Language in Gov't Funding Bill Paves Way for Potential Outbound Investment Regime

The 2023 government spending package (see 2212200025) includes language that could eventually lead to the establishment of a formal outbound investment review mechanism. The provision, included in explanatory statements covering funding for the Treasury and Commerce departments, could speed up the administration's efforts to create the regime, which has been proposed this year in legislation by lawmakers and publicly supported by senior administration officials.

Lawmakers “encouraged” Commerce and Treasury each to “consider its role in the establishment of a program to address the national security threats emanating from outbound investments from the United States in certain sectors that are critical for U.S. national security,” according to the explanatory statements. The language would require each agency to submit a report to Congress “describing its efforts and identifying the resources that would be required to establish and implement it.”

The language comes less than a month after Commerce Secretary Gina Raimondo, who supports the creation of an outbound investment review tool, said the administration is working with Congress and industry to determine how best to limit risks stemming from U.S. outbound investments in critical technology sectors (see 2211300043). A senior National Security Council official recently said an outbound mechanism could help the U.S. mitigate gaps in semiconductor export controls (see 2209140041).

Some lawmakers were hoping to include an outbound investment review legislation in the fiscal year 2023 National Defense Authorization Act, but the effort didn’t have enough support (see 2209290043). It had received some opposition from retiring Sen. Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, who said the provision needed more work and should be closely coordinated with the White House (see 2207140035).

The language in the government funding package could catalyze that cooperation. “An outbound investment notification and review process now appears to be more a matter of ‘when’ implementation will occur rather than ‘if’ a process will be imposed,” Sheppard Mullin said in a client alert just days before the spending package was passed. The firm added that “we are hearing that any outbound investments” in artificial intelligence -- one of several technology areas Commerce is examining for emerging technology export controls (see 2212140044) -- “may be subject to a review process in the near future.”

“It is not clear how national security concerns will balance against a compliance burden for industry and resource strains on the government,” the firm said, “but we expect we will know shortly, perhaps before the new year.”