Apr 16, 2025
Regulatory Trends, Investment Risk
The New Outbound Investment Regulations and What They Mean for Businesses
By Kharon Staff
In January 2025, the U.S. Treasury formally launched a first-of-its-kind program regulating outbound capital flows from the United States into specific technologies to China that have national security implications.
The Outbound Investment Security Program (OISP)—enacted by Executive Order 14105—marks a shift in how the U.S. government restricts the activities of companies investing in China. At its core, the program is designed to prevent U.S. capital from accelerating the development of capabilities that could threaten U.S. national security.
Certain high-tech sectors are under scrutiny, with the impacts reaching far beyond the defense sector. Venture funds, multinationals, and financial institutions with exposure to Chinese tech now face complex new compliance risks—and potentially steep penalties.
The definition of “U.S. person” includes U.S.-incorporated businesses and their foreign subsidiaries, U.S. citizens and permanent residents wherever they are located, and even any individual (of any nationality) who is physically present in the United States.
The rule also outlines specific thresholds, such as percentage of ownership and value of investment, that determine a transaction’s category. These thresholds vary based on the type of investment, the industry involved, and the specific regulations of the countries involved.
However, this list of technology sectors is likely to expand.
Multinational corporations with research and development centers, joint ventures, subsidiaries, or corporate development/mergers and acquisitions teams in China involved in the named technology sectors must carefully assess their ongoing operations.
Indirect investments that ultimately move U.S. capital into covered Chinese entities doing prohibited activities are also subject to the regulations. Fund managers with exposure to China's tech sector must be diligent to know which investments may be implicated.
U.S. technology companies operating in the semiconductor, AI, or quantum technology spaces—even without direct investment in China—should closely monitor these regulations. Investments in non-Chinese targets could still trigger indirect prohibited or notifiable transactions if they involve sensitive technologies.
Beyond financial penalties, companies risk headline and reputational damage, loss of enterprise value, and potential congressional scrutiny.
There’s no pre-clearance process or mitigation pathway. Instead, U.S. persons must determine in advance whether a transaction falls under the prohibited category (in which case it must be abandoned) or qualifies as a notifiable transaction (and must be reported via the Treasury’s online system). The OISP does not include a formal exception or waiver process for prohibited transactions.
Importantly, EO 14105 does not rely on case-by-case approvals and there is no government list to use for screening. The requirements is that companies self-assess their transactions and comply—or face enforcement.
Achieving compliance can include, for example:
The Treasury Department enforces the program through investigations, information demands (like subpoenas), significant penalties, and seeking court orders to prevent or unwind prohibited transactions. Noncompliance can result in civil and criminal fines, as well as forced divestment of prohibited investments.
Given the scope of “U.S. person” and the absence of a pre-approval process, companies that fail to implement rigorous outbound investment compliance protocols will be operating in uncertain terrain.
Having the right data is crucial—not just for regulatory defense, but for reducing exposure to risks that could severely damage a company’s brand and reputation.
EO 14105 currently targets just three tech categories—but future expansions are already under discussion. A 2025 presidential memo contemplates materially expanding covered sectors to include hypersonics, advanced materials, and biotechnology.
At the same time, Congress is weighing legislation like the National Critical Capabilities Defense Act to create a more expansive outbound investment review mechanism. In addition, legislation introduced in December 2024 by leaders of the House Select Committee on the Chinese Communist Party, the Comprehensive Outbound Investment National Security (COINS) Act, would create a legal framework to restrict U.S. investments linked to China’s military, surveillance, and human rights abuses. It follows bipartisan findings that billions in U.S. capital have flowed to blacklisted Chinese firms.
International allies are also moving. In January 2025, the European Commission issued a non-binding recommendation encouraging member states to screen outbound investments in strategic tech sectors. As of April 2024, the United Kingdom is exploring how to mitigate risks from a “very small proportion” of outbound investments that could fund adversaries’ military or intelligence capabilities, and is consulting with G7 allies on a longer term approach.
