On 9 August 2023 the US President signed Executive Order 14105, authorising the Treasury to review investments in sensitive technologies in countries of concern. Mainland China, Hong Kong and Macao fall within scope. The order covers three technology categories: semiconductors and microelectronics, quantum information technologies and artificial intelligence.
This mechanism differs from export controls. Export controls govern where technology and products go; outbound investment review governs where capital goes. It moves the compliance obligation forward to the investment decision, rather than waiting for a technology export.
Three technologies, two measures
The order uses a two-tier structure of prohibition and notification. Certain transactions in semiconductors and microelectronics and in quantum information technologies may be prohibited; certain AI transactions may require notification. The precise boundary is set by Treasury rules, so companies must classify technology at the early stage of a transaction rather than by broad industry label.
Technology classification cannot rely only on the target’s main business. A cloud services company may fall within scope if its business involves controlled AI capabilities or quantum-related technology. The target’s technical capability, product use and customer base all affect the analysis.
Which transactions attract scrutiny
The review focuses on investments by US persons in entities in countries of concern, including equity investments, convertible debt, joint ventures, greenfield investment and arrangements that may amount to substantive control. The test usually includes whether the transaction is “knowingly” connected to controlled activity, and whether US persons participate in decisions, receive information or provide support.
Indirect paths are easily overlooked. Investments made through third-country funds, offshore structures or nominee arrangements may still be caught where US persons play a substantive role. Transaction structures should treat investment review as an independent variable, not only tax and exit efficiency.
Compliance steps
First, establish pre-transaction technology screening mapping the three categories to business lines. Second, identify US persons, including fund LPs, directors, officers, advisers and employees, and assess their involvement. Third, inventory existing investments, separating prohibited, notifiable and clearly unaffected projects. Fourth, include review conditions, termination rights and cost allocation in transaction documents. Fifth, monitor post-investment changes in target technology and business that may alter the original analysis.
For technology companies with both Chinese and US resources, investment review and export controls often overlap. A single transaction may trigger both, and timelines should be planned together.
For cross-border investment and transaction structures, see our multi-jurisdiction compliance service; for export controls and item classification, see export controls; for financing and equity arrangements, see financing and equity.
This article is based on US Executive Order 14105 of 9 August 2023. It is for reference only and does not constitute legal advice.