Provisions Pertaining to U.S. Investments in Certain National Security Technologies and Products in Countries of Concern

DEPARTMENT OF THE TREASURY <SUBAGY>Office of Investment Security</SUBAGY> <CFR>31 CFR Part 850</CFR> <RIN>RIN 1505-AC82</RIN> <SUBJECT>Provisions Pertaining to U.S. Investments in Certain National Security Technologies and Products in Countries of Concern</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of Investment Security, Department of the Treasury. <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This proposed rule sets forth regulations that would implement Executive Order 14105 of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern,” which declares a national emergency to address the threat to the United States posed by countries of concern, which seek to develop and exploit sensitive technologies or products critical for military, intelligence, surveillance, or cyber-enabled capabilities. The proposed rule would require United States persons to provide notification to the U.S. Department of the Treasury regarding certain transactions involving persons of a country of concern who are engaged in activities involving certain national security technologies and products that may contribute to the threat to the national security of the United States; and prohibit United States persons from engaging in certain other transactions involving persons of a country of concern who are engaged in activities involving certain other national security technologies and products that pose a particularly acute national security threat to the United States. This notice of proposed rulemaking (NPRM) seeks public comment on various topics related to the implementation of Executive Order 14105. In accordance with 5 U.S.C. 553(b)(4), a summary of this rule may be found at <E T="03">https://www.regulations.gov.</E> </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written comments must be received by August 4, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Written comments on this proposed rule may be submitted through one of two methods: • <E T="03">Electronic Submission:</E> Comments may be submitted electronically through the Federal Government eRulemaking portal at <E T="03">https://www.regulations.gov.</E> Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt, and enables the Department of the Treasury to make the comments available to the public. • <E T="03">Mail:</E> Send to U.S. Department of the Treasury, Attention: Meena R. Sharma, Director, Office of Investment Security Policy and International Relations, 1500 Pennsylvania Avenue NW, Washington, DC 20220. The Department of the Treasury encourages comments to be submitted via <E T="03">https://www.regulations.gov.</E> Please submit comments only and include your name and organization name (if any) and cite “Provisions Pertaining to U.S. Investments in Certain National Security Technologies and Products in Countries of Concern” in all correspondence. All comments submitted in response to this NPRM, including attachments and other supporting material, will be made public, including any personally identifiable or confidential business information that is included in a comment. Therefore, commenters should submit only information that they wish to make publicly available. Commenters who wish to remain anonymous should not include identifying information in their comments. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Meena R. Sharma, Director, Office of Investment Security Policy and International Relations, at U.S. Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220; telephone: (202) 622-3425; email: <E T="03">OIS.Outbound.Regulations@treasury.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> On August 9, 2023, the President issued Executive Order 14105, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (the Outbound Order), pursuant to his authority under the Constitution and the laws of the United States, including the International Emergency Economic Powers Act (IEEPA), the National Emergencies Act, and section 301 of title 3, United States Code (U.S.C.). In the Outbound Order, the President found that the advancement by countries of concern in sensitive technologies and products critical for the military, intelligence, surveillance, or cyber-enabled capabilities of such countries constitutes a threat to the national security of the United States, which has its source in whole or substantial part outside the United States, and that certain U.S. investments risk exacerbating this threat. In response, the President declared a national emergency to deal with this threat. The Outbound Order identifies three sectors of national security technologies and products to be covered by the program: semiconductors and microelectronics, quantum information technologies, and artificial intelligence. As described in the Outbound Order, countries of concern are exploiting or have the ability to exploit certain U.S. outbound investments, including certain intangible benefits that often accompany U.S. investments and that help companies succeed. In an Annex to the Outbound Order, the President identified one country, the People's Republic of China (PRC), along with the Special Administrative Region of Hong Kong and the Special Administrative Region of Macau, as a country of concern. The President may modify the Annex to the Outbound Order and update the list of countries of concern. Advanced technologies and products that are increasingly developed and financed by the private sector form the basis of next-generation military, intelligence, surveillance, or cyber-enabled capabilities. As stated in the Outbound Order, advancements in sensitive technologies and products in the areas of semiconductors and microelectronics, quantum information technologies, and artificial intelligence will accelerate the development of advanced computational capabilities that will enable new applications that pose significant national security risks, such as the development of more sophisticated weapons systems, breaking of cryptographic codes, and other applications that could provide a country of concern with military advantages. The potential military, intelligence, surveillance, or cyber-enabled applications of these technologies and products pose risks to U.S. national security, particularly when developed in or by a country of concern in which the government seeks to (1) direct entities to obtain technologies to achieve national security objectives; and (2) compel entities to share or transfer these technologies to the government's military, intelligence, surveillance, or security apparatuses. U.S. investments are often more valuable than the capital alone because they can also include the transfer of intangible benefits. Intangible benefits that often accompany U.S. investments and help companies succeed include: enhanced standing and prominence, managerial assistance, access to investment and talent networks, market access, and enhanced access to additional financing. Certain investments by United States persons into a country of concern can be exploited to accelerate the development of sensitive technologies or products—including military, intelligence, surveillance, or cyber-enabled capabilities—in ways that negatively impact the national security of the United States. Such investments, therefore, risk exacerbating this threat to U.S. national security. The Outbound Order has two primary components that serve distinct but related objectives with respect to the relevant technologies and products. The first component requires notification to the Secretary of the Treasury (the Secretary) regarding certain types of investments by a United States person in a covered foreign person engaged in covered activities pertaining to specified categories of technologies and products. The second component requires the Secretary to prohibit certain types of investment by a United States person in a covered foreign person engaged in covered activities pertaining to other specified categories of advanced technologies and products. Both components focus on investments that could enhance a country of concern's military, intelligence, surveillance, or cyber-enabled capabilities through the advancement of technologies and products in particularly sensitive areas. The Outbound Order directs the Secretary, in consultation with the Secretary of Commerce and, as appropriate, the heads of other relevant agencies, to issue, subject to public notice and comment, regulations that, among other things, require <E T="03">U.S. persons</E> to submit information to the Department of the Treasury regarding <E T="03">notifiable transactions</E> and prohibit U.S. persons from engaging in <E T="03">prohibited transactions.</E> Under section 10(a) of the Outbound Order, the President authorizes the Secretary to promulgate rules and regulations, including elaborating upon the definitions contained in the Outbound Order. The Secretary's promulgation of regulations under the Outbound Order is consistent with the President's authority to “issue such regulations, including regulations prescribing definitions, as may be necessary for the exercise” of authorities granted under IEEPA (50 U.S.C. 1704) and the President's authority to designate and empower the head of any department or agency in the executive branch to perform any function which is vested in the President by law (3 U.S.C. 301). The Outbound Order instructs the Secretary to identify in such regulations categories of notifiable transactions that involve covered national security technologies and products that the Secre ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 287k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━