Together, these steps reflect a growing global consensus: Governments are watching not just who enters their markets, but also where their capital is flowing.
Stay ahead of outbound investment enforcement and use Kharon to build a defensible compliance program. Learn more about Kharon’s Outbound Investment solutions here.
The Outbound Investment Security Program (OISP)—enacted by Executive Order 14105—marks a shift in how the U.S. government restricts the activities of companies investing in China. At its core, the program is designed to prevent U.S. capital from accelerating the development of capabilities that could threaten U.S. national security.
Certain high-tech sectors are under scrutiny, with the impacts reaching far beyond the defense sector. Venture funds, multinationals, and financial institutions with exposure to Chinese tech now face complex new compliance risks—and potentially steep penalties.
Understanding the Treasury’s New Outbound Investment Regulations
Executive Order 14105, issued in August 2023, lays the legal foundation for the OISP and draws authority from the International Emergency Economic Powers Act (IEEPA). It is the first time the U.S. has implemented a program to screen and restrict investments leaving the country for national security reasons.Covered Transactions
“Covered transactions” refer to a wide range of indirect or direct investments, acquisitions, and certain financing arrangements by U.S. persons involving a “covered foreign person.” A covered foreign person is one based in, tied to, or substantially influenced by a country of concern (China) or involved in sensitive activities.The definition of “U.S. person” includes U.S.-incorporated businesses and their foreign subsidiaries, U.S. citizens and permanent residents wherever they are located, and even any individual (of any nationality) who is physically present in the United States.
Two-Tiered System of Controls
OISP categorizes outbound investments into two types:- Prohibited transactions: Deals that U.S. persons are strictly barred from entering into.
- Notifiable transactions: Deals that are permitted but must be reported to the U.S. Treasury within 30 days of execution.
The rule also outlines specific thresholds, such as percentage of ownership and value of investment, that determine a transaction’s category. These thresholds vary based on the type of investment, the industry involved, and the specific regulations of the countries involved.
Who Is Impacted by New Outbound Investment Restrictions?
The regulations target businesses and investors operating within the following critical technology sectors:Semiconductors
Quantum computing
Certain artificial intelligence (AI) systems
However, this list of technology sectors is likely to expand.
Implications for Businesses
Private equity and venture capital firms will need to scrutinize their deals, particularly those with existing investments in Chinese technology or funds that, in turn, invest in covered sectors. Even passive investments by U.S. Limited Partners (LPs) over $2 million in value, or without contractual assurances regarding restricted transactions, may trigger compliance obligations.Multinational corporations with research and development centers, joint ventures, subsidiaries, or corporate development/mergers and acquisitions teams in China involved in the named technology sectors must carefully assess their ongoing operations.
Indirect investments that ultimately move U.S. capital into covered Chinese entities doing prohibited activities are also subject to the regulations. Fund managers with exposure to China's tech sector must be diligent to know which investments may be implicated.
U.S. technology companies operating in the semiconductor, AI, or quantum technology spaces—even without direct investment in China—should closely monitor these regulations. Investments in non-Chinese targets could still trigger indirect prohibited or notifiable transactions if they involve sensitive technologies.
The Cost of Noncompliance
Businesses that run afoul of OISP may be required to divest from prohibited investments and face civil penalties of up to the greater of $368,000 or twice the transaction value per violation. Willful breaches can lead to criminal charges and penalties including up to $1 million in fines and 20 years in prison.Beyond financial penalties, companies risk headline and reputational damage, loss of enterprise value, and potential congressional scrutiny.
Navigating the Treasury’s Outbound Investment Security Program
The OISP framework operates differently from the Committee on Foreign Investment in the United States (CFIUS), which reviews inbound investment.There’s no pre-clearance process or mitigation pathway. Instead, U.S. persons must determine in advance whether a transaction falls under the prohibited category (in which case it must be abandoned) or qualifies as a notifiable transaction (and must be reported via the Treasury’s online system). The OISP does not include a formal exception or waiver process for prohibited transactions.
