In December 2022, Congress passed the Consolidated Appropriations Act, 2023 (Public Law 117-328), which directed the U.S. Department of Commerce (Commerce) and the U.S. Department of the Treasury (Treasury) each to submit a report to Congress within 60 days, (i) describing each agency’s efforts to establish and implement a program to “address national security threats emanating from outbound investments from the United States in certain sectors critical for U.S. national security” and (ii) identifying the resources required for such a regime. This “Outbound Investment Regime” seeks to address concerns that U.S. companies’ investments in adversarial countries’ critical technology industries could harm U.S. national security.
On 7 March 2023, Commerce and Treasury released their respective reports, which largely confirmed the limited details currently available about the proposed Outbound Investment Regime. The key points from the reports are set forth below:
Treasury would implement and administer the Outbound Investment Regime in coordination with Commerce and other federal departments and agencies. Commerce would aim to leverage its “core sector-specific technical expertise and industry connectivity necessary to accurately define, scope, and assess the appropriate sectors that may be covered by any regime….” The Commerce report notes that the participation of Commerce in this process will bring a commercial perspective, which the Biden Administration believes will be key to the successful implementation of the regime. These details appear to confirm that Treasury will play a lead role in the Outbound Investment Regime, allowing the U.S. Government to leverage Treasury’s existing expertise in leading the CFIUS regime.
The focus of the Outbound Investment Regime would be on (i) “investments that could result in the advancement of military and dual-use technologies by countries of concern” and (ii) “certain entities involved in a sub-set of certain key advanced technologies that are critical to U.S. national security.” The Outbound Investment Regime would cover investments that “are not presently captured by export controls, sanctions, or other related authorities,” reinforcing Biden Administration officials’ statements that the regime is an effort to fill in gaps in the U.S. Government’s efforts to address the range of national security threats posed by strategic adversaries, such as Russia and China.
The Outbound Investment Regime “may include prohibiting certain investments and/or collecting information about other investments to inform potential future action.” The Biden Administration appears to be considering a wide range of options for the regime—from the most severe (e.g., blocking certain investments) to less burdensome ones (e.g., gathering information about certain investments).
Commerce and Treasury intend to facilitate swift implementation and strike a balance between preventing investments that harm U.S. national security and not placing undue burden on U.S. investors and businesses. Administration officials have repeatedly emphasized the importance of this balancing effort. An executive order establishing an Outbound Investment Regime has not yet been issued, partly because of ongoing Biden Administration outreach to the financial and technology sectors.
The United States is discussing the Outbound Investment Regime with its international partners and allies. The Biden Administration has stressed the importance of getting allied country support for the Outbound Investment Regime, in part due to a recognition that the effectiveness of such a regime could be undermined if non-U.S. investors, including allied country investors, replace any U.S. investors whose investments in foreign technology sectors are prohibited by the regime.
Final policy determinations on the Outbound Investment Regime are expected to be made in the near future, and Treasury and Commerce “anticipate” that “an opportunity for public comment will be provided.” Although the precise timing of establishing the Outbound Investment Regime is still unclear, we still expect that the regime will initially be established by executive order rather than legislation. Whether the public’s ability to comment on the regime before or after it is rolled out remains unclear.
Treasury estimates that “organizational adjustments and considerable resources” will be necessary to implement the regime and that approximately US$10 million in FY 2023 will be required for “labor costs for staff to draft regulations, set up program operations, and conduct international engagement; IT system development; data and subscriptions; and travel and training.” For FY 2023, Commerce will use its appropriated resources to “hir[e] sector-specific industry experts and investment security officers” who will work on the Outbound Investment Regime and the promotion of supply chain resiliency. Both Treasury and Commerce recommend additional resources for the Outbound Investment Regime effort in the president’s FY 2024 budget. Although the president’s budget request is very unlikely to be enacted as proposed, the respective funding requests do inform our understanding of the agencies’ needs when the Outbound Investment Regime is formally established. We note that Commerce envisions a significant role for the International Trade Administration (ITA) in particular. ITA would “provide singular, sector-specific industry expertise to prevent U.S. private capital from financing adversary advances in critical sectors that undermine U.S. national security.”
Although the Treasury and Commerce reports largely reinforce previously reported features of the proposed Outbound Investment Regime, they do not clarify the key concepts that will define it, notably the precise scope and nature of the regime, including which investors and which foreign technology sectors will be impacted or whether the regime will involve more than a reporting requirement with respect to high-priority sectors.
Despite the lack of amplifying details on the Outbound Investment Regime, U.S. companies can still take certain actions now, such as examining their existing exposure to Russia and China—countries likely to be targeted by the regime—as a head start on the potential impact of the regime on their business and operations. In addition, companies should closely monitor developments in this area and consider hiring an advisor now to quickly react when the regime becomes law.
Please contact any of the listed Hogan Lovells lawyers with questions on the development of, and how to prepare for, the U.S. Outbound Investment Regime.
Authored by Anne Salladin, Brian Curran, Timothy Bergreen, Kelly Ann Shaw, Ari Fridman, Andrea Fraser-Reid, and Hao-Kai Pai.