Outbound Investment Reporting Requirements Could Raise Compliance Costs, Lawyer Says

The reporting requirements being considered by the Treasury Department as part of its upcoming outbound investment rules (see 2308090066 and 2310050035) are "quite broad,” Akin Gump lawyer Laura Black said, adding that they will require companies to report on how certain investments fit into their business plans in the U.S. as well as the contractual and government relationships held by their Chinese clients. Black, speaking during an Oct. 25 webinar hosted by the Massachusetts Export Center, said those requirements could increase compliance costs for U.S. companies and create challenges for their Chinese partners, who are subject to strict disclosure laws by the Chinese government.

Black also said the potential investment restrictions on China’s artificial intelligence sector have proven difficult for Treasury to define and could be problematic to implement. She said transactions involving AI systems for exclusive or primary use for Chinese military government intelligence, or mass surveillance could be prohibited, while those with other applications such as cybersecurity, robotics and facial recognition could be allowed.

She also said the potential prohibitions walk the line between more comprehensive legislation the House has considered that would block transactions in a range of Chinese technology sectors (see 2305090046) and an effort by the Senate to establish a notification regime for certain outbound investments (see 2307280052). Although Treasury is only considering prohibitions and notification requirements for investments in China’s AI, quantum and chip sectors, Black said she can see biotechnology being added to the scope in the future, along with potentially advanced batteries and clean energy technology.