has voting, equity interest, board seat, or certain powers, where over 50% of one of several key financial metrics attributable to persons of country of concern.
Identified sub-sets of national security technologies and products subject to Rule.
Including semiconductors and microelectronics, quantum information and certain AI.
Rule outlined penalty and disclosure framework for violations, including divestment.
Excepted and Exempted Transactions
Rule excepts certain types of transactions from coverage, provided such transactions do not afford US person certain rights not standard minority shareholder protections.
Exceptions include transactions in publicly traded securities, certain derivatives securities or LP investments, intracompany transactions, equity-based compensation.
Rule allows US person to seek exemption from application of prohibition or notification requirement on the basis that transaction is in national interest of the United States.
Notification Requirements
US person subject to notification requirement must file notification form that includes information related to transaction, such as about US person, covered transaction.
Must file 30 days after covered transaction completed or, where US person acquires actual knowledge after completion of transaction if possessed at time of transaction.
Key Differences Between NPRM and Final Rule
Areas that evolved since NPRM include scope of coverage of transactions involving AI systems, knowledge standard, scope of prohibition on US persons knowingly directing.
Also, differences include definition of covered foreign person with respect to persons holding interest in person of a country of concern, coverage of derivative transactions
Exception of certain transactions between US person and its controlled foreign entity.
Effectiveness
Final rule becomes effective Jan. 2, 2025.
Nov. 2024 US Treasury Fed Reg Final Rule
On Nov. 15, 2024, US Treasury published final rule on outbound investments in certain national security technologies in federal register; final rule effective on Jan. 2, 2025.
Regulators
House; US Treasury; White House
Entity Types
B/D; Corp; Inv Co
Reference
89 FR 90398, 11/15/2024; PR, Info, FAQ, RF, 10/28/2024; RIN 1505-AC82; House: Sp, 10/28/2024; RIN 1505-AC82; EO 14105; Citation: 31 CFR 850;
