The Department of the Treasury is mandated by Executive Order 14105, which was issued by President Biden, to create a new program to address American investments in specific national security technology in “Countries of Concern.” Artificial intelligence, quantum information technology, and semiconductors and microelectronics are the three kinds of such technologies listed by the Order. The People’s Republic of China, Hong Kong Special Administrative Region, and Macau Special Administrative Region are identified as Countries of Concern in an Annex to the Order.
The Order instructs the Secretary to draft new regulations that will categorize banned transactions in order to carry out this program. These kinds of deals include national security technology and goods that, in the Secretary’s opinion and after consultation with other pertinent agencies, present a particularly serious risk to national security due to their potential to materially improve the armed forces, intellect, monitoring, or cyber-enabled abilities of Countries of Concern. Acquisition of equity holdings, new investments, partnership arrangements, and debt-to-equity transactions are a few examples of the different investment transactions that should be taken into account. The new restrictions forbid some investments and call for U.S. citizens to alert the Secretary of specific transactions involving specified entries that are situated in or governed by the laws of a Countries of Concern.
The study Advanced Notice of Preliminary Rulemaking was released by the Treasury’s Department of the Treasury in conjunction with the publication of the new regulations. This Notice solicits public feedback on matters including what constitutes a “U.S. Person,” a “Covered Foreign Person” or a “Person of a Nation of Concern,” what kinds of deals should be regarded as “Covered Transactions,” and what kinds of technology should be included as “Covered National Security Innovations and Products” for the purpose of the new regulations. Such comments must be provided electronically using the United States Government’s eRulemaking portal by September 28, 2023, or by postal letter to the United States Department of the Treasury.
Investors should be aware that the technology described under the Executive Order are distinct from those presently under U.S. export restrictions related to Chinese and those covered by the CHIPS Act. In order to assure compliance, it is advised that impacted investors evaluate the three legal structures independently. It is significant to remember that the Treasury’s Department of Treasury is taking into consideration an array of exemptions to be encompassed in the suggested new regulation, including, among others, investments in traded securities, index funds, exchange-traded funds, mutual funds, investments that are passive in venture capital firms or private equity investments, and intracompany transmits of money from a U.S. parents to an a subsidiary in a Country of Concern.