On August 9, President Biden issued Executive Order 14105 Directing the Secretary of the Treasury to establish a new program to address US investments in certain national security technologies in “countries of concern”. The order identifies the following three categories of such technologies: semiconductors and microelectronics, quantum information technology, and artificial intelligence. In the annexure to the order, the People’s Republic of China, the Special Administrative Region of Hong Kong and the Special Administrative Region of Macau are listed as countries of concern.

To implement this program, the order directs the Secretary of State to issue new regulations for the purpose of identifying categories of prohibited transactions. Such transactions involve national security technologies and products that the Secretary, in consultation with other relevant agencies, determines to pose a particularly serious national security threat because they involve the countries’ military, intelligence, surveillance, or cyber- Enabled capabilities have the potential to be significantly advanced. Worry Examples of the types of investment transactions considered are acquisitions of equity interests, greenfield investments, joint ventures and debt-to-equity transactions. In addition to restrictions on certain investments, the new rules will require US persons to notify the Secretary of particular transactions involving certain entries located in or under the jurisdiction of the country of concern. More details can be found at Treasury Department fact sheet, In coordination with the release of the new rules, the Treasury Department issued a Advance Notice of Proposed Rulemaking, For purposes of the new regulations, this notice seeks public comment on issues such as what constitutes a “U.S. person”, a “covered foreign person” or a “concerned country person”, what types of transactions should be “covered” and transactions” and what types of technologies should be included as “Covered National Security Technologies and Products”. The deadline for such comments is September 28, 2023, and must be submitted electronically Federal Government e-Rule Formulation Portal or by mail to the US Department of the Treasury, Attn: Mina R. Sharma, Acting Director, Office of Investment Protection Policy and International Relations, 1500 Pennsylvania Avenue, NW, Washington, DC 20220.

Investors should note that the categories of technologies identified under the order differ from those already controlled under existing US export controls relating to China and governed under the CHIPS Act. Therefore, it is advised that affected investors review the three legal frameworks separately to ensure compliance. It is also important to note that the Treasury Department is considering a number of exceptions to be included in the proposed new regulation, including passive investments in publicly traded securities, index funds, mutual funds, exchange-traded funds, venture capital Are. or private equity funds, and intracompany transfers of funds from the US parent company to a related country subsidiary, among other things. Similarly there are a range of transactions that may be exempted in the final draft of the regulation, such as university research, contracts, intellectual property licensing and bank loans.

Therefore, there are several technicalities that the Treasury Department will need to finalize and consider in the public comment period before a final regulation can be issued.

If you have any questions regarding the contents of this Alert, please contact Brett Wacker (bwacker@clarkhill.com 202-772-0906), Anthony Campou (acampau@clarkhill.com 202-572-8664), Will Sjoberg (wsjoberg@clarkhill.com, 202-772-0924), or Sally Algazali (salghazali@clarkhill.com, 202-572-8676).

This publication is for general informational purposes only and does not constitute legal advice or solicitation of legal services. The information in this publication is not intended to create an attorney-client relationship, and receipt of it does not imply an attorney-client relationship. Readers should not act on this information without obtaining professional legal advice. The views and opinions expressed herein represent the views of the individual author only and are not necessarily the views of Clarke Hill plc. Although we endeavor to ensure that the postings on our website are complete, accurate and up-to-date, we assume no responsibility for their completeness, accuracy or timeliness.

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