Overview of the US Treasury Outbound Investment Security Program
Treasury Department implemented the Outbound Investment Security Program under the Executive Order 14188, signed on August 9, 2023, titled Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern. This program establishes restrictions on U.S. investments in advanced technologies, including artificial intelligence (AI), semiconductors, and quantum information technologies, when directed toward entities in or controlled by persons from designated countries of concern. The People’s Republic of China, along with its Special Administrative Regions of Hong Kong and Macau, were explicitly identified as countries of concern in the Annex of the Executive Order.
The program’s regulatory framework, codified in 31 CFR Part 850, took effect on January 2, 2025, following the issuance of the final rule on October 28, 2024. This marks the first U.S. outbound investment regime structured around specific AI capability metrics, alongside broader restrictions on semiconductor and quantum technologies. The program’s design reflects concerns over the proliferation of technologies that could enhance military, intelligence, surveillance, or cyber-enabled capabilities in countries perceived as adversarial to U.S. national security interests.
Key Restrictions on AI Investments
First, U.S. investors are prohibited from funding AI development that exceeds specified compute thresholds. These thresholds are intended to limit investments in AI systems capable of high-performance computing, which could accelerate the development of advanced military or dual-use applications. Second, U.S. investors are explicitly barred from funding AI projects with military or defense-related applications, aligning with broader U.S. national security objectives.
For investments that do not meet these prohibited criteria but still fall within the scope of the program, U.S. investors are required to notify the Treasury Department through the Outbound Notification System (ONS). The notification process ensures transparency and allows the Treasury to assess whether such investments align with U.S. strategic interests.
Scope and Exemptions Under the Program
The program’s scope extends to U.S. persons, including individuals, corporations, and entities organized under U.S. law, as well as foreign entities controlled by U.S. persons. Investments in entities located in China, Hong Kong, or Macau—whether directly or through intermediaries—are subject to the program’s restrictions. Such determinations are made by the Treasury Secretary in consultation with the Secretaries of Commerce, State, and other relevant agencies, following a request from a U.S. person or its controlled foreign entity.
Additionally, the program includes provisions for excepted transactions under 31 CFR § 850.501(g). These exceptions apply when investments are directed toward entities in countries or territories outside the designated list, provided those jurisdictions demonstrate measures to address national security risks comparable to those outlined in the Outbound Order. The Treasury Secretary evaluates whether the transaction type and the foreign government’s regulatory framework sufficiently mitigate potential risks, allowing for case-by-case exemptions.
Compliance and Enforcement Mechanisms
Compliance with the Outbound Investment Security Program is enforced through the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq.), which authorizes the Treasury Secretary to impose civil monetary penalties and pursue other remedies for violations. The Treasury Department provides multiple contact points for inquiries, technical support, and tips related to compliance, including dedicated email addresses for regulatory questions, system feedback, and reporting potential violations.
The program’s enforcement framework also includes provisions for inflation adjustments to maximum civil monetary penalties, as noted in the Notice issued on January 17, 2025.
Required actions
- US persons may not make covered investments in Chinese entities engaged in prohibited AI, semiconductor or quantum activities - Notify Treasury within 30 days of completing a notifiable AI investment; conduct reasonable and diligent inquiry