EO 14105 on outbound investment in sensitive technologies

President Biden signed Executive Order 14105 on 9 August 2023, establishing a new outbound investment screening program targeting US investments in certain Chinese entities involved in semiconductors, quantum computing, and artificial intelligence. The order represents a significant expansion of US economic security tools beyond export controls to address technology transfer through capital flows.

Covered Sectors and Technologies

Semiconductors and microelectronics restrictions apply to investments in Chinese entities engaged in design, fabrication, or packaging of advanced integrated circuits. The initial focus includes chips designed for AI training and inference, advanced logic chips below certain process nodes, and DRAM/NAND memory exceeding specified performance thresholds.

Quantum information technologies coverage extends to investments in Chinese companies developing quantum computers, quantum sensing devices, and quantum networking equipment. The restrictions recognize quantum technology's potential to compromise encryption and provide computational advantages with national security implications.

Artificial intelligence systems restrictions target investments in Chinese entities developing AI for military applications, intelligence gathering, mass surveillance, or cyber-enabled capabilities. The Treasury Department rulemaking will define specific AI applications and capabilities triggering coverage.

Prohibited and Notifiable Transactions

Prohibited transactions represent the most restrictive category, completely barring US persons from investing in covered Chinese entities engaged in specific activities. Prohibitions apply to the most sensitive technologies where any US capital flow poses unacceptable national security risks.

Notifiable transactions require advance notification to Treasury but are not prohibited. This category covers less sensitive technologies where the government seeks visibility into investment patterns without blocking capital flows. Notifications must be filed within specified timeframes before transaction closing.

Covered investments include equity acquisitions, debt convertible to equity, greenfield investments, joint ventures, and certain limited partnership interests. The program extends beyond direct investments to include indirect investments through funds and intermediary structures.

US Person Obligations

Know-your-customer requirements impose due diligence obligations on US persons to determine whether prospective investments involve covered Chinese entities. Investors must assess target company activities, technology capabilities, and end-use applications to determine program applicability.

Record-keeping requirements mandate documentation of investment decision-making, due diligence performed, and determinations regarding program coverage. Records must be maintained for specified periods and produced upon government request.

Fund manager obligations extend program requirements to investment funds managed by US persons, requiring screening of portfolio companies and notification or avoidance of covered investments. Limited partners in non-US funds may also face compliance obligations depending on their degree of control or knowledge.

Timeline overview

Treasury's rulemaking process will define specific covered technologies, transaction thresholds, and compliance procedures through notice-and-comment rulemaking. The final rule will take effect in 2024, with Treasury providing guidance on transition periods for existing investments and prospective transactions initiated before the effective date.

If you are affected, begin assessing China-related investment portfolios, establishing screening procedures, and developing compliance frameworks in anticipation of final regulations. Investment committees should incorporate national security reviews into existing approval processes for transactions with Chinese nexus.

Coordination with Export Controls

The outbound investment program complements existing export control restrictions administered by the Bureau of Industry and Security. While export controls address technology transfer through goods and technical data, the investment program targets knowledge transfer through personnel secondments, governance participation, and technology development funding that may not involve controlled items.

If you are affected, coordinate investment screening with export control compliance programs, recognizing that investments in covered entities may also trigger deemed export, technology transfer, or end-use restrictions under the Export Administration Regulations.