On June 21, 2024, the Department of the Treasury (“Treasury”) published its long-awaited Notice of Proposed Rulemaking (“NPRM”) setting forth proposed regulations (the “Proposed Rule”) to implement Executive Order 14105, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” issued by President Biden on August 9, 2023 (the “Outbound Order”). As we described in our analysis last August, the Outbound Order marks the first time that the United States, or any other major Western democratic economy, has sought to regulate and control outbound capital flows and other investments for national security reasons.
In certain areas, including the overall framework for implementing the Outbound Order, the NPRM largely adheres to the broad contours of the Advance Notice of Proposed Rulemaking (“ANPRM”) that Treasury issued on August 11, 2023. In other areas, however—including the scope of covered foreign persons, the scope of activities in countries of concerns, the extent to which the rule would apply to foreign subsidiaries and affiliates of U.S. persons, the scope of exceptions for certain limited partner (“LP”) investments, and the knowledge requirements—the NPRM answers questions left open in the ANPRM in a more expansive manner. Consequently, assuming that the final rule will largely track the NPRM, it will have implications for a broad range of stakeholders, including private equity, venture capital, and other investment funds; institutional investors, including pension funds, university endowments, and family offices; lenders; companies that have existing business or operations in China; and U.S. persons who work for foreign parties and are involved in considering or approving investment decisions, among others.
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