US Should Take List-Based Approach to AI Investment Restrictions, Researchers Say

The Biden administration should take an “end-user list-based approach” to restricting investments in Chinese artificial intelligence companies as part of its recent executive order on outbound investment (see 2308090066 and 2308100045), researchers with Georgetown’s Center for Security and Emerging Technology said in a report this week. The report said the Treasury Department can use its Chinese Military-Industrial Complex Companies (CMIC) List as a “foundation” by updating and expanding it to restrict AI investments beyond publicly traded securities.

Taking a list-based approach “will allow the U.S. government to most effectively capture the AI systems that present the most pressing national security risks, while avoiding overreach and potential unintended consequences that undermine U.S. competitiveness in AI development,” said the report, authored by CSET research fellow Emily Weinstein and research analyst Ngor Luong.

The researchers said Treasury’s CMIC List -- which restricts certain investments in a list of Chinese companies with ties to the country’s military or surveillance technology sector but hasn’t been updated since 2021 -- should be expanded to also capture private companies “engaged in the same types” transactions covered by the outbound investment executive order. Those should include mergers and acquisitions, provisions of debt financing and joint ventures.

“Once reshaped, the CMIC List could become a powerful resource for the U.S. government to block investment in threatening military actors in China, but only if it is updated on a regular basis,” the report said. The list should be assessed alongside the Commerce Department’s Entity List, among other blocked-party lists, “to look for entities that have been added to each respective list for their complicity in China’s military modernization and surveillance ecosystem.”

After the CMIC List has been updated, Treasury can implement an outbound investment prohibition that blocks U.S. people and companies from investing in those Chinese entities, the researchers said. This would also include entities owned 50% or more by companies on the list.

The researchers said this approach will help the U.S. government better scope the types of AI investments that will be prohibited. Treasury said it’s looking to focus on outbound investments in Chinese entities that develop AI systems used “exclusively” or “primarily” for military, government intelligence or mass surveillance end uses, but the researchers argued it will be “nearly impossible to identify an AI system that is ‘exclusively’ designed for these national security-relevant end uses.”

Without a “specific definition of ‘exclusively’ military AI systems, any attempts to scope a prohibition around technical thresholds could risk over-capturing purely civilian systems and disrupting international supply chains,” the researchers said. They also said government attempts to “build technical thresholds for more ‘military’ AI systems could risk missing large swaths of potentially dangerous AI.”

The researchers also noted that a list-based approach would also ease the due diligence burden on investors, who wouldn’t have to “individually interpret” if a potential investment was tied to China’s military. “Instead, the U.S. government can tell companies where the most risky areas are for AI investment in China and not leave that up for interpretation,” the researchers said. “Moreover, by adopting a list-based approach, the U.S. government may push investors to be more inclined to do the necessary due diligence to prove that their potential AI investment in China is not tied to a problematic actor.”