U.S. Department of Treasury released the final rule on outbound investment regulations, set to take effect on January 2, 2025. Following Executive Order 14105, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern,” these regulations aim to limit U.S. investments in critical technology sectors within specified countries of concern, currently including China, Hong Kong, and Macau. The targeted sectors are semiconductors, quantum computing, and artificial intelligence (AI) systems—industries deemed vital to U.S. national security interests.

This new rule will compel U.S. investors, particularly those in technology fields, to carefully evaluate their international investments. The rule differentiates between transactions that require notification and those outright prohibited, establishing technical and end-use thresholds to determine the applicability. Here, we outline key aspects and provisions that companies should consider as they adjust their investment strategies to comply with the Treasury’s requirements.

Key Provisions: AI Coverage, Exemptions, and Penalties

AI Systems:
The Treasury’s final rule introduces specific definitions for notifiable AI-related transactions, incorporating both technical and end-use thresholds. The focus is on limiting investments into AI systems with potential national security implications, such as those with military applications, while generally exempting consumer-grade AI solutions or civilian applications. The rule clarifies that the customization, configuration, or fine-tuning of third-party AI systems purely for internal use without commercial application remains outside its scope. This distinction may benefit businesses that leverage AI within their internal processes rather than actively developing AI technologies.

Exceptions and Exemptions:
The rule provides exemptions for certain activities, including specific non-commercial, internal-only uses of third-party AI systems. Treasury has adjusted the rule to minimize unintended limitations on technology use, thereby allowing U.S. companies to remain competitive without jeopardizing national security.

Penalties for Non-Compliance:
The Treasury will enforce penalties on companies that fail to notify or adhere to prohibitions under the final rule. Penalties may include fines or limitations on future investment capabilities. To mitigate risks, companies should establish robust due diligence procedures and monitor potential red flags in technology investments in countries of concern.

Navigating New Compliance Requirements

With outbound investment restrictions in effect from early 2025, businesses should review and, where necessary, update their international investment protocols, particularly focusing on AI, quantum computing, and semiconductor activities within restricted countries. Companies are encouraged to build compliance workflows that identify notifiable and prohibited transactions early in the investment process to avoid penalties and align with Treasury’s objectives.