US Publishes FAQs for Upcoming Outbound Investment Rules

Although a general license issued, for example, by the Office of Foreign Assets Control, may have covered a U.S. person’s investment-related transactions, “the person would still be required to comply with any applicable provisions of the Outbound Rules,” Treasury said. It added that an exemption under the outbound rules also doesn’t “excuse a person from its obligations under any other applicable U.S. Government program,” including sanctions and export control regulations.

The guidance is part of a broader set of FAQs released by Treasury to provide more information on its new outbound investment regime before it takes effect Jan. 2. The FAQs cover general information about what types of people, companies and transactions are affected, consolidate various definitions included in the regulations, provide examples of scenarios in which companies could be captured by the new requirements, and more.

One FAQ addresses how a deal would be impacted if the “investment target” weren't “engaged in a covered activity” at the time of the investment but “later pivots into a covered activity.” Treasury said the rules aren’t designed to “create an ongoing obligation for a U.S. person to monitor or prevent post-transaction changes to an investment target’s activities,” although the agency could hold investors liable if they had “knowledge” that their investment target planned to pivot to a covered activity at the time of the investment.

It added that if the U.S. person later acquires “actual knowledge” that would have prohibited the investment or made it subject to notification rules if the person had known about it at the time of the transaction, that U.S. person must submit a notification to Treasury within 30 days of “acquiring such knowledge.”

Samuel Chang, a lawyer with Cleary Gottlieb, said there are still questions regarding how long Treasury will take to respond to those notifications, either with follow-up questions or with orders. Chang, speaking during a Dec. 16 webinar hosted by the law firm, said the agency hasn’t yet given a clear answer on that, but it has suggested it will be “prompt in their follow-up questions.”

Chang also said his firm has been getting questions from clients about whether a U.S. person may submit a notification to Treasury on behalf of a “number of parties.” Although the agency has said U.S. people can submit a notification on behalf of an investment involving a foreign entity, it hasn’t yet said whether U.S. people can submit a “batch notification” covering multiple foreign companies, Chang said. “But it's something that it's considering," he said, "and we'll see if there is a need or demand for it once the program has been implemented.”

Chang also noted that investors could see some changes to the outbound investment rules once the Trump administration takes over the White House. Although the rules apply to only investments in China, Hong Kong and Macau as well as certain categories of technologies, Trump could designate more nations as “countries of concern” or capture other technologies outside of China’s semiconductor, artificial intelligence and quantum sectors, he said.

Policy researchers said they wouldn't be surprised if Trump expands the rules to other Chinese technology industries, goes "deeper within” the current three industries, or considers extending the restrictions to cover passive investment flows, such as publicly traded securities (see 2411150037).

“The Biden administration has spoken in the past about having a small yard but a high fence, and it's quite possible that that yard may expand again in the next administration or as the situation develops geopolitically,” Chang said. “We expect to see, at least in the longer term, updates to covered activities.”