The US Department of the Treasury has issued a final rule to implement an executive order aimed at addressing national security threats posed by certain technologies and products in countries of concern. The rule, which takes effect on January 2, 2025, prohibits US persons from engaging in transactions with individuals or entities in these countries involving sensitive technologies such as semiconductors, microelectronics, quantum information technologies, and artificial intelligence. The Treasury Department has identified the People’s Republic of China, along with Hong Kong and Macau, as countries of concern.
According to Paul Rosen, Assistant Secretary for Investment Security, this rule is a targeted measure to ensure that US investments are not exploited to advance the development of key technologies by countries that may use them to threaten national security. The rule builds on extensive engagement with stakeholders, experts, and allies to ensure its effectiveness while maintaining an open investment environment.
Implementing Executive Order 14105: Protecting US National Security through Investment Regulations
The United States Department of the Treasury has issued a final rule to implement Executive Order 14105, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” This order aims to prohibit US persons from engaging in certain transactions with countries of concern involving specific technologies and products that pose a significant national security threat to the United States. The Final Rule provides detailed regulations and explanatory discussions regarding their intent and application.
Background and Context
The Executive Order, issued on August 9, 2023, identified the People’s Republic of China, along with the Special Administrative Region of Hong Kong and the Special Administrative Region of Macau, as a country of concern. The order focuses on three key sectors: semiconductors and microelectronics; quantum information technologies; and artificial intelligence. These technologies are fundamental to the development of next-generation military, surveillance, intelligence, and certain cybersecurity applications.
The Biden-Harris Administration is committed to protecting America’s national security by ensuring that US investments are not exploited to advance the development of key technologies by countries of concern. The administration recognizes that US investments, including intangible benefits like managerial assistance and access to investment and talent networks, must not be used to help countries of concern develop their military, intelligence, and cyber capabilities.
Key Provisions of the Final Rule
The Final Rule provides details on the subsets of technologies and products within the three identified sectors. It fully implements a new program that will help address the advancement of key technologies and products by countries of concern that may use them to threaten US national security. The rule defines key terms, including obligations of a US person regarding a covered transaction, categories of covered transactions and excepted transactions, technical specifications for certain technologies and products, and information required to be provided to Treasury as part of a notification.
The Final Rule also outlines the knowledge standard and expectations for a US person to conduct a reasonable and diligent inquiry prior to undertaking a transaction. Additionally, it specifies conduct that would be treated as a violation of the rule and applicable penalties for such conduct.
Implementation and Administration
The Outbound Investment Security Program will be administered by the newly created Office of Global Transactions within Treasury’s Office of Investment Security. The program is designed to ensure that US investments are not used to advance the development of key technologies by countries of concern. The Final Rule will become effective on January 2, 2025.
International Cooperation and Stakeholder Engagement
The United States is committed to fostering an open investment environment, and this targeted new program is consistent with this longstanding policy. The development of the Final Rule benefited from dialogue and coordination with US allies and partners, as well as input provided by a range of stakeholders since the rulemaking process was initiated in 2023.
Treasury invited comment on the Advance Notice of Proposed Rulemaking (ANPRM) and its July 2024 Notice of Proposed Rulemaking (NPRM), and carefully considered the feedback in developing the regulations. The Final Rule responds to public comments received on the NPRM from a wide range of interested parties by incorporating technical edits, adding specificity to several provisions, and including explanatory notes, among other things.
Implementing Executive Order 14105 through the Final Rule marks an important step in protecting US national security interests. By regulating US investments in certain technologies and products in countries of concern, the United States aims to prevent the misuse of its investments and ensure that they do not contribute to threats to its national security. The program’s effectiveness will depend on continued international cooperation, stakeholder engagement, and careful administration by the Office of Global Transactions within Treasury’s Office of Investment Security.
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