Importantly, EO 14105 does not rely on case-by-case approvals and there is no government list to use for screening. The requirements is that companies self-assess their transactions and comply—or face enforcement.
Achieving compliance can include, for example:
- Evaluating counterparties for restricted activities
- Determining the nationality and business operations of affiliates
- Documenting diligence steps taken
- Ongoing monitoring
- Demonstrating reasonable knowledge of business investments
The Treasury Department enforces the program through investigations, information demands (like subpoenas), significant penalties, and seeking court orders to prevent or unwind prohibited transactions. Noncompliance can result in civil and criminal fines, as well as forced divestment of prohibited investments.
Given the scope of “U.S. person” and the absence of a pre-approval process, companies that fail to implement rigorous outbound investment compliance protocols will be operating in uncertain terrain.
How Businesses Can Identify Exposure
To meet the new compliance requirements, companies should take immediate, proactive steps:1. Examine certain current and past investments
Confirm global trade compliance by auditing your current investments and partnerships. Inventory cross-border deals, portfolio companies, and joint ventures with links to Chinese tech in the named sectors.2. Integrate OISP into pre-deal due diligence
Investment decisions should be reviewed with an eye towards national security regulatory considerations. Assess not only what a company does today, but what its affiliates, subsidiaries, or partners are developing.3. Create internal escalation protocols
Train deal teams, legal, and compliance functions to identify red flags. Establish clear internal controls for escalating any transactions involving China and the targeted technology sectors.4. Leverage advanced analytics
Investment risks don’t have to be mitigated alone. Kharon stands alone in helping firms surface hidden exposure by mapping corporate ownership networks, identifying ties to restricted technologies, and linking foreign entities to military or intelligence end uses.5. Document, document, document
Build a defensible compliance program. Keep records of risk assessments, decision-making processes, and mitigation steps.Having the right data is crucial—not just for regulatory defense, but for reducing exposure to risks that could severely damage a company’s brand and reputation.
What’s Next for U.S. Outbound Investment Policy?
Technology sectors covered under the existing Treasury outbound investment rules are likely just the beginning.EO 14105 currently targets just three tech categories—but future expansions are already under discussion. A 2025 presidential memo contemplates materially expanding covered sectors to include hypersonics, advanced materials, and biotechnology.
At the same time, Congress is weighing legislation like the National Critical Capabilities Defense Act to create a more expansive outbound investment review mechanism. In addition, legislation introduced in December 2024 by leaders of the House Select Committee on the Chinese Communist Party, the Comprehensive Outbound Investment National Security (COINS) Act, would create a legal framework to restrict U.S. investments linked to China’s military, surveillance, and human rights abuses. It follows bipartisan findings that billions in U.S. capital have flowed to blacklisted Chinese firms.
International allies are also moving. In January 2025, the European Commission issued a non-binding recommendation encouraging member states to screen outbound investments in strategic tech sectors. As of April 2024, the United Kingdom is exploring how to mitigate risks from a “very small proportion” of outbound investments that could fund adversaries’ military or intelligence capabilities, and is consulting with G7 allies on a longer term approach.
Together, these steps reflect a growing global consensus: Governments are watching not just who enters their markets, but also where their capital is flowing.
International Outbound Investment Compliance with Kharon
Navigating outbound investment rules demands more than legal review—it requires actionable intelligence. Kharon equips compliance, corporate development, and M&A teams to:- Identify Chinese companies operating in restricted sectors
- Map investment targets to military, surveillance, and human rights-linked programs
- Track updates aligned with U.S. Treasury regulations
- Build and maintain a scalable, defensible risk control framework
Stay ahead of outbound investment enforcement and use Kharon to build a defensible compliance program. Learn more about Kharon’s Outbound Investment solutions here.
