Senate Votes to Include Outbound Investment Notification Rules in NDAA

The Senate this week voted to attach amendments to its version of the FY 2024 National Defense Authorization Act, including one that could establish a notification regime for certain outbound investments and another that could ban China, Russia, North Korea and Iran from investing in American farmland and agricultural businesses.

The Outbound Investment Transparency Act, approved 91-6 as an amendment, would require U.S. companies to notify the Treasury Department 14 days before making certain investments in several “countries of concern,” including China. The measure would not authorize the administration to block outbound investments but would instead require "notifications" by companies investing in sectors involving advanced semiconductors and microelectronics, artificial intelligence, quantum information science and technology, hypersonics, satellite-based communications, and networked laser scanning systems with dual-use applications.

The notification regime would capture any joint ventures, greenfield investments or investments that provide “know-how” to the foreign country, including any “transfers of technology through operational cooperation, board representation, or the provision of business services.” Treasury and the Commerce Department would establish a process to “receive notifications of covered activities,” and that process would protect “confidential business information.” Certain exemptions would apply for transactions that are below a de minimis threshold or “ordinary or administrative business transactions.”

The amendment is a “strong first step to give the U.S. insight into the risks of allowing American national security technology and know-how get into the hands of our adversaries,” said Sen. Bob Casey, D-Pa., who wrote the text along with Sen. John Cornyn, R-Texas. The lawmakers also authored the National Critical Capabilities Defense Act, a separate, more expansive bill that could give the administration the authority to screen and block certain outbound investments (see 2305090046). That bill has so far lacked enough bipartisan support to pass Congress.

Senators, however, overwhelmingly supported their NDAA amendment to establish a notification regime, which would help the U.S. “increase the visibility of these investments,” Cornyn said. He added the measure “will help the U.S. gather the information needed to better evaluate our national security vulnerabilities, confront threats from our adversaries, and remain competitive on the global stage.” The White House for months has been crafting a new outbound investment screening regime that it plans to first issue as a proposed rule (see 2307170029).

The NDAA amendment would also require the U.S. to “coordinate with allies and partners on the implications of a notification process” and “work to implement” an outbound investment screening programs in “partner countries.” The EU said it plans to issue new inbound and outbound investment screening proposals by the end of the year (see 2306260056) and 2306200052).

The Senate also voted 91-6 to attach another amendment to the defense spending bill that would ban certain “foreign adversaries,” including China, Russia, North Korea and Iran, from buying American farmland and agricultural businesses. The amendment would also add the USDA secretary as an “ex officio member” of the Committee on Foreign Investment in the U.S. to “consider agriculture needs when making determinations affecting our national security.” The measure would help implement efforts by several lawmakers, including Sen. Jon Tester, D-Mont., to expand CFIUS’ jurisdiction over agricultural investments (see 2306020027).

Sen. Mike Rounds, R-S.D., who offered the amendment along with Tester, called it a “commonsense provision will make our homeland more secure.” Tester said the amendment is a “critical step toward making sure we aren’t handing over valuable American assets to foreign entities who would like to replace us as the world’s leading military and economic power.”

Sen. Sherrod Brown, D-Ohio, chair of the Senate Banking Committee, also supported the amendment. “We cannot allow foreign adversaries like China to buy up farmland in Ohio and around the country unchecked,” he said.

The Senate must still pass and reconcile the NDAA with the House’s version, which was passed earlier this month (see 2307140068), before either amendment can become law.