Treasury Should Pursue 'Broad' Outbound Investment Definitions, Max Penalties, Lawmakers Say
The Treasury Department should “urgently” implement the administration's executive order on outbound investments (see 2308090066), including by adopting a broad definition of the three technology sectors covered under the order, said Reps. Mike Gallagher, R-Wis., and Raja Krishnamoorthi, D-Ill., the chairs of the House Select Committee on China. The lawmakers also called for the U.S. to do more to convince allies to put in place their own outbound investment screening tools and to pursue additional restrictions on outbound passive investments, including in index funds.
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In an Oct. 30 letter to Treasury Secretary Janet Yellen, Gallagher and Krishnamoorthi said the agency should adopt a “broad definition” for China’s semiconductor, quantum information and artificial intelligence sectors when it writes its final regulations for the outbound investment rules. The prohibitions and notification requirements outlined in Treasury’s advance notice of proposed rulemaking “will have maximum value if they are not limited to narrow subcategories of technologies,” the lawmakers said, adding that the agency should nix the potential for “excepted transactions.”
The chip industry earlier this year asked Treasury to exempt companies from liability under the rules as long as they follow certain due diligence steps (see 2310050035). The lawmakers said in their letter that exceptions would “dilute the intent and effectiveness of the E.O.”
The agency also should impose notification requirements for all “subcategories of the three technology sectors that are not subject to prohibitions,” the lawmakers said, not just investments in certain less advanced semiconductor companies. And to “ensure compliance,” the letter said, Treasury should “pursue the maximum allowed penalties for violations.”
Gallagher and Krishnamoorthi also stressed the importance of coordinating these prohibitions with allies, lest China “still have access to the foreign capital and expertise it needs to grow its capabilities in technologies and products that threaten our values and security interests.” The lawmakers also believe the U.S. needs to address investments in “public markets, including mutual funds, exchange-traded funds, and index funds.” The order “lays the foundation for Congress to build additional restrictions that protect our national security and uphold our values,” they said.