On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023. The law directs the Department of the Treasury, in coordination with the Department of Commerce and other Federal partners, “to consider establishing a program to address the national security threats emanating from outbound investments from the United States in certain sectors that are critical for U.S. national security.” The law also provides funding for multiple departments and agencies and includes specific explanatory statements. Further, the law provided 60 days for Treasury and Commerce to submit to Congress reports describing how such a program would function, including the resources required over the next three years to establish and implement it.
Press reports suggest that both Treasury and Commerce delivered the required reports to Congress in early March. These reports detailed a proposal that would establish a mechanism to review outbound investments in to-be identified countries and sectors. Almost certainly any program will focus on investments with connections to China and Russia initially, and likely include sectors such as semiconductors, artificial intelligence, and quantum computing, which are viewed as sensitive sectors essential to U.S. national security. The U.S. Government has long held the view that Chinese investments in these sectors may raise national security concerns because the investment could potentially be used to advance Chinese military capabilities. The Committee on Foreign Investment in the United States (“CFIUS”) has exercised repeatedly its authority to prohibit in-bound investments in U.S. businesses that operate within these sectors.
It is believed that the Biden Administration is considering implementing an outbound investment screening program initially through the issuance of an Executive Order, potentially as early as April. Companies that operate or invest in these or other sectors, particularly those with Chinese subsidiaries or partners, should be mindful of the potential impact an order may have on future business operations.
